How B Corps Can Establish Responsible Procurement Frameworks to Avoid Human Rights Abuses
B Lab’s Evolution of the Standards project will result in the release of proposed new standards for B Corp Certification. This article discusses the revised standards concerning the human rights topic and how companies can incorporate specific contractual arrangements to establish a framework to avoid human rights abuses in their supply chains.
The new standards are based on the United Nations Guiding Principles on Business and Human Rights (“UNGPs”).
Two key areas of focus in the UNGPs — as well as other international standards — involve conducting proper human rights due diligence and remediating harms when they are discovered. As such, the new B Lab standards naturally focus on developing procedures and processes to discover human rights issues — and remediate those issues once they are uncovered.
Conducting appropriate human rights due diligence involves obtaining reliable, accurate information up the supply chain so that a company is aware of the circumstances faced by stakeholders employed by its suppliers. In the past, companies were largely ignorant as to how their suppliers treated their workers. But this era of ignorance is over — and the new era where companies take responsibility for their suppliers’ stakeholders is being led by countries that are passing human rights due diligence legislation — as well as organizations like B Lab that aim to implement standards to this effect.
Discovering problems consequently brings with it a further responsibility. When a company is undertaking appropriate human rights due diligence, it is highly likely they will uncover issues that require remediation. When this occurs, companies should focus on working to remediate harms rather than simply cutting ties with a supplier. There should be systems in place to remediate such harms so that companies are not forced to invent ad hoc solutions. This system should be clearly set out in the parties’ contractual documentation.
Incorporating model contract clauses will help B Corps to meet the revised requirements because they provide a framework for responsible sourcing that effectively operationalizes the UNGPs.
B Lab worked with members of the Responsible Contracting Project, including me, when preparing the proposed new human rights standards. A key issue in our thinking was the concept of shared-responsibility contracting. This was informed by our involvement with the Model Contract Clauses Project organized through the American Bar Association’s Business Law Section, which prepared a set of model contract clauses geared toward the protection of stakeholders in international supply chains.
One key step to implement a compliance framework that meets the revised human rights standards would be incorporating the model contract clauses as they allow for a framework that comports with the UNGPs, the OECD Guidelines, and various human rights due diligence regulations.
The model contract clauses effectively operationalize the UNGPs, particularly through their focus on human rights due diligence and remediation. (Learn more about the model contract clauses in my earlier article.)
Contracts are important because they create a framework for compliance within your organization — and between the parties to the contract.
A core principle that can be found in many of the revised standards is that your responsible procurement policies must actually be effective.
Previous supply chain policies, such as unilateral supplier codes of conduct, have been found to devolve into a meaningless tick-box exercise where no actual protection occurs. In those situations, suppliers are often in breach of their obligations the moment the contract is concluded — and no one actually benefits.
It has become clear that an approach that provides for mutually agreeable contractual obligations, collaboration, and shared responsibility is much more effective.
Legal scholars have argued that complying with the new human rights due diligence regimes in Europe, such as Germany’s Supply Chain Due Diligence Act or the proposed Corporate Sustainability Due Diligence Directive, effectively requires incorporating some type of shared-responsibility contracting framework.
The model contract clauses allow for clear, enforceable commitments. These commitments are enforceable because they allow for a clear set of contractual remedies, but they focus on remediating harms rather than simply punishing companies for breaches. In this way, they foster collaboration and effectiveness rather than obfuscation and status quo.
The process of implementing the clauses into your supply contracts will allow for frank discussions with suppliers because they will understand these are obligations that the company intends to uphold. Parties will not simply check a box without a care as to actually implementing policies because they will understand these are real priorities.
Additionally, companies can be frank about what the position is on the ground and their real constraints. This will allow for realistic expectations, which can evolve as the companies grow and as collaboration continues.
Importantly, the buyer will have an appreciation for how issues like price and change orders affect the supplier — and the supplier will understand the key priorities a buyer has with respect to human rights and environmental performance. Buyers even have the option of memorializing their acknowledgment of responsibilities within the Buyer Code of Conduct.
Incorporating contractual clauses implicates several departments within an organization, including the procurement team, legal staff, and likely the sustainability team. This avoids silos within the organization and ensures that the entire team understands their role in the overall responsible sourcing framework.
The previous regime of simply requiring companies to robotically sign a supplier code of conduct created situations that were static and unrealistic. They also pushed all the responsibility for avoiding human rights issues onto suppliers. New responsible supply chain regulations around the world require much more to ensure companies avoid causing or contributing to human rights abuses — as do the new B Lab human rights standards.
Once the new standards are publicized, watch for another article delving deeper into the revised standards and how companies can ensure they’re ready when they come into effect.
Disclaimer: The information in this article is provided for informational purposes only. You should consult with an attorney before you rely on this information. This information should not be seen as legal advice and does not create an attorney-client relationship. This article is meant to be a general discussion and may not include all relevant information regarding the issues covered.