Four key actions to strengthen respect for human rights in supplier relationships
How can companies work with suppliers to improve respect for human rights in their supply chain?
For many companies, some of the most important human rights risks and impacts arise from activities in the upstream value chain. Collaboration with suppliers is thus key to identify and address the relevant issues. When implementing human rights due diligence (HRDD) as outlined by the UN Guiding Principles on Business and Human Rights (UNGPs), companies are required to follow a shared responsibility approach with suppliers. This implies establishing long-term supplier relationships based on trust and mutual engagement, rather than exiting business relationships whenever adverse impacts are uncovered.
In the following, we explain how you can implement a shared responsibility approach with suppliers and propose four key action areas to strengthen respect for human rights in supplier relationships.
1) Empower procurement staff to leverage your Supplier Code of Conduct (SCoC)
Your SCoC can be an important entry point for an honest and transparent dialogue about human rights with suppliers. However, in many cases the SCoC is just one of too many documents suppliers receive, sign and never really look at. To make the most of your SCoC and ensure it has the desired positive impact, your procurement or supplier management staff needs to be trained appropriately. Empower your staff to use the SCoC as a basis for a more in-depth conversation about human rights, to jointly identify potential and actual risks with suppliers and explore opportunities for collaboration to address the identified issues.
As part of the human rights training of your procurement staff, we recommend you cover at least the following topics:
What exactly does your company’s own commitment to respect human rights entail, and what are your expectations vis-à-vis suppliers?
How can your procurement staff address human rights issues with suppliers? What key questions should they ask and what discussion points or priority topics need to be on the agenda?
What are the advantages for your suppliers to implement HRDD or improve respect for human rights? How do they benefit from it?
How can your procurement staff explore opportunities for collaboration with suppliers? How can they explore suppliers’ human rights priorities and how your company can support them to address risks and generate positive impact?
How can your procurement teams be the “eyes and the ears” on-site when visiting suppliers?
2) Align contractual clauses with the spirit of HRDD: collaboration, not blacklisting
Often, human rights clauses in traditional supplier contracts are more fit to managing legal and reputational risks to the buyer company than to improving human rights outcomes for people in the supply chain. Traditional clauses may stipulate expectations of full compliance from the supplier and allow the buyer to unilaterally cut ties in case negative human rights impacts are identified.
This contradicts the key tenets of HRDD, which require companies to collaborate with suppliers to jointly identify and prevent risks and address impacts on people when they occur. To introduce responsible contracting and align contractual human rights clauses with the spirit of HRDD, make sure that in your agreements with suppliers you:
jointly commit to cooperate in implementing human rights due diligence (HRDD);
allow for continuous improvement and corrective actions rather than asking supplier for guarantees of perfect compliance with human rights requirements;
jointly commit to providing remedy to victims if an adverse impact occurs (rather than unilaterally suspending payments or canceling orders);
encourage suppliers to pass on the spirit of HRDD to their own suppliers and subcontractors;
commit to supporting your suppliers to address potential and actual issues related to human rights and working conditions;
commit to adopting responsible purchasing practices that can enable respect for human rights by the supplier;
commit to only stop the business relationship as a last resort and to consider unintended negative consequences on people to ensure responsible exit.
More information on how to move from traditional contracting to responsible contracting is provided by the Responsible Contracting Project.
3) Implement responsible purchasing practices
Buyer companies’ purchasing practices may make it difficult for suppliers to uphold their human rights commitments. For example, short lead times might cause more overtime for factory workers, low prices may make it difficult for supplier companies to pay living wages, and late payments to suppliers may lead to delayed wage payments of workers.
To achieve improvements in suppliers’ human rights performance, it is thus crucial that buyers adopt responsible purchasing practices. The Common Framework for Responsible Purchasing Practices CFRPP has developed five core principles of what this entails:
Integration and reporting: engage in a dialogue with your supplier to understand how your current purchasing practices may have negative impacts on human rights at the suppliers’ side. Ensure top leadership commitment to improve your own purchasing practices (e.g. integrated in your human rights policy commitment).
Equal partnership between buyer and suppliers: engage in a respectful sourcing dialogue to identify win-win situations for both the buyer and supplier company (e.g. improved working conditions can lower factory workers’ turnover rates, reducing HR / training costs, improve quality and thereby production costs), and share the responsibility to improve working conditions.
Collaborative production planning between the purchasing company and suppliers (e.g. increasing forecasting accuracy; balancing orders; purchasing company taking responsibility for delays caused by missed deadlines on their part). Make changes only based on mutual agreement.
Fair and transparent payment terms that do not place a disproportionate burden on one party (e.g. payments are made in full and on time, mutually agreeing on reasonable penalties).
Sustainable costing: the prices paid by your company shall cover all costs of production. They should reflect and support fair salaries and wage increases of factory workers as well as costs for sustainable production (e.g. implementing a costing strategy that supports increased wages to reach a living wage).
4) Support suppliers’ capacity building
A close and trustful relationship with suppliers allows you to understand their main challenges and limitations in implementing sustainability requirements. As part of your dialogue on human rights, you can jointly identify which support your supplier may need to overcome the challenges and make sustainable improvements. For example, you can share good practices with suppliers or provide practical guidance on how to implement the requirements of your SCoC (as done e.g. by ABB in their Supplier Code of Conduct – Implementation Guide).
As a company, you don’t need to build your suppliers’ capacity on your own. Voluntary sustainability initiatives (such as Fairtrade or amfori BSCI), multi-stakeholder / sectoral initiatives or civil society organizations (such as the Centre for Child Rights and Business) and international organisations (such as the ILO) can be competent partners that offer relevant training for your suppliers.
More insights on how to implement a shared responsibility approach to respecting human rights in your supplier relationships can be found in question 7 of our latest Q&A for companies: “Certifications, social audits and supplier management tools: What is their role in companies’ human rights due diligence?”