Companies big enough to be in scope for the Directive will have to undertake risk-based due diligence on adverse human rights and environmental impacts of their own operations, subsidiaries and ‘operations carried out by business partners in the companies’ chains of activities’, including upstream production of goods or provision of services, and downstream distribution, transport or storage. This means that even companies not captured by the Directive will probably receive requests for information from their buyers about how they manage their human rights risks.


SO, WHAT IS HUMAN RIGHTS DUE DILIGENCE? It’s a six-step process [see Figure 3] whereby companies assess how they might cause, contribute or be linked to negative human rights impacts, and how they can avoid or reduce this. It includes remediating problems, and reporting on what the company is doing.


WHAT DOES THAT MEAN IN THE COMMODITIES SECTOR? It will depend on the type of company and its position in the value chain – upstream, mid-stream or down-stream. It will depend on whether it is conducting physical trades or not. It will depend on the human rights risk profile of the commodity, and the country it is sourced from. The Directive requires companies in scope to demonstrate that they have conducted effective human rights due diligence in accordance with the UN Guiding Principles. If companies have compliance and KYC systems in place, this is a good start, but these may not reveal much about the human rights risks associated with a product. Companies will need to ‘look under the hood’. While there is no requirement under the Directive to exit a market or a product, it will inevitably encourage companies to further ‘de-risk’, perhaps by shortening and consolidating supply chains where they can.


Figure 3: The Six Steps of Human Rights Due Diligence


THE DIRECTIVE REQUIRES COMPANIES IN SCOPE TO DEMONSTRATE THAT THEY HAVE CONDUCTED EFFECTIVE HUMAN RIGHTS DUE DILIGENCE IN ACCORDANCE WITH THE UN GUIDING PRINCIPLES.


Source: OECD https://www.oecd.org/investment/due-diligence-guidance-for-responsible-business-conduct.html 14 | ADMISI - The Ghost In The Machine | Q2 Edition 2024


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