Due Diligence

Due Diligence at a Glance

The concept of Due Diligence describes the process by which businesses are expected to identify, prevent, mitigate, and account for adverse corporate impact on human rights and the environment.

In this section you will find answers to questions around the concept of Due Diligence and how it affects the industry. Stay up to date with the latest news, best practices, current events and trainings around the topic of Due Diligence.

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What is Human Rights Due Diligence and where did it come from?

Human Rights Due Diligence (or HRDD) emerged as a concept in the early 2000s as a response to growing concerns about the human rights impacts of business activities. It describes the process by which businesses are expected to identify, prevent, mitigate, and account for adverse corporate impact on human rights and the environment.

Rooted in the 2011 UN Guiding Principles on Business and Human Rights (which recognise the business responsibility to protect human rights) and also reflected in the ILO’s MNE Declaration, Due Diligence is now also finding its way into national legislation as states look to increase corporate accountability and transparency in global supply chains.

Led by the European Union, mandatory Human Rights Due Diligence (mHRDD or mHREDD if including the ‘environmental’ dimension) will soon become a legal requirement for EU companies doing business internationally. This includes legislation on forced labour, eco design, green claims and the due diligence directive. Other governments are also mandating elements of due diligence both in law and in national guidance issued to companies under their jurisdiction. For example, the United Kingdom has already introduced a Modern Slavery Act which requires companies to report on their efforts to address modern slavery risks in their supply chains. Likewise, in May 2019, the Dutch Senate adopted the Child Labor Due Diligence Law, which requires companies to investigate whether child labor is present in their supply chains and take appropriate measures to prevent it.

What drives Due Diligence and how has it become a key topic for businesses?

Business operations can have a significant impact on the human rights of employees, consumers, and surrounding communities, regardless of their location. These could be favorable, like enhancing job opportunities and public services, or unfavorable, such as environmental pollution, worker exploitation, and eviction of communities.

For decades, local communities, policymakers and international institutions have debated the responsibility of companies in managing the adverse impacts, and the role of governments in preventing them.

Why has Due Diligence become such a discussed topic?

Due Diligence has become widely discussed in recent years due to the increasing complexity and risks associated with business activity, and the need to ensure that these risks are managed effectively.

Due Diligence is increasingly recognised as a key part of effective risk management, helping businesses identify and mitigate potential adverse impacts before they manifest or grow. This has become even more important in the digital age, which has expanded access to information about the realities (and particularly, the negative impacts) of business operations globally.

The growth of international trade and investment, together with the increasing length and complexity of corporate supply chains, has made Due Diligence even more critical. Besides the need for companies to ensure that they are compliant with local laws and regulations in different countries, Due Diligence ensures human and environmental rights across national legislations.

Regulatory bodies have also become increasingly proactive in compelling companies and individuals to conduct Due Diligence before making any significant investments or transactions.

What is mandatory Human Rights Due Diligence, and how could it contribute to the industry?

In the global garment industry, mandatory Due Diligence means that brands have a legal obligation to conduct thorough evaluations of their supply chains, to detect and prevent adverse human rights impacts and ensure compliance with relevant laws and standards. It also ensures brands can be held accountable for any violations within their supply chains.

For an industry long plagued by poor working conditions, low wages and labour rights abuses, human rights Due Diligence could bring significant benefits to the garment sector, as brands become both more thorough and more transparent in managing their supply chain impact. While the core responsibility for Due Diligence (and legal liability for adverse supply chain impacts) lies squarely with brands, successful implementation requires close collaboration with both suppliers and their employees and workers, so as to enhance working conditions sustainably and develop effective monitoring and grievance handling systems (to provide ‘remedy’ for problems that do arise).

Moreover, environmental Due Diligence is also a vital part. For example, brands should work with their suppliers to identify and mitigate environmental risks in their supply chains, such as pollution, deforestation, and greenhouse gas emissions. By involving suppliers and workers in the process, brands can gain a better understanding of the environmental impacts of their supply chains, and work with suppliers to develop and implement solutions that reduce those impacts. Effective monitoring and reporting systems are also essential for ensuring that brands can track and measure progress towards reducing their environmental footprint and meeting sustainability goals.

What is the expected impact of mandatory Due Diligence on the industry?

Once rolled out, mandatory Due Diligence is expected to both increase human rights standards in corporate supply chains and boost transparency for consumers to make more informed purchasing decisions. As consumers become increasingly ‘ethical’ in their buying behavior, companies that are committed to protecting human rights may stand to benefit from a growing customer base and market share.

Currently, companies that invest in ethical practices often face higher costs than their competitors who exploit labour and the environment. Mandatory Due Diligence would ensure that all companies are held to the same ethical standards, creating a more level playing field for business.

The garment and textiles industry is increasingly shifting from a compliance -or tick-the-box approach- to Due Diligence. Some typical measures industry currently takes up to address human rights and environmental concerns in supply chains are listed below:

Developing codes of conduct: Many clothing brands and their suppliers have developed codes of conduct that establish ethical standards for their supply chains. They typically include provisions on labour rights, environmental protection, and responsible sourcing.
Conducting audits: Social and environmental audits (covering working conditions, worker rights and environmental standards) are already a common and widespread method brands employ to ensure their suppliers comply with corporate codes of conduct and relevant laws and standards. In the new Due Diligence landscape, questions of audit effectiveness will likely come to the fore, i.e. not only whether audits were conducted but whether they resulted in concrete results that improve conditions and standards. An audit that reveals adverse impacts and paves the way for a collaborative improvement process is more beneficial, for example, than a ‘clean’ audit that hides or neglects human rights risks.
Establishing partnerships: Some garment brands are partnering with civil society organizations, NGOS, governments, local communities, trade unions and other stakeholders to gain insights into the issues and concerns related to their supply chains, and to develop strategies for addressing and implementing due diligence measures.
Incorporating sustainable practices: Many textile companies are adopting sustainable practices, such as using organic and recycled materials, reducing waste and emissions, and promoting energy efficiency.
Participating in industry initiatives: Some textile companies are participating in industry initiatives that promote ethical practices and responsible sourcing. For example, the Sustainable Apparel Coalition is a collaborative effort among industry stakeholders to reduce the environmental and social impacts of apparel and footwear products.

While these measures are part of the compliance approach, they prove to be valuable contributions towards Due Diligence. One key characteristic is that the brands will not be doing these on a voluntary basis but the laws require them to and will offer different forms of accountability.

Risk analysis: Establishing procedures to identify human right and environmental impacts, both potential and in in practice, across the value chain
Building systems to address these risks: Take appropriate steps as part of a system to reduce identified risks in a comprehensive way. The system shall address strategically identified risks and not be based on individual issues
Mitigating adverse impacts: Should potential risks turn into negative impact these need to be mitigated. This may include setting up new mechanisms with the stakeholders involved
Proving effectiveness. As the above-mentioned steps move away from individual and partial solutions towards systems, the effectiveness after they have been put into place needs to be evaluated. If shortcomings are identified these systems need to be redesigned.
Reporting: Measures and system put in place, need to effective and they claims need to validated. This means brands shall provide more data to prove the success of the measures and include it in their reporting. This goes hand in hand with effort to reduce false sustainability claims.

Responsible Business Helpdesks

The Responsible Business Helpdesks (RBH) are local helpdesks that offer tailor-made information, awareness raising and advisory services around due diligence to local producers, associations and service providers.

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Moving the needle: Creating the future together | Online Seminar 8 | This online session brings together individuals advocating for stronger language on purchasing practices within due diligence legislation to discuss: what does legislation as it stands require and why? Is it enough? And if not, what can still be done?

Events on Due Diligence

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2024 Traceability & Sustainability Conference

2024-07-23 00:00:00+07:00 to 2024-07-24 23:59:59+07:00 UTC+07

Michigan, United States

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Due Diligence

Due Diligence at a Glance

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