The regulatory landscape around supply chain due diligence is growing.
Earlier this month, Germany put forth a proposal for a Human Rights Supply Chain Duty of Care Act. The European Union is considering mandatory EU-wide due diligence requirements on environmental and human rights risks. These proposed laws join other well-known due diligence legislation worldwide, such as the UK Modern Slavery Act, France’s Devoir de Vigilance, the Australian Modern Slavery Act, and the California Transparency in Supply Chains Act, to name a few.
Regulatory compliance is only one of piece of the due diligence puzzle.
While their details may vary, these due diligence laws ultimately require companies of a certain size to gain a better understanding of the environmental and social risks impacting their supply chains and disclose the steps they are taking to address these risks. Companies around the world affected by one or more of these regulations are under increasing pressure to understand and fulfill the due diligence requirements, within a specified timeframe.
Regulatory compliance is clearly a priority for global businesses today. Understanding the legal requirements and taking action to ensure compliance is essential. However, regulatory compliance is only one of piece of the due diligence puzzle. The other, and perhaps more critical, piece is “consumer compliance,” or the need for businesses to meet consumer expectations regarding product sustainability and integrity.
Consumer concern about the provenance of their purchases has been a longstanding reality, even prior to the implementation of global due diligence regulations. In many ways, due diligence laws are a direct result of society’s increased awareness of the environmental and human rights issues impacting global supply chains, and the role businesses play in addressing these issues.
The global rise in legislation continues to fuel and shape consumer expectations of companies and the products they manufacture. Social issues such as child labor, forced labor, and modern slavery, as well as environmental issues such as deforestation, carbon emissions, and water stress, are top of mind for consumers today when making a purchase.
Recent studies show that 72% of consumers in Europe prefer products in environmentally friendly packaging, and 46% of consumers worldwide say that they would choose ecofriendly products over a preferred brand. In addition, 69% of consumers want to know how their clothes were manufactured, and 45% believe it is crucial that the clothing they buy is made without the use of child labor.
Consumers want to know where products come from and how they were made—and therefore, so should businesses.
Going beyond due diligence laws
It is clear, then, that whatever your legal requirements are, the requirements set by consumers are much, much higher. While it is necessary to ensure compliance with due diligence laws, regulatory compliance should be considered a jumping off point to help businesses meet the higher and more rigorous standards set by consumers.
Consumer expectations are more stringent than many due diligence laws:
- While legislation may require companies to publish an annual Tier 1 supplier list, more consumers what to know where their purchases came from and if workers throughout the supply chain were treated fairly. Knowing where Tier 1 facilities are located is simply not enough.
- While legislation may specify a certain timeframe for companies to meet requirements or only affect companies of a certain minimum size, consumer expectations apply to companies of any size, and their requirements predates any formal due diligence law.
- While legislation may require companies to disclose what efforts they are making to address environmental and social issues, the specifics and scope of this disclosure are rarely clearly defined. In some cases, simply stating that no action is being taken is technically legally compliant. But consumers know what issues they care about, know how they want companies to respond, and will not hesitate to hold companies to account if they feel that more should be done.
Whatever your legal requirements are, the requirements set by consumers are much, much higher
Similarly, the consequences of failing to meet consumer standards are much more drastic than regulatory noncompliance. Failure to meet legal requirements typically results in fines or in some cases simple violation notices—if noncompliance is penalized at all. On the other hand, failure to meet consumer expectations lead to repercussions that are much more widespread and difficult to control, such as rapidly spreading negative press, loss of business due to consumer boycotts and petitions, and most critically, loss of consumer trust.
Consumers have long memories
News reports about supply chain scandals are not easily forgotten: 1,100 deaths and 2,500 injuries due to the Rana Plaza factory collapse; factory workers sewing secret notes in garments to expose the reality of their working conditions; independent reports revealing appalling supply chain practices of well-known retailers—such dramatic incidents stay in the consumer consciousness for years.
At a minimum, consumer requirements should be considered as important as regulatory requirements, if not more so. Even for regions or industries with no formal due diligence law in place, global consumers still set their own expectations that companies must meet, or else risk losing business. Recovering from a loss of trust is a long journey and requires businesses to demonstrate constant and continual progress to win back consumers.
For companies not currently impacted by due diligence laws, it is hardly the time to sit back and relax. For companies who are, the responsibility is all the greater.