Understanding risk-based human rights due diligence

Key takeaways

• Risk-based human rights due diligence means businesses prioritise the most salient risks to people in their operations and supply chains.
• Global regulations increasingly require businesses to conduct human rights due diligence as part of responsible supply chain management.
• Strong due diligence improves risk mitigation by reducing exposure to litigation, reputational damage and operational disruption.
• Effective human rights due diligence strengthens supply chain resilience and can support long-term value creation.

Business operations and supply chains can affect human rights in many ways. Forced labour is a familiar example, but risks can also arise from unsafe working conditions, limitations on freedom of association, discrimination, privacy infringements or environmental harm.

Human rights due diligence is the process businesses use to identify these risks to people and take steps to prevent harm, mitigate impacts and remedy issues where necessary. The gold standard guidance for this process is the UN Guiding Principles on Business and Human Rights (UNGPs), published in 2011 and still the leading benchmark for global best practice.

Modern supply chains are increasingly complex, and businesses may struggle to address all their human rights risks equally and at the same time. A risk-based approach focuses attention and resources on the most salient human rights risks. These are the risks that are most likely to occur or that would be most severe if they did.

Meeting regulatory expectations across global markets

The regulatory landscape is evolving quickly, meaning human rights due diligence is no longer simply best practice. For many businesses, it is now a legal requirement.

In the European Union, the Corporate Sustainability Due Diligence Directive (CSDDD) requires large companies to conduct human rights due diligence. France, Germany and Norway have introduced similar domestic legislation. In the United Kingdom, new statutory guidance for the Modern Slavery Act 2015 sets a significantly higher standard for modern slavery statements, along with expectations around policies, governance, due diligence and training.

We are also seeing new import bans relating to forced labour. The European Union’s Forced Labour Regulation (FLR) will ban the import, export and sale of goods made with forced labour at any point in the supply chain. In this context, robust risk-based human rights due diligence becomes a fundamental element of operational risk management.

Reducing legal, reputational and operational risks

Although regulation is a major driver, the business case for human rights due diligence extends well beyond legal compliance.

Companies that fall outside the scope of new due diligence legislation will still be expected to meet higher standards by their corporate customers. Businesses that cannot demonstrate an understanding of their human rights risks may be excluded from procurement processes, face obstacles when bidding for work or experience delays while they respond to additional scrutiny.

There are also growing litigation risks. UK-based companies with overseas operations or suppliers may be exposed to legal claims in the English courts if they are linked to human rights harms abroad. Defending these claims is often more costly and resource intensive than implementing a proportionate human rights due diligence programme.

Reputational risks are equally significant. Investigative journalists and civil society organisations are increasingly active in scrutinising global supply chains. Allegations of human rights abuses can generate high-profile negative media coverage, undermine investor confidence and damage customer trust.

There are also operational consequences. Forced labour import bans can lead to goods being detained or destroyed. Labour disputes or strikes can disrupt production and create wider supply chain instability.

Creating long-term value through responsible supply chains

Human rights due diligence does not only reduce risk. It can also support long-term value creation.

Investors are increasingly aware that human rights risks can have significant financial impacts. Many now integrate human rights considerations into investment decisions, from due diligence assessments to transaction structuring. Businesses that can demonstrate robust risk-based human rights due diligence are therefore better positioned to attract capital and maximise value on sale.

Strong due diligence also enhances resilience across supply chains. A thorough understanding of who supplies the business, combined with regular two-way communication and long-term, partnership-based supplier relationships, helps businesses prepare for and respond to shocks. These may include extreme weather events, political instability or pandemics. Businesses that invest in understanding and mitigating human rights risks often benefit from greater continuity, reliability and efficiency across their supply chains.

Taking practical next steps

Risk-based human rights due diligence is becoming an essential component of responsible business practice and supply chain management. It supports compliance, reduces risk and strengthens resilience. Most importantly, it helps prevent and address harm to people connected to business activities.

For more detail on the topics explored in this article, please watch the accompanying video. If you would like tailored advice on developing or enhancing your human rights due diligence approach, please contact Kerry Stares or your usual Charles Russell Speechlys adviser.