Environmental and Human Rights Impacts – Beyond Supplier Contracting

We highlight what are the impacts beyond tier 1 suppliers, where are they located in the value chain, what value chain elements are characterised by which most prevalent impacts.

Mandatory human rights and environmental due diligence (HREDD) requires businesses to evaluate and address the impacts of their operations beyond direct suppliers (tier 1). This comprehensive approach ensures that human rights abuses and environmental damages are mitigated at every stage of production and distribution. This article explores the impacts beyond tier 1 suppliers, identifying their positions in the value chain and characterizing the most prevalent impacts across different value chain elements.

Impacts Beyond Tier 1 Suppliers – Value Chain Elements

The impacts of HREDD are not confined to tier 1 suppliers but are prevalent throughout various stages of the value chain:

1. Extraction – Large-Scale Miners and Artisanal & Small-Scale Miners: This stage involves the extraction of raw materials, often associated with significant environmental degradation and human rights violations.

2. Traders and Exporters: These intermediaries handle the buying and selling of raw materials, often obscuring the origins and conditions under which materials were sourced and contributing to carbon emissions and labour exploitation.

3. Smelters and Refiners: Facilities that process raw materials into refined products, which can involve hazardous working conditions and significant environmental impacts.

4. Component and Product Manufacturers: Entities that produce parts and components often located in regions lacking labour laws, and that rely on complex supply chains with multiple tiers of providers.

5. Recyclers: Organisations involved in the disposal and recycling of products, which can face challenges related to hazardous waste and worker safety.

Value Chain Elements and Their Most Prevalent Impacts

1. Extraction

• Environmental Degradation: Activities such as mining can lead to deforestation, water pollution, and loss of biodiversity. For instance, mining operations often result in the contamination of water sources with heavy metals and toxic chemicals.
• Human Rights Violations: This stage is notorious for forced labour, child labour, and unsafe working conditions. Indigenous communities may also face displacement and loss of livelihood due to resource extraction activities.

2. Trade and Export

• Supply Chain Transparency: Traders can obscure the origins of raw materials, making it difficult to trace and verify the conditions under which they were sourced. This lack of transparency can perpetuate human rights abuses and environmental degradation.
• Economic Exploitation: Traders often operate in markets with minimal oversight, allowing them to exploit small-scale miners by paying low prices and offering poor working conditions. Workers involved in the logistics and transportation sectors often face long hours, low pay, and poor working conditions. This stage requires stringent labour standards to protect workers.
• Carbon Emissions: The transportation of raw materials contributes significantly to greenhouse gas emissions. Exporters must address their carbon footprint through sustainable practices.

3. Smelters and Refiners

• Occupational Health and Safety Risks: These facilities may lack adequate safety measures, leading to workplace accidents and health hazards. Chemical exposure and unsafe machinery are common risks.
• Environmental Pollution: The smelting and refining processes can release harmful pollutants into the air and water, impacting local communities and ecosystems.

4. Component and Product Manufacturers

• Labour Rights Violations: Workers in component manufacturing often face poor working conditions, low wages, and excessive working hours. These issues are prevalent in countries with weak labour laws and enforcement.
• Resource Consumption: This stage involves significant consumption of resources, such as water and energy, which can have substantial environmental consequences if not managed sustainably.
• Product Safety: Ensuring that the final products are safe for consumers is crucial. Non-compliance with safety standards can lead to recalls and reputational damage.

5. Recyclers

• Hazardous Waste Management: The recycling stage generates hazardous waste, such as electronic waste, which requires proper handling and disposal to avoid environmental contamination.
• Worker Safety: Recyclers often work in unsafe conditions, exposed to hazardous materials without adequate protective equipment. Ensuring safe working conditions is critical.

Avoid and mitigate the Impacts – Comprehensive Due Diligence Strategies

To avoid or mitigate the impacts effectively, companies must adopt comprehensive due diligence strategies that encompass the entire value chain:

– Risk Assessment and Mapping: Conducting thorough risk assessments to identify potential human rights and environmental impacts at each stage of the value chain. This involves mapping the supply chain to trace the origins of materials and components.

– Stakeholder Engagement: Engaging with a broad range of stakeholders, including workers, local communities, NGOs, and government agencies, to gain insights into the impacts generated and collaboratively develop solutions.

– Transparency and Reporting: Implementing transparent reporting mechanisms to disclose due diligence efforts and outcomes. This builds trust with consumers and investors and demonstrates a commitment to ethical practices.

Industry Example – The Electronics Industry

The electronics industry, with its complex and multi-tiered supply chains, faces significant challenges in HREDD. Major companies source raw materials such as cobalt from conflict zones where human rights abuses are widespread. Efforts to address these issues include:

– Conflict Mineral Policies: Implementing policies to avoid sourcing minerals from conflict zones.

– Supplier Responsibility Programs: Comprehensive programs to ensure supplier adherence to environmental and labor standards.

– Blockchain for Traceability: Utilizing blockchain technology to trace the origin of materials and ensure compliance throughout the supply chain.

Concluding

Mandatory human rights and environmental due diligence is essential for ensuring ethical and sustainable business practices across the entire value chain. By addressing impacts beyond tier 1 suppliers, companies can mitigate risks, enhance their reputation, and contribute to global sustainability goals. The effective implementation of HREDD requires a holistic approach that includes comprehensive risk assessment, stakeholder engagement, capacity building, transparency, and the use of advanced technologies. By doing so, businesses can create value not only for themselves but also for society and the environment.