A Primer
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How is contracting relevant to HREDD?Contracts are a mechanism for allocating risks, rights, and obligations between the parties—the buyer (and/or its representatives) and the supplier. How supply contracts are negotiated, the terms they contain, and their performance—how buyers and suppliers play out their contractual relationship— affects how well the human rights of workers are protected and how environmentally safe their communities will be. Used properly, contracts can function as a key component of HREDD.
Most traditional contracts rely on unrealistic promises of perfection and often place the supplier in breach of contract on day 1; these are out of sync with the HREDD approach. In addition, traditional contracts are generally focused on mitigating company risk, which is distinct from HRE risk. Furthermore, traditional contracting overlooks the buyer’s responsibility to manage its own actions and behaviors in such a way that supports—rather than undermines—positive HRE outcomes, while HREDD recognizes that a buyer’s own behavior, including its purchasing practices, can significantly contribute to adverse impacts. Finally, traditional contracts prioritize contract remedies that flow between the parties—not to victims—such as suspension of performance or payments, rejection of goods, immediate termination, and money damages, while HREDD requires that the parties (buyer and supplier) provide for, or cooperate in providing, remediation to the adversely impacted stakeholders. For these reasons, traditional contracts are often used to allow buyers to contract out of their HRE-related responsibilities instead of discharging them. 
When it comes to managing HRE risks, then, HREDD places cooperation, prevention, and remediation far ahead of termination—precisely the opposite of what is achieved through traditional contracts. And since, as discussed below, HREDD, and more specifically, effective HREDD, is now becoming a legal requirement for many companies through new legislation, the inconsistency between traditional contracts and responsible, due diligence-aligned contracts should matter to investors.
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