The Human Rights Due Diligence & Ethical Sourcing Guide

• Despite the interconnected nature of global business, many brands, traders, and distributors are still unaware of the harsh conditions farmers, factory workers, waste pickers, and miners endure every day within their supply chains.
• Integrating a human rights due diligence plan into your brand’s DNA is essential for verifying that your products are ethically sourced. Plus, investing in your suppliers means future-proofing your business.
• The era of third-party spot audits, certification schemes, and greenwashing, is over. To support your human rights due diligence statements, you need real-time, ground-level data to confirm that your social responsibility initiatives are effective and make a real difference.

“Recognition of the inherent dignity and of the equal and inalienable rights of all members of the human family is the foundation of freedom, justice and peace in the world.” - United Nations Universal Declaration of Human Rights

Supply chains weave the intricate web that connects our global economy. Take, for example, the journey of a clothing brand's garments: they might start with cotton farmers in Rajasthan, India, move to factory workers in Bangladesh, proceed to a manufacturing center in Spain, and finally arrive at a retail store in London. Even in our interconnected world, many brands remain startlingly unaware—either by choice or through ignorance—of the harsh realities faced by workers in their supply chains.

Every industry, from food to electronics, faces the risk of human rights violations. This problem affects the majority of global supply chains—including yours. 

If you're at the helm of a large global enterprise and feel secure in your supply chain's integrity – but lack complete supply chain visibility – it's time to take a closer look. As recent human rights scandals with large brands such as H&M, Hershey’s, and Meta have shown, the ‘out of sight, out of mind’ approach simply won’t cut it anymore. So, how can you establish a human rights due diligence process, ensure transparency across your value chain to maintain accountability, and capture reliable data to back your human rights due diligence statements? Read on to find out.  

The Current State of Human Rights in Supply Chains

Afi, a dedicated third-generation farmer from Ghana, manages a three-hectare farm cultivating cassava and cocoa. Despite his hard work, Afi's income falls short of the necessary living wage in his region – earning less than $1 a day compared to the $5.81 needed to sustain his family of six and cover farming costs. Consequently, four of his five children must work instead of attending school to help make ends meet. Although Afi plays a crucial role in the agricultural supply chain, his efforts remain unrecognized and invisible, leaving him unable to form a verifiable record of his work history. This lack of visibility hinders his access to banking and financial services, preventing him from investing in his farm's improvement.

An estimated 500 million smallholder farming families, akin to Afi’s, play a critical role in agriculture, accounting for 28-31% of global crop production and 30-34% of the total food supply. Even though they are essential in sustaining supply chains, these farmers often live in poverty, earning less than $2 a day. Similarly, millions of workers across various industries remain invisible within the value chain. This includes 40 million artisanal miners, supplying 20% of the world's gold and diamonds, and 20 million waste pickers, crucial for recovering up to 60% of all recycled plastics globally.

The tapestry of global supply chains often conceals the harsh realities these workers face at various stages of production. Human rights abuses are all too common, with companies, sometimes without realizing it, exploiting cheap labor to boost their profits. This can involve forced labor, child labor, and debt bondage, among other forms of modern slavery, along with unsafe work environments, discrimination, and unfair wages. Alarmingly, around 27.6 million people are caught in modern slavery worldwide, with 17.3 million of these individuals exploited in the private sector. The Asia-Pacific region reports the highest numbers of affected people. 

Are the farmers at the root of your crop supply fairly paid? How about the waste pickers at the heart of your circularity initiatives? If not, it's time to change. The demand for transparency and ethical sourcing is growing stronger, making it essential for your company to take responsibility for your supply chain from start to finish.

What Is A Human Rights Due Diligence Process?

“In order to identify, prevent, mitigate and account for how they address their adverse human rights impacts, business enterprises should carry out human rights due diligence. The process should include assessing actual and potential human rights impacts, integrating and acting upon the findings, tracking responses, and communicating how impacts are addressed.” - United Nations Guiding Principles on Business and Human Rights

Gone are the days when third-party spot audits, greenwashing, and certification schemes were enough to cover your bases. Often, certifiers lack access to primary, source-level data in real time, which is crucial for verifying that your supply chain is ethically managed. This issue came to light recently when Inditex called for greater transparency from Better Cotton after an investigation revealed questionable practices among Better Cotton-certified producers in Brazil.

Embedding a human rights due diligence process into your company's DNA is essential to genuinely understand and manage your brand's impact on the people who form the backbone of your supply chain. So, how do you get started? A robust human rights due diligence plan follows these critical steps:

1. Identify & Assess: Start by pinpointing actual and potential human rights risks in your supply chain or directly linked to your operations by your business relationships. Assess their scope, scale, and impact to understand where your efforts are most needed.
2. Integrate & Act: Once identified, integrate these insights into your business decisions and take concrete actions to mitigate risks, ensuring your operations are people-centered and promote human dignity.
3. Track & Improve: Establish mechanisms to monitor the effectiveness of your actions, such as grievance forms for suppliers and workers to complete. Use these insights to refine and enhance your approach continually.
4. Communicate & Demonstrate: Transparency is key. Clearly communicate your commitments and progress to stakeholders—particularly those impacted—and demonstrate your ongoing dedication to upholding human rights through, for example, a digital product passport. 

At the heart of it, tackling this issue is a long-term journey, not a quick fix, and it's unique for every business. If your company truly wants to stand up for human rights, it's about more than just a policy or a statement; it's about integrating human dignity for all at the core of your values and day-to-day operations. It means really walking in the shoes of the people who keep your supply chain moving, getting a clear view of their lives, their pay, and the support they receive. It might feel overwhelming at first, but just get started somewhere, and bit by bit, you'll embark on the road to doing business better. 

A good first step is to implement traceability software, such as BanQu, which captures reliable ground-level data. This helps you understand your supply chain's current status, provides ongoing insights for improvement, and data-backs your human rights due diligence statements.

The Business Case for Human Rights Due Diligence

“Responsible business leaders know that sustainable profits can only stem from stable societies in which people have dignity, freedom, and a voice.” - United Nations

Companies today may be afraid to gain better supply chain visibility as they don’t want to uncover human rights abuses they aren’t aware of. After all, ignorance is bliss. However, this approach won’t withstand the test of time. Sooner or later, someone will uncover human rights abuses for you, and then you face the risk of reputational damage and customer loss. 

So, to future-proof your business and uphold your moral obligation to those who supply your products, it's wise to gain a clear picture of your value chain end-to-end before it surprises you in the latest news headline. Plus, supporting suppliers and small businesses within your value chain is not just good ethics—it's smart business, bringing numerous advantages to your brand, such as:

Revenue Increase & Customer Loyalty

More and more consumers are prioritizing brands that share their values. A recent McKinsey & Company and Nielsen IQ study revealed that products with ESG-related claims saw a 28 percent growth over five years, compared to 20 percent for products without such claims. Sharing solid, data-supported proof of your progress in the 'Social' part of ESG with your customers can improve your brand's reputation and, ultimately, boost your revenue.

Supply Chain Digitalization & Efficiency

A digitalized supply chain is a resilient one. For example, by implementing a traceability system for real-time tracking of worker payments, you can automate manual tasks for your suppliers to enhance efficiency. You can gain better visibility and control of your supply at each tier and stay agile in responding to disruptions. Research indicates that companies that aggressively digitize their supply chains can see a significant uptick in performance: a 3.2% increase in yearly growth of earnings before interest and taxes and a 2.3% rise in annual revenue.

Supply Stability & Security

Investing in your suppliers means future-proofing your business. For instance, equipping your farmers with high-yield crop varieties and regenerative agriculture training lays the foundation for a more dependable, long-lasting supply. Further enhancing this by tracking source-level transactions to guarantee living wages for your farmers boosts their quality of life, ensuring they can continue to supply to your business. This approach fosters trusting relationships with the farmers who sustain your value chain. Plus, this level of visibility can improve the predictability of raw materials for data-driven forecasting. 

Regulatory Compliance & Investor Trust

Human rights due diligence is evolving into both a moral and legal obligation. With regulations emerging worldwide—from the modern slavery acts in Australia and the UK to the U.S.'s Uyghur Forced Labor Prevention Act and the EU's Corporate Sustainability Due Diligence Directive—staying informed and compliant is critical to dodge fines, shipment seizures, and damage to your reputation. Additionally, there's growing investor interest in sustainable investments; a Morgan Stanley study found that 77% of global investors prefer companies that blend market-rate financial returns with positive social and/or environmental impact.

Getting Started: The Role of Traceability in Human Rights Due Diligence

“We live in a data dictatorship where everybody else owns your data. And that’s where blockchain is different. Blockchain matters to farmers and waste pickers because it delivers to them a copy of the transaction of the crops they grew or the waste they collected. So they can say they exist in the supply chain.” - Ashish Gadnis, CEO of BanQu

Addressing human rights issues is complex and requires united action from businesses, governments, and consumers. Technology isn't a magic wand but an essential tool in ensuring that your ethical sourcing initiatives are rooted in data and what is happening on the ground. Implementing traceability software like BanQu allows you to gain real-time, end-to-end visibility and insights into your value chain to align your business and sustainability objectives. 

When selecting a traceability partner to back your human rights due diligence statements, ensure they offer features that bolster both your suppliers and your business, including:

Real-Time, Primary Data Capture

Importance for Human Rights: Traditional third-party spot audits fall short of providing the continuous oversight needed to support your suppliers and workers year-round. Capturing primary data from every tier of your supply chain in real-time, including raw material sourcing, enhances visibility and accountability. This method improves the detection and correction of potential human rights violations, promoting a more ethical supply chain. Also, simply "knowing" that supply chain contributors might be getting paid isn't sufficient. You need concrete evidence that payments are made and support any claims of providing a living income and living wage.

How BanQu Helps: BanQu provides reliable, real-time data capture and end-to-end traceability, enabling your business to monitor your supply chain more effectively. This blockchain-based platform is designed to be both device- and industry-agnostic, ensuring a versatile and user-friendly system for both global and local impact. Built from the ground up, BanQu facilitates seamless adoption from informal workers, cooperatives, aggregators, and beyond. By tracking transactions at every exchange of custody, your business can actively monitor payments and, through SMS, confirm that your workers are receiving a living wage—even in the remote, offline, and hard-to-reach areas of your supply chain where data has traditionally been difficult to obtain.

Stakeholder Engagement

Importance for Human Rights: Engaging with stakeholders, from the workers on the factory floor to your customers and everyone in between, is vital to ensuring your sustainability initiatives are actually happening and are making a measurable impact. It's essential to stay in touch with your suppliers so you can face challenges together and keep each other accountable. Real-world impact can only occur when you put people first and continuously seek feedback for improvement.

How BanQu Helps: BanQu makes it easier to listen. It provides a grievance mechanism - a feature often required for due diligence regulations, as a bonus - for supply chain actors to speak up if something is wrong with their pay or working conditions, helping fix problems faster. Additionally, BanQu eliminates unreliable and disorganized Excel spreadsheets. BanQu uses blockchain technology to keep data verifiable and easily accessible, making audits like SMETA for evaluating working conditions a whole lot smoother. Plus, you can incorporate a BanQu-powered digital product passport on your products to demonstrate your commitment to ethical sourcing to customers. 

Flexible Integrations

Importance for Human Rights: Your traceability software should effortlessly integrate with any ERP, inventory management, and other legacy systems you're using to keep your supply chain, procurement, compliance, and sustainability data in check. This compatibility is essential for minimizing errors and data discrepancies and avoiding duplicate data entry by suppliers. Moreover, your traceability system should seamlessly integrate with digital payment providers for secure, cashless payments to workers, reducing the risks associated with handling cash.

How BanQu Helps: BanQu simplifies integration with your existing ERP and supply chain systems, streamlining the management and reporting of your human rights due diligence data. With its open and advanced API, BanQu smoothly connects with your preferred mobile money provider. This feature is invaluable for making direct, cashless payments to farmers, miners, and waste collectors to reduce the risk of theft and encourage household spending on goods and services that increase livelihoods (e.g., pre-paid electricity, school fees, groceries, etc.). 

Integrated ESG Reporting

Importance for Human Rights: A robust traceability solution needs to generate detailed reports that shed light on the entirety of your supply chain, the chain of custody of your products, and your sustainability/ESG initiatives. These reports must be ready at the click of a button, providing a clear snapshot of your human rights due diligence efforts so you can stay on top of uncovering issues and taking corrective actions.

How BanQu Helps: BanQu’s platform provides granular insights into sourcing practices and generates comprehensive, tier-level ESG reports. This capability makes it easy for your sustainability teams to meet yearly reporting requirements and keep your supply chain audit-ready for evolving human rights due diligence regulations. These reports also facilitate efficient monitoring of grievances and swift responses to any human rights concerns, ensuring your operations align with set KPIs.

Data Privacy & Democracy

Importance for Human Rights: When gathering data to support your social sustainability claims, ensuring your data collection and storage practices are fully GDPR compliant is crucial. Employing blockchain technology offers unparalleled data security, rendering your information tamper-resistant and shielded from unauthorized access. Moreover, blockchain plays a vital role in promoting data democracy, empowering each participant in the supply chain to own and control their data, affirming their identity within the value chain.

How BanQu Helps: BanQu prioritizes data privacy and security, using advanced blockchain technology for GDPR- and SSAE16-compliant data storage. This approach creates a decentralized ledger of transactions so that every participant in the supply chain can access their data. For instance, BanQu provides farmers, waste collectors, and miners with SMS receipts of their transactions so they can create an economic identity for accessing loans with better interest rates from banks. This is the cornerstone of building an equitable economy where workers can open doors for investing in and growing their businesses, which in turn provides a stable supply for you to grow your business. 

Ethical Sourcing Real-World Example

“From the sales I made last year, I managed to meet some financial needs of my family. One of my children is pursuing nursing studies in college, while the other has just completed grade 12 and needs to go to college as well. I continue to save for my children’s education.” Idah Kombe, Zambian Cassava Farmer

Idah, a smallholder farmer from Zambia, found herself bearing the weight of supporting her family after the loss of her husband. She grew crops that contributed to food and beverage products, yet despite her hard work, she didn’t receive reliable receipts for her crops and consequently couldn't open a bank account or secure a loan. The banks turned her away due to her lack of verifiable work history and her invisibility in the supply chain.

Today, thanks to the support of Zambian Breweries and BanQu, Idah's story has taken a turn for the better. Zambian Breweries has equipped her with agronomy training and access to superior cassava varieties, boosting her crop yields. Over the years, Idah has constructed an economic passport via SMS receipts from BanQu, documenting her sales history. This record allowed her to open a bank account and secure a loan on fair terms, freeing her from the cycle of predatory lending. Now, Idah is in a position to provide for her children and invest in their education, paving the way for a brighter future.

BanQu | Where Technology Meets True Ethical Sourcing

For real change, human rights due diligence must be woven into the very fabric of your company’s values and business model. BanQu acts as the bridge, linking your business with the individuals who form the backbone of your supply chain. By establishing a secure and transparent ledger of transactions, BanQu facilitates the traceability of goods to their source, ensuring ethical practices are maintained every step of the way. Say goodbye to empty ethical sourcing claims and hello to data-backed human rights due diligence statements. Are your farmers, waste pickers, or miners fairly paid? If you're unsure or simply don't know where to start, schedule a call with BanQu's team today to begin your journey toward ethical sourcing.

‍

In the video below, learn more from Ashish Gadnis, CEO of BanQu, about how blockchain technology makes a real difference on the ground.