How to Achieve an Inclusive Due Diligence?
Ahead of the open webinar on 10 March, we discussed about the challenges of implementing inclusive due diligence and the impact of the upcoming EU legislation with:
Estelle Levin-Nally
Founder of Levin Sources
Fabiana Di Lorenzo
Senior Manager, Levin Sources
Stefan Crets
Executive Director, CSR Europe
From your experience how would you define inclusive due diligence? Could you give us some examples from your work in artisanal mining?
Fabiana Di Lorenzo: Inclusive due diligence means moving away from risk avoidance towards a new way of working in which suppliers are meaningfully and continuously engaged and supported to improve, and vulnerable groups are proactively included in rather than excluded from markets. In the context of artisanal mining, inclusive due diligence can take the form of engagement with local NGOs to gather incident reports about the sourcing of minerals. This exercise, which we implemented together with a client, helped us collect valuable data on risks from sourcing areas and to design mitigation measures with local NGOs. These included providing support to local NGOs on how to report new incidents in a credible and meaningful manner and cooperating on remediation activities to support the most vulnerable people.
Stefan Crets: The purpose of supply chain sustainability and human rights due diligence should not be aimed at reassuring downstream companies or customers. Its objective should be, instead, to improve the living conditions of all the people involved in the sourcing and transformation of raw materials. Inclusive due diligence is a collaborative process in which all actors involved in the supply chain (companies, sector associations, public authorities, civil society, etc.) work together to “not only raise the bar but raise the floor too” – as mentioned by the Chair of Solidaridad, Ms. Mariam Dao Gabala, at our European SDGs Summit 2020 - to protect the most vulnerable actors and communities in the Global South.
The COVID-19 pandemic has laid bare the vulnerability of many actors across value chains. In your opinion, what are the key elements of effective and inclusive human rights due diligence?
Estelle Levin-Nally: To be effective you must understand the risk profile of your suppliers very well, and monitor how that is changing, and you must be willing to work with your suppliers to help them navigate their changing situation. Transparency and cooperation will make your supply chains more resilient. One basic element of inclusive due diligence is trying to understand how a crisis is impacting your suppliers. For example, last year the World Bank funded research effort on the impacts of COVID-19 on ASM communities. We produced a series of blogs on the impact of COVID on ASM in Mozambique, DRC and in Zimbabwe that can give you a snapshot. Companies can use these types of resources to make sense of how a supplier’s operating environment and risk profile are changing and adjust their risk mitigation measures accordingly.
In terms of inclusivity, it is important to try to reach out to as many supply chain stakeholders as possible, so that you know what impacts COVID (or any other disruptions) are having on people's access to rights. There are interesting solutions that can support this endeavour. In addition, as our colleague, Olivia Lyster, pointed out to us it is important to promote the understanding that women and men experience different impacts and challenges in their roles in mineral supply chains, and that they are impacted differently by disruptions like COVID.
Stefan Crets: The COVID-19 pandemic has highlighted the vulnerability of global supply chains. As a result, companies are starting to diversify their supply chains and relocate parts of their sourcing to mitigate future risks. However, these trends create serious risks for already fragile regions and producers. Recovering fully from the effects of the pandemic will require a deep change, towards a value chain that safeguards the environment, human rights and is inclusive towards local communities. To achieve this, it is important to create a level playing field AND foster impact-oriented actions through a smart mix of policies in line with the UNGP. We will need to confront some difficult and sometimes opposing challenges and contradictions: e.g. bringing back parts of our supply chains and purchase more locally or bringing parts of our production to other countries to upgrade local value chains. There is no one-size-fits-all response, hence the importance of a continued dialogue with stakeholders and clear corporate commitments towards continuous improvement in sustainable development.
From your experience, what are the main challenges that companies face when trying to implement responsible sourcing practices along their supply chains?
Fabiana Di Lorenzo: There are a few challenges but to me, these are the top three. First, the lack of buy-in from senior management and the compliance department. For instance, I am particularly surprised when IT solutions to do due diligence are turned down from fear of making roles redundant instead of grasping that such solutions would put people in the condition of doing their job well, i.e. go deeper, engage with suppliers in a more creative and meaningful way, be more responsive, operate more at the strategic level. Second, the limited time available especially when companies are small; this goes along with limited human and financial resources. Third, having a poor network of stakeholders operating in responsible sourcing and ultimately trying to navigate this challenge on their own.
Stefan Crets: Many companies, industries, and public authorities do not yet have a comprehensive understanding of the sustainability performance, opportunities, and social and environmental impacts of their supply chains. In addition, companies often struggle to understand where to start and how to go beyond a mere tick-the-box exercise or a risk avoidance approach when doing due diligence. Another challenge I would stress is the need for collaborative efforts, not only to mitigate potential negative effects but to proactively seek opportunities for innovation and mutual growth. Purchasing practices should be more closely interlinked to the R&D efforts and directions of companies and deliver on the sustainability agenda of buyers and suppliers.
Will the upcoming EU legislation be enough to ensure a positive impact on producers and the environment?
Estelle Levin-Nally: No, unfortunately, it is not. Legislation can draw in the companies that have yet to engage with the responsible sourcing agenda. However, inclusive due diligence can only achieve its full potential for positive impact when there are collective endeavours by industry and the full engagement of public bodies and civil society. For example, any legislation must be accompanied by serious and meaningful supporting activities by industry associations, such as the development of tools and guidance for specific sectors, minerals or supply chain tiers, capacity building and awareness-raising to educate members in what inclusive due diligence is and how it can add value for the business, or support for the adoption of software solutions which make supply chain management more efficient and effective. In addition, efforts must be made to improve governance, policy and capacity in producing countries to make responsible business conduct more feasible and thus more likely. This includes anti-corruption and accountability measures, regulatory reform, institutional strengthening (of government and civil society), and support to producers to formalise and professionalise their activities, including access to finance.
Stefan Crets: While the upcoming EU legislation will undoubtedly contribute to the creation of a level-playing field in Europe, alone it will not be enough to create an impact on the ground. To be impactful and achieve its ambitious goals, this new legislation should be part of a broader policy framework, made of a smart mix of mandatory and voluntary measures aiming at tackling the root causes of human rights violations and environmental issues in international supply chains. The current approach of the EU institutions, instead, seems to focus mostly on the creation of new mandatory disclosure and liability requirements for companies. However, by focusing only on individual company behaviour, this approach risks overestimating the level of actual influence and leverage that companies can have when faced with complex global issues such as child labour, corruption, poverty, etc.
In addition, this approach might also lead to the creation of several potential unintended consequences, such as, for instance, companies’ avoidance and disengagement with high-risk suppliers/regions as well as the risk of transferring the costs of compliance and auditing to producers. This would worsen the already difficult situation of many small farmers, artisanal miners, and other vulnerable groups, undermining the very objectives of the EU policymakers. To prevent these issues, a more collaborative approach is needed: the new EU legislation should be coupled with strong accompanying measures aiming at fostering the proactive engagement of all stakeholders (companies, EU and national policymakers, civil society organisations, etc) towards practical solutions at the local level. An example could be the creation of European Sector Dialogues & Alliances, multi-stakeholder sectorial initiatives that aim to monitor corporate respect for human rights, provide a platform for dialogue and support policy coherence as well as collaborative multi-stakeholder action.
What policy framework is needed to unlock investment for inclusive due diligence?
Estelle Levin-Nally: Inclusive due diligence is the core opportunity for ensuring due diligence really does lead to the fulfilment of human rights. But intentionally including fewer professionals or more vulnerable suppliers feel counterintuitive if your goal is to reduce risk in your supply chains. I think it is really about applying a societal rather than individualistic lens. If you are managing risk just for the sake of yourself, it’s obvious that you might seek the easy route and just walk away from a problem; but if you are looking to manage risk for the sake of yourself and others, then the right route is to confront the problem and tackle it together. This aligns with the broader shift in business from shareholder to stakeholder capitalism, which is where we need to get to if we are going to protect human rights and achieve the 2030 Agenda for Sustainable Development.
Understanding this as a starting point, then, frameworks for investments in inclusive due diligence are naturally collaborative, where financial structures blend donor (multilateral, government, philanthropic) money with private money. The donor money is used to strengthen the public and third sectors and subsequently lower risk in the operating environment for business; whilst the private money is used to allow the industry to innovate solutions that benefit sectors by working together across supply chain tiers in precompetitive platforms and along supply chain tiers within individual supply chains. For instance, when a refiner sources from ASM and works with an NGO partner to support the ASM to improve their health and safety measures, to upgrade their mining methods, to tackle issues of child labour, and this effort can leverage donor money to provide additional services to the miners. We are seeing a plethora of initiatives in the minerals sector which combine these private and public investments, such as:
Moyo Gems in Tanzania (Tanzania Women Miners Association, Pact, nineteen48, Anza Gems and Everledger)
The Cobalt Action Partnership in DRC (Global Battery Alliance, RMI, Unicef, CSR Europe, IIED, and others)
Mutoshi Pilot Project in DRC (Trafigura, Chemaf, Kumi Consulting, Pact)
Cobalt for Development in DRC (GIZ, Volkswagen, BASF, BMW Group, Google, Samsung Electronics, Samsung SDI)
Zahabi Safu project in DRC (CVCFG) (USAID, Global Communities, Levin Sources, and various refiners and jewellers)
Scalable Trade in Artisanal Gold in Burkina Faso (Artisanal Gold Council, Resolve, Responsible Minerals Initiative, Ford Motor Company, ABB, AG SARL)
Just Gold in DRC (Impact, Global Affairs Canada, Apple, Humanity United) and Ivory Coast (Impact, European Union, and a European gold refiner)
Solidaridad Gold Programme in Uganda (Fairphone, Philips, Solidaridad, Fairtrade, UNICEF and Hivos/Stop Child Labour)
Minas y Cuevas in Honduras (the Alliance for Responsible Mining, European Partnership for Responsible Minerals, and a European Gold Refiner)
Stefan Crets: Several companies are trying to address the human rights and environmental challenges in their global supply chains through business-led initiatives and projects. However, the lack of internal and external financing options often hampers the development of such initiatives and prevents them from going beyond the pilot project phase. To unlock appropriate capital to support and scale up such initiatives, alternative forms of financing are needed. Development agencies and donors can play a crucial role in this (e.g., by providing financial and capacity-building assistance through development cooperation, impact investment, etc.). One option could be the creation of measures to help companies to access existing and new financial mechanisms – through, for instance, a European one-stop-shop - to use public and private investments to scale up collaborative efforts in the supply chain, with a specific focus on raw material sources and conflict minerals. The role of policy is not only to set the legal framework but to connect the dots between the different policy domains involved (Trade, Justice, International Partnerships, Economy, etc.) and between the different stakeholders. This is why we have made a strong plea for European Sector Platforms – and practice-oriented Alliances – where the effort of all stakeholders can be much more coordinated, aligned, and funded.
In your opinion, what does the business need to do for an inclusive due diligence process that has an impact on the ground?
Fabiana Di Lorenzo: Companies should use due diligence tools to gather data and start a meaningful conversation with their suppliers to jointly ensure a responsible supply chain. For instance, if you know that your minerals come from one country, you will engage with civil society organisations, international organisations, and public agencies on the ground to find out more about the risks, how to manage them, and how to leverage opportunities for joint efforts. Once you identified a public practice that prevents responsible sourcing, you can join forces with other companies and suppliers to bring the issue to the attention of the competent authority.
Study on European Sector Dialogues on human rights and decent work in global supply chains
Stefan Crets: What Fabiana says is exactly what we are trying to do in Drive Sustainability, the supply chain sustainability initiative of 11 car and truck makers in which shared due diligence and risk assessments of the sourcing of raw materials are the starting point of collaborative action. Besides building a solid due diligence framework, companies should, therefore, work at a sectorial level with competitors and throughout the value chain to maximise their impact and be a driver for change at the local level. Over the past years, the development of responsible and resilient supply chains has been on the agenda of different industrial sectors (e. g. the automotive industry, chemicals, pharmacy, steel, consumer goods, textile, mining, different raw materials sourcing, etc). In general, the purpose of these initiatives is to promote production and trading models that deliver better social and environmental outcomes with respect to the UNGPs and general sustainability frameworks. They incentivize positive change amongst actors on the ground and help build their capacity to adopt new practices. A study that we did for the German EU Presidency, involving 10 industry initiatives, revealed that the point to be strengthened is not that much the assessment aspect, but the impact-oriented action and capacity building.
How can partnerships/collaborations contribute to achieving sustainable and inclusive supply chains?
Fabiana Di Lorenzo: Partnerships and collaboration are the first steps towards inclusive supply chains. If you sit in your office and send out due diligence documents to your suppliers and review them from the solitude of your desk, it will be hard pursuing inclusive due diligence. And it is not exciting either if your only task is reviewing paperwork. I would say pick up the phone, collaborate with your suppliers on supply chain initiatives. This collaboration can be in the form of joint training for your suppliers and learning about the context in which they operate, or it could be about working together to mitigate the risks of forced labour at a specific stage of the supply chain and how to support the victims. Or you could also call industry initiatives to find out how they are helping their members and offer suggestions.
Stefan Crets: Solving the complex global challenges currently present in global supply chains (e.g., child labour, informal work, corruption, etc) requires a holistic approach. This means that all actors (EU and local policymakers, local companies, civil society, etc.) should play an active role, both individually, within their sphere of influence, and together, in coordination and alignment with each other. Partnerships/collaborations are, therefore, essentials to ensure a continuous dialogue and create synergies between different projects/players. European Sector Dialogues & Alliances could provide a platform to respond to these challenges by installing a structured multi-stakeholder approach geared towards practical action and improvement. Their potential mandate could include the following:
supplement legislation with sector guidelines;
provide systematic monitoring of the current risks and HRDD performance by companies and stakeholders;
offer a platform for a genuinely solution- and collaboration-oriented dialogue;
develop or expand alliances or collaborative platforms that engage companies and stakeholders to boost local capacity-building and develop and implement scalable and measurable solutions;
explore and advise on policy (coherence) improvements to increase human rights and sustainability impacts.
If you would like to take part in the dialogue on inclusive due diligence with CSR Europe and Levin Sources, make sure to attend the open webinar on 10 March at 10.00-13.00 CET. Registrations will close on 5 March.
For more information:
Visit our Community of Practice on Sourcing & Circular Use of Raw Materials
Contact Elisa Casazza,
Senior Project Manager