What is human rights, environmental and climate due diligence?
According to UN and OECD guidelines, businesses are expected to set up procedures and structures so that their activities do not have a negative impact on human rights. The EU increasingly expects companies to take responsibility for avoiding negative impacts on both the environment and climate. This applies throughout the value chain, and thus, as an example, makes companies co-responsible for how a supplier treats its employees.
All businesses worldwide are expected to strive to comply with the international guidelines. Company size is a consideration, so there is no expectation that you as an SME should be able to solve all challenges in your value chains. However, there is a clear expectation that you address any risks of negative impact on human rights and environment that you are directly associated with, such as through your supply chain.
Even if your company contributes to society in one or more areas, e.g., through your work with the UN Global Goals, this cannot offset negative impacts on human rights, environment and clima in other activities.
The 6 steps of due diligence
The OECD guidelines for business enterprises follow a six-step model. Review them all and you will be on your way to taking a structured approach to addressing human rights and environment in your value chain.
Due diligence is an ever-ongoing process resulting in improvements year after year. The goal is constant improvement and strengthening of the various steps in the process and the process becoming integral to your way of doing business.
The suggestions for practical measures set out in this guide should not be seen as an exhaustive list, as not all will be relevant for all companies or sectors and there may be other measures than those mentioned.
Upcoming legislation for large companies will also affect SMEs:
The EU is about to make it mandatory for the largest companies to show due diligence with regard to human rights, the environment and climate in their value chains. Although the legislation will not apply directly to SMEs, the requirements for large companies are expected to affect smaller companies through their role in the global supply chains. The larger companies are expected to request information from SMEs for their own due diligence process. It is also expected that large companies will be required to help SMEs within their supply chain to live up to due diligence requirements so that this does not have to be tackled in isolation.
Benefits from implementing due diligence for human rights
A vast majority of businesses want to act responsibly and contribute positively to society, but it can be difficult to know where to focus efforts. The process of performing active and systematic due diligence for human rights, environment and clima can clearly demonstrate all the good you are already doing – and identify areas where there may be room for improvement.
Minimise risks
Poor conditions for employees lead to increased sickness absences, reduced work efficiency and high staff turnover. Environmental and climate impacts can threaten your business in the long run. In addition, you may run the risk of human rights violations or serious environmental impacts in your value chain without your knowledge. These violations are serious in themselves.
Create close supplier cooperation
Performing due diligence will strengthen cooperation with your suppliers. Close working relationships with suppliers can make your business more resilient, foster innovative development, streamline production processes, and ensure more flexible product development – all for the benefit of your company.
Meet the expectations of others
Customers, media, employees, suppliers, public institutions, NGOs, and banks are increasingly interested in how company activities affect society, including human rights, environment and clima.
Track changes in legislation
Several European countries have introduced national legislation addressing one or more human rights in recent years. If you supply or buy from one or more large companies, you should consider how their stricter supplier requirements may affect you.
Increase your competitive edge
If you are already performing human rights, environmental and climate due diligence, you can gain competitive advantages in both B2C and B2B markets as well as a strengthened negotiating position.
See the big picture
Documenting how you identify risk and reduce negative impacts on human rights, the environment and clima will increase the awareness of how you take responsibility and contribute to society.
Good advice as you prepare
- Create your own process: Creating a policy is an important tool for setting the direction for your work and ensuring that the company commits to creating effective processes. However, it is not a requirement that you must create this policy right away. If articulating a formal policy feels like an overwhelming task, you may start by formulating a commitment stating that you have embarked on the journey. Once you have gained more insight through step 2, etc., you can return to the task of formulating the formal human rights policy.
- Identify risks for people and environment– not for the company: Normally, a company works to avoid risks to its own business, such as financial, operational or reputational risk. Due diligence, on the other hand, is about an outward-looking approach to risk, such as the likelihood of negative impacts on people, the environment and society that companies cause, contribute to or are directly linked to. Put on your human rights glasses and focus on where and how your activities impact people. This includes your own employees, supplier employees, people in local communities, customers, etc. Do the same when focusing on the environment and climate.
- Take a deep breath: Due diligence can seem overwhelming. Especially if you have many products and different suppliers. Our recommendation is that you take one area at a time, depending on your resources and capacity. This work is a process, and you will continually get better at it. The expectation is that you work with a clear focus and that you can document your choices, but no one expects you to be perfect or in control of all risks from day one.
- Talk to the world around you: Reach out to others and talk about your challenges. Talking to each other makes you wiser.
About this guide
This guide is aimed at small and medium-sized businesses - i.e. companies with 2 to 250 employees, across industries. Human rights due diligence is relevant whether you are in the B2C or B2B market, import, export or have your own production in Denmark.
The purpose of the guide is to help SMEs in their work with human rights, environmental and climate due diligence - regardless of company size and resources. The guide provides inspiration on where to start and how to strengthen your current processes.
The guide has been prepared by Ethical Trade Denmark. A first version of the guide - focused on human rights and targeted at the food cluster - was developed in collaboration with the Danish Agriculture & Food Council and Arla, co-financed by the Danish Business Authority.
The guide may not be modified, reproduced or translated without prior written agreement with Ethical Trade Denmark. The guide may only be used in educational contexts with clear credit to Ethical Trade Denmark, including a clear logo.
