- June 2025
Due diligence into human rights harm is by no means a new topic. However, the evolving EU regulatory landscape creates new requirements for transparency in global supply chains to aid both reporting and due diligence obligations across the full breadth of ESG (Environmental, Social and Governance) topics. Despite uncertainty in regulations, reputational risk from causing ecological and social harm is a growing concern for corporates.
With sustainability at the core of business strategy, how mature is your organization in managing social and human rights risks?
The 'S' in ESG
The social topics articulated in the ESG framework (S1-S4) draw-in focus on labour practices, human rights issues, and impacts on people and communities in value chains
Where do you stand?
Examine the monitoring systems in your organization to assess fair labour practices and the ethical sourcing of materials and products
Understanding harm
It’s essential to grasp the severity of harm caused as a (potential) result of business conduct, direct or indirect through sourcing practices. Awareness among corporate teams in your organization about the likelihood of occurring human rights issues starts with a concrete understanding of social harm, and a risk-based approach contextualized for the sector, the geographies you operate in and the product portfolio.
Meeting new standards and due diligence obligations
Full visibility and a proactive approach to safeguarding of human rights risk and impact might feel daunting, both due to its complexity to surface data and the sensitivity of topics.
The Corporate Sustainability Due Diligence Directive (CSDDD) introduces new obligations for due diligence, focusing both on human rights and ecological harm. Even considering potential implications of the Omnibus proposal, sustainability (ESG) has become pivotal to reputation, risk management and access to capital. Due diligence also remains the foundation for other sustainability laws, for example the EUDR (EU Deforestation). Pay attention not only to compliance but also to voluntary sector standards and agreements, including IRBC agreements (International Responsible Business Conduct agreements involving partnerships between businesses, trade associations, government, unions and NGOs).
Navigating social sustainability begins with recognizing your organization’s current maturity level. These three pillars will help to gather meaningful insights and gain clarity:
1. Gain insights from your ESG reporting
The Double Materiality Analysis that forms the foundation for the CSRD provides great insights, both on material topics as well as an expanded view on identified impact, risks and opportunities (IRO). IROs related to the ESRS social books, topics S1-4 are directly connected to social issues and human rights risks. Referring to the IRO assessment also gives a view on severity and likelihood, as those are key variables when conducting the IRO assessment.
The CSDDD is part of a broader sustainability regulatory landscape and as such interacts with other regulations, including the CSRD, SFRD, EURD and other national legislations (for example the German Supply Chain Act ‘Lieferkettensorgfaltspflichtengesetz (LkSG)’ and the French Corporate Duty of Vigilance Law ‘Loi de Vigilance’). These other regulations provide valuable insights and can form a stepping stone towards CSDDD implementation.
2. Taking stock: data management and capability
Identify possible gaps by taking stock of current policy, processes and mechanisms for risk identification. A common challenge is the cross-functional approach that is required for full visibility. Therefore, an important question is to what extent you’re able to leverage and match data between global purchasing, supply chain systems and finance. Secondly, get a sense for the level of awareness across functions about the sustainability KPIs for the ESG social topics. Is there a basic understanding of the link between business impact and potential harm?
3. Look at actual grievance cases (current or recent)
Grievance cases and remedy are the ‘last step’ in the due diligence cycle. However, there is a wealth of information there to inform your due diligence mechanisms and to signal potential gaps. It will provide clarity to focus on the most obvious and tangible issues. In a sense working backwards, there is an opportunity there to implement lessons learned to improve standing processes and policies.
Our advice is to ensure a robust approach to due diligence and to take your time to get it right. Do you need help to identify potential gaps or assess the maturity of your organization to meet new obligations? Or, are you looking at a broader people sustainability agenda that encompasses both DEI strategic initiatives as well as social impact?
