According to a study ordered by the European Commission, audits continue to be one of the preferred instruments for human rights and environmental due diligence. The study, published in February 2020, also reveals that currently only one third of all businesses have effective due diligence processes relating to environmental and human rights impacts.
As part of its evaluation of whether due diligence should become mandatory for businesses operating in the EU, the European Commission has conducted a study of current industry practices related to due diligence. In this context, the term “due diligence” is used to refer to the set of processes that businesses use to identify, prevent and mitigate negative impacts on the environment and on human rights.
The study revealed that currently only one third of businesses undertake due diligence for human rights and environmental impacts. More worryingly, more than 50 % of the business that conduct due diligence only do so for the first tier of their supply chain – even though reports have shown that human rights violations typically occur at the lower tiers of the supply chain (e.g. ILO Report). Even among large companies, there is still a majority of companies that does not undertake human rights and environmental due diligence, leaving them exposed to reputational risks and compliance risks.
Audits continue to play a key role
The study indicates that the most frequently used instruments for due diligence for their own operations are training on human rights or environmental impacts (69 %) and codes of conduct (69 %), followed closely by audits (62 %). Codes of conduct, and audits, respectively, were also the top two actions for due diligence in the upstream and downstream supply chain.
The results indicate that many companies who implement a code of conduct rely upon audits to verify compliance with the code, both within their own operations as well as in their supply chain.
As explained in a previous article, we recommend sticking to good industry practice. That means:
- Using international standards, rather than developing custom checklists
- Do not rely on self-assessments
- Joining industry sector initiatives when available
- Only trust audit reports from APSCA-recognized audit firms
- Implement documented procedures for processing audit results, keeping records of both the corrective actions taken by suppliers as well as your own decision-making regarding the relationship with the supplier
The full study of the EU Comission is available for download here.
How DQS can support your Due Diligence:
As an independent audit and assessment provider, we can support your due diligence processes with the following services:
– Gap analysis and validation of your due diligence procedures
– Human Rights Assessments
– Social and environmental compliance audits
– Supplier audits across the globe
– Training and capability building
– Verification of sustainability reporting