Six research priorities that support corporate due diligence policies

The chocolate bars you buy in the USA might have been made in Belgium using cocoa from Cote d'Ivoire and almonds from Morocco.

Six research priorities that support corporate due diligence policies

The chocolate bars you buy in the USA might have been made in Belgium using cocoa from Cote d'Ivoire and almonds from Morocco. Vanilla from Madagascar, sugar from Brazil, and cocoa from Cote d'Ivoire. However, it is difficult to determine if these ingredients were grown on forest land or harvested by forced or child labor. The same applies to smartphones, clothing, and cosmetics. The manufacturing and sourcing of their components could have polluted rivers, exposed workers or resulted in biodiversity loss.

The European Commission introduced a directive on corporate sustainability due diligence in February. It outlines how European Union companies with more than 250 employees must identify, prevent, minimize, and stop any negative effects on the environment or on human rights embedded within their supply chains. They could face lawsuits, fines, and sanctions if they don't.

Similar proposals are being considered by other countries and organisations, such as the Organisation for Economic Co-operation and Development. These efforts need to be well-reasoned and consistent in order to be effective. To extend and harmonize due diligence, policy frameworks are necessary. Research is also needed.

These measures are needed because existing policies are too narrow in scope. California's Transparency in Supply Chains Act (2010) and the 2018 Australian Modern Slavery Act (2018) require large companies to report on their efforts to eradicate modern slavery and human trafficking in their supply chains. Global supply chains are home to around 18 million forced workers, including those in agriculture and mining as well as in manufacturing and construction. France's 2017 law regarding corporate duty of vigilance covers human rights as well as environmental violations. Third parties can sue companies for any damages they cause through their suppliers, subcontractors, or subsidiaries. There have been very few lawsuits. Six civil-society groups filed a lawsuit against Total in 2019 regarding the effects of an oil project on a national park in Uganda. This case is still ongoing.

Companies have not been able to fulfill their voluntary pledges to remove unethical practices from their supply chains. Actions rarely match the ambition of companies. Some companies have made commitments to source palm oil, soya, cocoa, and beef from countries that are low or no deforestation. One analysis revealed that very few of these companies monitored the progress made by indirect suppliers and worked with smallholders in order to improve their farming practices. Many companies instead choose the cheapest and easiest route, which could include ceasing to use poor suppliers.

These voluntary commitments do not reveal much about the effects of stricter mandatory measures. Policymakers need such insight.

We outline the major challenges in predicting the effects of corporate sustainability and performing due diligence. Our focus is on agriculture and mining. Six research priorities were identified to help us develop the knowledge necessary to create effective policies.

One-third of the gross national product of lower-income countries comes from agriculture and mining. Each of these brings with it a host of human-rights issues (see "Unsustainable supply chains").

Around 29% (5.4 million) of modern slavery victims are in the United States, while 70% (about 100 millions) of child laborers work in agriculture. This is mainly in low-income countries3. Between 2001 and 2015, 51% of global forest was lost to agriculture. This is mainly because it provides cropland and pastures. This habitat loss poses extinction risk to 49% of all species that are classified as critically endangered by International Union for Conservation of Nature.

Five of the six biomes with the highest biodiversity -- Australia, Ghana, Peru -- account for around 79% of global metal ore extractions. This is a threat to thousands of species. Cobalt, tin and gold are often extracted by hand, and this can lead to pollution and unsafe working conditions. The Katanga Copperbelt region of the Democratic Republic of the Congo (DRC) is home to more than half of the world’s cobalt production. Here, about 20% of the cobalt is mined by artisanal miners working in dangerous conditions. People living close to mines containing cobalt are at risk of developing cancer.

These industries have complex supply chains that make it difficult to enforce due diligence. Even proactive companies have difficulty determining the origin of their products from other than direct suppliers. Apple, a technology company, contracts with dozens of manufacturers to make its computers and chips. Its 2021 list of minerals suppliers comprises 291 refineries and smelters in 41 countries that provide cobalt, lithium, tin, tantalum, tungsten and gold (see go.nature.com/3xt4zty). Current regulatory efforts around the supply of minerals in general are limited to ensuring that sourcing from other countries does not directly finance armed groups (see, for example, go.nature.com/3zvijfr). These materials are used in many industries, including construction and vehicles.

It's even more difficult to predict the impact of mandating due diligence. It is not always possible to predict the impact of tighter standards in one area on conditions elsewhere. While stricter import regulations in the US and EU might encourage some companies to improve their standards, it is not always possible. US and EU companies may stop buying from suppliers in less-developed or conflict-affected nations like the DRC. This is where illegal mining of gold, coltan (niobium) and tantalum. There could also be unintended consequences. For example, children who were once employed in illegal gold mines could become child soldiers.

Researchers urgently need to fill the following knowledge gaps, as the effects of mandatory supply chain requirements can be very different from those of voluntary guidance.

Evaluate the impacts. Before policies are implemented, it is important to assess their socio-economic and environmental impact. However, little has been done to examine how sustainability policies affect local and global levels. There are limitations to modeling tools. Computable general equilibrium models (CGE), which simulate the economy's reaction to shocks, new technologies, or policies, can only be used with data that is aggregated by country or sector. It is difficult, for example, to determine how policies in one country affect households and ecosystems in others. Forecasting and modeling strategies that work across scales are required.

These models also require detailed data that is not available. For all countries, regular household surveys such as the World Bank's Living Standards and Measurement Surveys are not possible. Even rarer are enterprise surveys, which collect business information on a small number of private companies in a single economy. Both could be used to help predict the impact of policies on different socioeconomic groups and businesses. These data gaps can be filled with targeted investments.

Empirical studies of policies implemented, such as those that quantify the drivers of deforestation, are an overlooked source of information. These studies should be used more often, as they are not currently integrated into CGE models. This is because the research communities remain separate. Models that include empirical estimates on the degree to which agricultural land changes are affected by economic and policy shocks could be used to help researchers simulate the effects of policies converting biodiverse forests to farmland. This would prevent underestimating ecosystem services' losses and provide more detail.

You can measure compliance. Monitoring and examining the trade-offs among data validity, reliability, and costs is what researchers need to do. Consumers will not believe that products are produced sustainably if companies can't prove due-diligence requirements along their supply chain. Companies could also be exposed to reputational risk if they fail to comply with human-rights violations.

Both digital and technological solutions can be used to help. Satellite imagery and remote sensing can be used to track the deforestation. Coca Cola is currently testing blockchain technology to create a safe registry of workers in Brazil. This would help reduce the number of forced laborers. Many of these ideas are still in their pilot phase. They are not yet feasible or scalable in smallholder farms. Auditors who are subject to surveillance and data privacy issues need to be addressed.

It is up to the individual who monitors. Independent companies can perform third-party auditing, such as the Dutch company Control Union in Rotterdam or Bureau Veritas, Neuilly-sur–Seine, France and FLOCERT, Bonn, Germany. This is expensive. Usually, the company or farmer's organization hires auditors. Audits are usually announced in advance. For group certification, which is the norm in smallholder sectors, inspectors can only visit a limited number of suppliers. It is difficult to verify and subjectively allow companies to report on their supply chains. This creates a lack of trust in the public. Researchers need to consider which trade-offs would be best in each situation.

Due-diligence policies must include monetary incentives as well as smart solutions to data privacy and security in order to encourage firms and other organizations to make their data accessible for research. It is possible to set up digital registries that keep confidential, competitive or identifying information, such as supplier lists, and withhold sensitive data. These efforts could be a model for other countries, such as the Scandinavians. The office within the European Commission responsible for receiving reports and data from member states could approve data requests and coordinate data coordination.

Create theoretical frameworks. To evaluate the impact of sustainability on future generations, it is necessary to develop clear and tested hypotheses. To answer these questions, it is necessary to establish the following: Under what conditions does due diligence policy shift negative impacts onto other regions or sectors. What are the business options for responding to different standards and competing incentives in their supply chains? For example, can purchasers blacklist certain companies based on country? What consequences might lost markets and new standards have on suppliers countries?

Researches need to look at how market leverage of companies who implement due diligence affects a policy's efficacy relative to those who don't. For example, a country that has a small import market might set high standards and suppliers who don't meet them may turn to countries with lower standards. This could lead to a fragmentation of supply and importer networks, which can increase trade costs and reduce economies of scale.

Also, shifting sources should be considered as these can have a positive impact on the environment. Europe, for example, currently gets most of its soya from Brazil's Amazon to reduce transport costs. However, the risk of deforestation in the former13 is higher. Importers might be forced to provide EU markets with soya that is 'deforestation-free' to avoid relocating them to other countries. However, if the deforested regions are able to find buyers in less-picky countries, the net effect of this will be negligible. To help policymakers make complex decisions about sustainability outcomes, they must establish theoretical criteria.

Understanding policy interactions. Many case studies and impact assessments of voluntary policies for supply chain governance do not consider the wider political context in exporting and import countries. These laws must now be analysed as part of a global policy environment14.

Due to opposition from the Brazilian agriculture lobby, major soya traders have stopped making voluntary commitments to protect Brazil's Cerrado area. It could give these firms more authority to reinforce existing commitments if the EU requires companies to keep native vegetation from being cleared. It could also encourage opposition to EU-linked companies and retaliation. This could encourage more farmers to use Chinese companies and decrease the EU's leverage in promoting sustainable soybean production.

Different approaches to due diligence in importing and exchanging countries can make a difference. Some higher-income countries might create laws banning certain products such as gold that is extracted from ore8 using sodium cyanide. Producing countries could retaliate against perceived protectionist by setting tariffs or taxes on goods imported from regions with such legislation.

Support equity. The Due-diligence Act outlines what companies must achieve but not how. There are many options available, including incentives and sanctions. This mix of policies and their implications for workers across different industries requires researchers to comprehend. To encourage suppliers to improve their practices, companies may offer higher prices to employees who wear protective gear. Or, national governments might ban non-sustainable practices. In 2010, Indonesia banned local governments from issuing any new licenses for palm oil, timber, logging, and other activities in primary forests and peatlands.

Inequalities can be exacerbated by some policy decisions that are made to protect the environment. The Minamata Convention of the United Nations, which was signed in 2017, aims to eliminate mercury pollution. However, it is possible for governments and companies to favor industrial-scale mining over local communities that use mercury less often.

Root causes must be addressed. Only due-diligence laws will achieve so much. The many systemic issues that underlie global trade are not solved by shifting to new suppliers. These include weak enforcement of regulations in the producer countries, technological disadvantages and insufficient revenue to invest in improved production practices. These problems can be solved by the scientific community. Research should consider both supply and demand and forecast the negative effects of unhealthy or unsustainable diets, excessive consumption, low recycling, and other unsustainable uses of biomass.

Global sustainability is dependent on a coherent global governance system. Effective due diligence is essential for global governance. These research priorities could be used to achieve it.