This post is by Ruth Chambers, senior parliamentary affairs associate at Greener UK, and Caterina Brandmayr, senior policy analyst at Green Alliance.
Over the past few months, we have become acutely aware of just how important supply chains are to our lives, as businesses across the UK are working in extremely demanding circumstances to maintain important supplies of food, water and medical equipment.
Much of this work usually takes place behind the scenes but the pandemic has made us think more about where our essential goods and services come from and who may be involved and affected along the way.
Impacts on human rights and environmental protections in supply chains are not always visible to consumers. Last week, EU Justice Commissioner Didier Reynders announced plans to tackle this. The European Commission will come up with a legislative proposal by 2021, requiring companies to ensure that human rights and environmental goals are respected by their suppliers and partners.
The proposal follows a study which stressed the need to address human rights abuses and polluting practices through more responsible corporate governance. It revealed that not many businesses are undertaking due diligence and, among those that do, many don’t assess all their social and environmental impacts, nor do they consider their full supply chain. This is also reflected in previous analysis of supply chain practices: less than half of businesses surveyed assess their forest-related risks, 60 per cent reported oversight on water risks and, while 52 to 68 per cent assess their direct electricity emissions, only 18 per cent assess those generated upstream in their supply chain.
Importantly, the European Commission’s study found that most business respondents agreed that legislation could be beneficial: the cost to companies would be relatively low and legislation would help responsible businesses by levelling the playing field. The detail of the new law is yet to be etched out and will be subject to public consultation before firm plans are put forward in 2021.
Environmental and human rights due diligence really matters
From food to electronics, from construction to cars, there are large environmental impacts embedded in supply chains. Around 80 per cent of global deforestation is a result of agricultural production. Buildings and infrastructure often make use of cement, whose production is estimated to have generated eight per cent of global greenhouse gas emissions in 2018. An average smartphone contains 100g of minerals, but sourcing it requires 30kg of rock to be mined.
Impacts often arise across national borders. For example, nearly half of emissions linked to UK construction arise abroad. Many of the products we consume on the UK market – particularly the soya used by the meat and dairy industry, as well as palm oil, cocoa, pulp and paper – are directly or indirectly connected through the supply chain to deforestation and human rights abuses in some of the most precious and biodiverse ecosystems across the world, including the Amazon.
The precarious nature of supply chains was highlighted last week when Indonesian forestry policy looked set to lurch towards environmental disaster, but thankfully the Indonesian Environment Minister has confirmed that existing protections will remain.
Resilient supply chains can help to futureproof business
Limited visibility of risks in their operations is one of the main reasons why businesses underinvest in climate and nature friendly solutions. Failure to address those risks can lead to substantial costs, including from disruption, reputational damage and regulatory changes. For example, the Carbon Disclosure Project estimates that financial impacts for 125 of its large corporate members and their supply chains could be as much as US$1 trillion.
Due diligence can help businesses to make those risks more evident and address costs associated with supply chains. This will minimise exposure to future shocks and improve consumer confidence in products. But it will also promote business innovation and investment in the solutions that will be in high demand as global economies act to prevent climate change and environmental degradation. Working with businesses to better understand and address supply chain risks should be a priority for the government as it considers how best to build a resilient post-Covid economy.
The key will be a mandatory not voluntary mechanism across all sectors, with sanctions, enforcement measures and access to remedy. We must learn lessons from the reporting requirement in the Modern Slavery Act which requires large businesses to report on modern slavery and human trafficking in their supply chains, but does not require any action to address these harms, with reporting often piecemeal and cursory.
What government must now do
The government has begun to think about these issues. Last July it set up the Global Resource Initiative, a group of leading businesses and environmental groups which is considering how to reduce the climate and environment impacts of UK supply chains. In March, it recommended that the government should introduce a mandatory due diligence obligation on companies that sell commodities, and derived products, in the UK that contribute to deforestation, and to ensure that similar principles are applied to the finance industry.
Due diligence has emerged as a ‘missing piece’ of the new environmental governance framework that will be introduced by the government’s flagship Environment Bill. With the bill’s parliamentary passage currently paused, the government has the opportunity to consult on how it might enable progress to be made on this vital element of governance in supply chains.
It has a ready made chance to amend the legislation by accepting a new clause, tabled by Kerry McCarthy MP. Seizing this opportunity to legislate would be a strong signal that it wants to build back a futureproof economy and ensure the UK maintains its reputation as a leader on business and human rights.
