Frequent Company Pushbacks
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Click through to see all 23 frequent company pushbacks and sample responses.
9. How do I explain to my shareholders that I am spending money on measures that are unlikely to accrue to my benefit, but rather that of my suppliers?
Responsible contracting starts with a shared commitment to cooperate in conducting HREDD to identify HRE risks and take affirmative measures to address those risks so that they don’t graduate into an actual adverse impact or HRE harm. The parties should also commit to cooperate to provide remedy to adversely affected stakeholders in the event of an actual adverse impact. That is the HREDD loop: cooperate to identify, prevent, address, and remedy potential and actual adverse impacts, as appropriate. A shared-responsibility, cooperative approach to conducting HREDD should increase transparency in your supply chain, improve the effectiveness of your preventive measures, and, consequently, reduce HRE-related risks to your company and your shareholders, especially in the longer term. This will benefit the company’s long-term stability and should have a positive medium- to long-term financial impact. Finally, now that several jurisdictions are requiring companies to conduct HREDD, doing so effectively will be to your distinct advantage, both reputationally and economically. 10. Are you suggesting that I just scrap all of my contracts and have my suppliers sign new ones?
No. The Core Responsible Contracting Principles can be introduced in your contracts incrementally, according to your HRE-related risk exposure, your capacity, and your ambition for improving the HRE performance of your supply chain. The recommendation is to start by making responsible contracting and due diligence “upgrades” to your contracts with those business partners and suppliers that pose the highest HRE risks and with whom you have more influence and/or larger or more essential (difficult to replace) contracts. 11. How can I be sure that additional support for suppliers is being used as intended, to improve HRE performance?
There are several ways that companies can ensure that their support for suppliers is used for the aims intended. First, the parties can include an open book calculation in the contract to, for example, determine the wage and labor costs that will be covered by a higher price. Second, and alternatively, the buyer can require the supplier to submit documentation after the fact showing that the funds were used for the indicated purposes. 12. How can I disclose supplier relationships without giving away my competitive advantage?
If your competitors are covered by any of the current or prospective legal measures introduced to promote responsible business conduct (e.g., EU Corporate Sustainability Reporting Directive (CSRD), French Duty of Vigilance, LkSG, CS3D), supply chain mapping and disclosure of risks associated with the supply chain will be mandatory for all covered entities (including your competitors). Even if they are not, there are several benefits to a commitment to supply chain transparency. Consumers often care about the conditions under which their goods were produced and where they were made; companies like Patagonia, which is well known for its supply chain transparency, are rewarded by consumer brand loyalty. In addition, employees and investors are increasingly focused on corporate responsibility and transparency, so your disclosure could lead to lower employee turnover and greater investor satisfaction. 13. What role can my contracts play in meeting disclosure requirements?
Due diligence-aligned, responsible contracts can have major informational benefits: Because they are rooted in shared responsibility, partnership, and cooperation—rather than in extraction, one-sidedness, and adversariality—they can serve to gain visibility into and elicit information from within the supply chain. Such information can then be used to meet legal requirements, such as those contained in the CSRD, the EU Battery Regulation, and the various Modern Slavery Acts. Such information can also be used to assess the effectiveness of various preventive measures, as required by the LkSG and potentially the CS3D, or to respond to investigations from US authorities, such as CBP under the US Tariff Act of 1930 or the UFLPA. 14. How am I supposed to change things when my competitors are sourcing more from the same suppliers and not doing HREDD?
If your competitors are covered by any of the current or potential legal measures introduced to promote responsible business conduct (e.g., the LkSG), they will be required to conduct HREDD and will eventually incur the same implementation and compliance costs as you. Outside of these jurisdictions, responsible contracting presents an opportunity for more effective implementation of your own HRE policies and standards, which increasingly matter to your investors, customers, and business partners. Responsible contracting can help to avoid adverse HRE impacts, which are costly, both reputationally and operationally and, increasingly, legally. Your company will also likely benefit from the increased stability, resilience, and reduced disruptions in the supply chain. 15. I have operations in the EU and the US, but they function separately. Why should I adopt responsible contracting principles for my US operation when they are not required under any current or pending legislation?
While the United States does not have HREDD-focused legislation, your US-based operations are still subject to the US 1930 Tariff Act and the UFLPA, both of which prohibit the import of goods made in whole or in part with forced labor. Compliance with those laws requires visibility into the supply chain that is easier when both buyer and supplier share responsibility for identifying, assessing, and addressing its risks. In addition, you will need to rely on your suppliers to obtain the documentation needed to contest a WRO under the US 1930 Tariff Act or overcome the presumption under the UFLPA, and you will be in a better position to commit to remediation efforts if you have actively cultivated cooperative, supportive relationships with your suppliers. Moreover, while your US operations may not come under the purview of the mandatory HREDD laws, it is possible that some of the companies with which you are in business will be in-scope for those laws and that they will expect you to make HREDD-related disclosures and adjustments to your own processes, including your contracts. 16. How is responsible contracting different from auditing? Why do I need to do both?
Although contracts and audits are both pieces of the HREDD toolkit, they are distinct preventive measures. Contracts underlie and accompany the whole business relationship from start to finish, while auditing is a (more or less) regular check that is carried out to assess gaps between the HRE standards, policies, and commitments enshrined in the contract and the realities on the ground. Both are components of HREDD and both are useful for ensuring that HRE standards are being adequately upheld in the supply chain; if not, these tools can highlight discrepancies that require addressing and support a corrective or remediation action plan for the parties to implement in cooperation. Responsible contracting asks buyers and suppliers to commit to sharing responsibility for HRE protection as a foundation of and throughout their relationship. It allocates responsibilities at the start of the relationship and outlines how both parties will work together. Audits are carried out periodically and often as part of a wider audit program that tests diverse elements of corporate policies and operations. In this context, an auditor might undertake two inquiries: first, how well do the HRE standards to which the parties committed actually function to prevent HRE risks? Second, how well are the parties actually sharing responsibility for HRE protection? The results of the audit and any gaps identified should be shared with management and, potentially, fed back into the contracting process through contractual amendments. Finally, note that there are a number of other tools that companies can use, in addition to contracting and auditing, to promote positive HRE outcomes, like ongoing monitoring, supply chain mapping, and employing responsible purchasing practices. |
