On January 29, NAVEX is hosting the Top 10 Trends in Risk and Compliance webinar. This post is a preview of two of the topics covered in the eBook and webinar: the current and expected future state of ESG, and human rights in the supply chain.
Human rights in the supply chain: prioritizing third-party due diligence and ongoing monitoring
Third-party due diligence and continuous monitoring are non-negotiable elements of modern compliance programs. These practices protect organizations from legal repercussions, reputational damage and operational disruptions linked to global supply chain issues. One area that is under the microscope is human rights violations across supply chains.
Regulatory pressures and heightened scrutiny
Companies must rigorously assess and monitor supply chains as the regulatory environment evolves, in order to withstand this increasing scrutiny. Beyond regulatory demands, key stakeholders – investors, consumers and the media – also exert significant pressure to address human rights issues. Public exposure of human rights issues within supply chains inevitably leads to operational, financial and reputational fallout, making this a pressing concern.
Key regulatory developments
European Union Corporate Sustainability Due Diligence Directive (CSDDD)
Effective July 25, 2024, the CSDDD requires large companies to identify and mitigate adverse human rights impacts, such as child labor and environmental issues, like pollution. This Directive extends from primary operations to subsidiaries and business partners for companies meeting specific thresholds. Additionally, companies must develop climate transition plans aligning with the Paris Agreement’s goals of limiting global warming and achieving climate neutrality.
Corporate Sustainability Reporting Directive (CSRD)
The CSRD mandates specific large and listed companies to disclose risks and opportunities arising from social and environmental issues. Reporting standards under the European Sustainability Reporting Standards (ESRS) aim to provide transparency, with compliance stages rolling out from the 2024 financial year onward.
German Supply Chain Due Diligence Act
In effect since January 1, 2023, this legislation imposes due diligence obligations on German companies with over 1,000 employees. Risk assessments must identify potential human rights or environmental violations, and preventive measures must be documented. Reporting mechanisms are also mandatory, ensuring annual compliance reviews.
Global regulatory landscape
Beyond Europe, countries like the UK, Canada, France, and the U.S. enacted laws addressing supply chain due diligence. For example, the UK Modern Slavery Act and California Transparency in Supply Chains Act emphasize reporting and preventive measures against labor exploitation.
Best practices for compliance
Addressing human rights and environmental protection requirements is no small feat. In short, businesses should ensure the following practices are in place:
- Adopt a principles-based approach: Align compliance initiatives with the Universal Declaration of Human Rights
- Implement cross-functional strategies: Engage legal, compliance, risk, procurement and leadership teams
- Develop regulatory roadmaps: Use technology to track and adapt to evolving regulations
- Conduct targeted risk assessments: Identify high-risk suppliers based on spend, region and industry
- Verify supplier claims: Perform audits and due diligence assessments to validate compliance
- Document and escalate: Address gaps proactively, ensuring transparent remediation processes
By embedding these strategies into compliance frameworks, companies can safeguard against regulatory and reputational risks while promoting ethical practices in their supply chains.
Navigating ESG compliance in a polarized landscape
Environmental, Social and Governance (ESG) priorities transitioned from niche concerns to mainstream imperatives, reshaping corporate strategy, risk management and stakeholder communications. However, as ESG gains traction, it faces backlash, particularly in politically polarized regions like the United States.
The evolution of ESG
Initially rooted in corporate responsibility, ESG gained momentum in the 2000s as stakeholders demanded sustainable business practices. By 2019, the Business Roundtable’s endorsement of stakeholder capitalism marked a pivotal shift from profit-centric models to holistic value creation. Today, ESG is both an ethical imperative and a driver of sustainable growth, but it also attracts criticism as a symbol of “woke capitalism.”
Regulatory fragmentation
For multinational corporations, navigating ESG compliance is challenging due to jurisdictional disparities. For example:
- United States: States like Texas oppose ESG initiatives, with legislation targeting companies committed to climate and social governance
- European Union: The EU’s comprehensive ESG directives – such as the CSDDD and CSRD – set rigorous standards for sustainability reporting and human rights protections
- Asia-Pacific: Countries like Japan and Australia are integrating ESG into their regulatory frameworks, reflecting regional nuances
Key challenges and strategies
Balancing stakeholder expectations
Companies must address diverse stakeholder demands, from investors seeking long-term value to consumers advocating for sustainability. Transparent communication is essential to build trust and mitigate potential backlash.
Leveraging technology for compliance
Automated tools can streamline ESG reporting, track regulatory changes and improve supply chain transparency. These technologies reduce administrative burdens while improving accuracy and efficiency.
Fostering a unified culture
Organizations should consider embedding ESG values into their corporate culture, ensuring alignment across all levels and making ESG about the outcome, not the acronym. Training programs and leadership engagement can reinforce these principles.
The ESG landscape will continue evolving, driven by regulatory advancements and societal expectations. Companies that proactively adapt to these changes can position themselves as sustainability leaders while mitigating non-compliance risks.
2025 Top 10 Trends in Risk and Compliance webinar and eBook
Sign up for January 29, 2025, webinar to hear expert insights into the trends and receive early access to the complete 2025 Top 10 Risk and Compliance Report by clicking the link below.
