Responsible Business Conduct
Companies in the Netherlands buy products and raw materials from all over the world. Examples include crops such as cotton and cocoa, mining products such as mica, semifinished products such as steel tubes or printed circuit boards. Both producers and service providers, through their services, are part of a chain that can include transportation, translation, or IT and software. Companies trading with other businesses on the other side of the world can have a positive or sometimes adverse impact on local communities and environments.
Know your supply chain
How does this apply to your company? To understand the effects of your company on people, environment and climate, you need to know exactly where your products come from and under which conditions they are produced. In which countries are the products produced? Which producers are involved throughout the supply chain? Who makes the products and under which conditions? Who supplies your supplier? And how is your product ultimately distributed and sold to end users? Having that knowledge gives you more control over risks. These could be child labour, low or exploitative wages for workers, or environmental pollution.
Next, you will need to search for solutions to cease, prevent or mitigate adverse impacts. Your company can cause or be directly linked to adverse impacts, or may have contributed to them. The action you must take depends on the extent to which your company is involved. These actions are part of due diligence, a concept at the core of International Responsible Business Conduct (RBC). Companies that uphold RBC consider the impacts of all their business activities on people, animals and the environment. This means that those companies act with due diligence.
Due diligence
The due diligence process consists of six steps. By implementing these steps, a company takes responsibility for the potential or real adverse impacts of its actions in the supply chain. The six steps logically follow each other but do not necessarily need to be followed in a particular order. Due diligence is a continuous, reactive and flexible process. It is an integral part of business processes.
From 2027 onwards, the largest companies doing business in the European Union will need to comply with new rules on due diligence for human rights and the environment. More information about this legislation is included later in the training. Due diligence is also important for SMEs. The Dutch government and other stakeholders, including consumers, expect companies to know and address risks in their supply chains. It is important to realise that this applies to the entire chain, both upstream and downstream, and that the chain does not stop at direct suppliers or buyers. It is therefore essential to learn more about the links before and after them, such as recycling steps.
You can avoid unwanted surprises by assessing who you are doing business with and ensuring there are no issues in the supply chain. It sounds simple, but it can be complex. Although many SMEs are in regular contact with wholesalers or intermediate suppliers, they do not always have clarity on the exact role or activities of downstream operators. SMEs must therefore be proactive. They must ask questions and seek collaboration.
The six due diligence steps
The image below illustrates the six steps. Below is a brief description of them.
It is important to create an action plan for implementing due diligence. It is also crucial to ensure that everyone in the company knows what is expected of them. This can be achieved by making clear agreements and defining tasks and responsibilities. Each role contributes to due diligence in its own way.
Step 1
Integrate International Responsible Business Conduct
>It is important to create an action plan for implementing due diligence. It is also crucial to ensure that everyone in the company knows what is expected of them. This can be achieved by making clear agreements and defining tasks and responsibilities. Each role contributes to due diligence in its own way.
Before you can discover negative impacts, you need to know where your products come from. Who are the suppliers? Where does the cotton for the T-shirts come from? Where and by whom are hazelnuts and cocoa produced and harvested for chocolate spread? Conduct research by asking detailed questions to suppliers.
Most companies are part of various complex supply chains. It may not be possible to map them all at once. In that case, start with the biggest purchased volumes and highest purchase value. Once you have fully mapped out the (selected) chains, investigate the sustainability risks. There are many tools available to help you with this.
Step 2
Identify and assess negative impacts
Before you can discover negative impacts, you need to know where your products come from. Who are the suppliers? Where does the cotton for the T-shirts come from? Where and by whom are hazelnuts and cocoa produced and harvested for chocolate spread? Conduct research by asking detailed questions to suppliers.
Most companies are part of various complex supply chains. It may not be possible to map them all at once. In that case, start with the biggest purchased volumes and highest purchase value. Once you have fully mapped out the (selected) chains, investigate the sustainability risks. There are many tools available to help you with this.
Companies can directly cause, contribute to, or be directly linked to negative impacts. The knowledge obtained in the previous steps, help you implement impactful measures to address the identified risks. It is important to involve local stakeholders in this process. Examples of measures you can take are social audits, sustainability certifications, a detailed supplier code of conduct and collaboration in a supply chain initiative. As an SME, you may not always be able to make a difference on your own, consider working together with other companies.
Step 3
Stop, prevent or mitigate
Companies can directly cause, contribute to, or be directly linked to negative impacts. The knowledge obtained in the previous steps, help you implement impactful measures to address the identified risks. It is important to involve local stakeholders in this process. Examples of measures you can take are social audits, sustainability certifications, a detailed supplier code of conduct and collaboration in a supply chain initiative. As an SME, you may not always be able to make a difference on your own, consider working together with other companies.
It is important to closely monitor whether the implemented measures are effective. This can be done by conducting your own research, talking with suppliers, or engaging with other stakeholders such as trade unions, civil organisations, government representatives, employees, or local researchers. This helps you adjust your approach in case the measures do not have sufficient impact.
Step 4
Monitor progress
It is important to closely monitor whether the implemented measures are effective. This can be done by conducting your own research, talking with suppliers, or engaging with other stakeholders such as trade unions, civil organisations, government representatives, employees, or local researchers. This helps you adjust your approach in case the measures do not have sufficient impact.
Clear communication about the risks and the measures taken is important. Increasingly, customers, financiers, and governments are requesting this information. By sharing what is going well and what is still challenging, you demonstrate that your company is taking responsibility.
Step 5
Communicate on progress
Clear communication about the risks and the measures taken is important. Increasingly, customers, financiers, and governments are requesting this information. By sharing what is going well and what is still challenging, you demonstrate that your company is taking responsibility.
When your company or partners in the supply chain have caused harm to people or the environment, the victims may be entitled to compensation or remedial measures. It is important to take complaints seriously and address them appropriately. A company can itself cause, contribute to, or be directly linked to negative impacts. Depending on the link to the negative impact, appropriate measures should be taken, as outlined in module 9.
Step 6
Provide access to remedy
When your company or partners in the supply chain have caused harm to people or the environment, the victims may be entitled to compensation or remedial measures. It is important to take complaints seriously and address them appropriately. A company can itself cause, contribute to, or be directly linked to negative impacts. Depending on the link to the negative impact, appropriate measures should be taken.
Figure 1 – Due diligence steps (source: https://www.rvo.nl/blogs/due-diligence-6-stappen). Due diligence steps in practice. Step 1: embed RBC into your organisation, Step 2: identify and assess adverse impacts, Step 3: cease, prevent or mitigate adverse impacts, Step 4: track implementation and results, Step 5: communicate how you address the risks, Step 6: provide for or cooperate in remedial measures if needed.
OECD Guidelines and the due diligence process
The OECD Guidelines for Multinational Enterprises on Responsible Business Conduct are the cornerstone of Dutch policy on responsible business conduct. These guidelines set out the responsibilities companies must take in their supply chains. The guidelines also describe the concept of due diligence in greater detail.
The OECD Due Diligence Guidance for Responsible Business Conduct was published in 2019. This guidance provides companies with detailed recommendations to uphold RBC. In 2023, the OECD provided updated recommendations. Companies must now explicitly include climate and other topics in their due diligence.
Core elements of due diligence
Due diligence is about identifying and preventing adverse impacts of business activities on people, planet and society. It is therefore important to engage with stakeholders at every step of due diligence. These stakeholders could be buyers, investors, employees, trade unions or non-governmental organisations that represent local communities and employees (or even nature and climate action) further down the supply chain.
Business activities can often impact the rights of women and vulnerable groups, such as children and people with disabilities, in more negative and different ways. This must receive specific attention throughout your due diligence process.
Performing due diligence can be overwhelming at first. However, the extent of your due diligence depends on several factors. This could be the scope of your company and the nature of the risks in your supply chains. The Dutch government expects a large multinational company’s due diligence to be more extensive than an SME’s due diligence.
Basically, it is important that every company gets started with due diligence and seeks to improve. After all, due diligence is a continuous process that companies can refine over time. Do not be afraid to start, make mistakes and learn as you go!