The EU’s Omnibus Directive is tipped to make substantial changes to the CSDDD by the end of 2025. The changes are intended to improve competitiveness by reducing red tape. It’s also likely that accountability measures on human rights will be weakened, so some critics have suggested the law’s impact will be lessened.
The ILO estimates 27.6 million people and 3.3 million children currently suffer under forced labor conditions globally
The ILO estimates 27.6 million people and 3.3 million children currently suffer under forced labor conditions globally. From trade wars, to growing global economic risks, regulatory complexities, supply chain issues, and the low cost of implementation, it would be a mistake for businesses to stop investing in due diligence. Global volatility poses significant risks for businesses. By helping to mitigate these risks human rights due diligence remains a key pillar of good business practice in a post-Omnibus world. As we’ll explore, an effective due diligence policy provides the visibility that mitigates many of these risks:
1. Supply Chain Volatility Increases Human Rights Risks
Global supply chains are still recovering from instability caused by COVID-19, but the US’ unpredictable tariff policies have thrust global supply chains into a new era of uncertainty. It’s no wonder that Deloitte has chosen now to focus on supply chain resilience. As their report states:
“Increased supply chain volatility in recent years due to the COVID-19 pandemic, geopolitical dynamics, trade tensions, rising costs, labor shortages throughout the value chain, and natural disasters has led organizations to shift their supply chain strategy from cost minimization to a focus on balancing cost with resilience.”
The need for the electric vehicles and extractive industries to strengthen their due diligence policies has never been greater
The US is attempting to re-shore manufacturing by imposing high tariffs on producer countries. The minerals and mining sectors are set to be most affected by these tariffs. The need for the electric vehicles and extractive industries to strengthen their due diligence policies has never been greater.
As a result, it’s likely that many buyers will be forced to seek out new suppliers, causing instability and divestment. With instability, can come increased prices, and further pressures on workforces, exacerbating existing human rights risks. By contrast, countries that receive more investment because of this shift may experience a sudden demand for labor, creating conditions where the pressure to increase productivity increases while supplier screening decreases, putting supply human rights at risk. Major US retailers are reportedly already asking Chinese suppliers to absorb the cost of tariffs.
Whether it’s compliance, volatility in the labor force, or reputational risk, businesses need full visibility over their supply chains to monitor and capture those risks before they get out of hand.
2. Regulation is Delayed but Still Inevitable
With the Omnibus Directive, it could be that only Tier 1 suppliers need to be assessed for human rights risks under the CSDDD. Affected companies may not be obliged to perform due diligence on the first mile of their supply chains where the majority of risks occur. But political circumstances can’t change the scientific and economic reality. Even with Omnibus’ proposed changes, compliance is still a significant risk.
The EU Forced Labour Regulation bans the import of any goods related to forced labour from entering the EU and penalises non-compliant companies. In order to avoid this risk, companies must implement the same due diligence policies that would have been required under the original CSDDD. Also, while these laws have changed, there remain a significant number of HRDD requirements that will affect many of the world’s largest companies found in other laws, such as the EU Batteries Regulation.
There are signs that the Omnibus may see a reversal of fortunes. BusinessEurope, one of the EU’s most powerful lobbying organisations, have recently called for a return to a risk-based approach based on the OECD Guidelines.
Governments continue to advance their own human rights due diligence laws. Ulula’s global map of HRDD laws shows that there are 27 different existing HRDD laws. Major corporations with significant global supply chains continue to develop their own due diligence policies. They do so because it makes business sense to understand the nature of their supply chains, and get as close as possible to workers in the first mile of the supply chain who produce the goods they use.
3. The Cost of Due Diligence is Low in Comparison to the Risks
The European Commission estimates that the cost of implementing human rights due diligence ranges between EUR 52,200 for large companies and EUR 643,000 for very large companies. Even the highest estimate would still only represent 0.01 and 0.1% of turnover of the average company subject to the original CSDDD.
EcoVadis Worker Voice simplifies human rights due diligence for businesses through its streamlined survey and globally connected platform
Emerging technologies are lowering the cost of compliance. Digital human rights due diligence tools, based on worker voice and modern accessibility features, can bring companies closer to their value chain. At this low cost, companies can lower the risk of human and labor rights issues, enhance resilience and compliance, and reduce reputational risks.
EcoVadis Worker Voice simplifies human rights due diligence for businesses through its streamlined survey and globally connected platform. The surveys can be implemented on any worker device, anywhere in the world, with accessible multi-channel feedback, anonymity for better risk-identification, and continuous, real-time actionable insights provided by the global supply chain workforce.
Ulula’s suite of stakeholder voice tools streamline the implementation of due diligence, and the delivery of supply chain stakeholder and worker rights data, and provide stakeholders with an effective, two-way grievance mechanism that facilitates smooth resolution of cases. Ulula also reduces duplication and cost by facilitating data sharing, holistic supply chain insights and the simplified integration of data into workflows.
4. Due Diligence is just Good Business Practice
There are business benefits to understanding more about material risks in the producer countries that business profits and the final product relies on. The new Omnibus proposal requires businesses to carry out supply chain assessment only once every five years, but in reality, risks can evolve much faster than that. Good businesses will assess risks and take action on a regular basis. Neglecting such problems only aggravates them, and may end up costing more. The benefits of due diligence are therefore clear:
For businesses:
- Improved supply chain resilience, visibility and risk responsiveness;
- Pooling resources and lowering compliance costs;
- Increasing effectiveness by enabling joint remediation;
- Enabling greater coordination and leverage when consulting with stakeholders or suppliers;
- Collective solutions to systemic HR issues;
- More compliance relevant data without additional resources;
- Better impact measurement on the ground.
For suppliers:
- Easing the burden of compliance;
- Clearer expectations;
- Greater access to supplier development programmes (less scattered, and more resources).
For workers:
- More robust systems to protect their rights and access to meaningful remedy;
- Better protection of rights through recognised initiatives;
- Decreased risk of retaliation;
- Increased visibility of risks by multiple invested stakeholders.
In a Post-Omnibus world, business sense remains common sense. Common sense dictates that investing in due diligence in the supply chain will benefit businesses in times of uncertainty. Ready to enhance visibility, efficiency and strengthen the resilience of your supply chain? Book a demo now.