SUSTAINABILITY

IN SUPPLY CHAINS
A guide for private markets investors

SEPTEMBER 2025

An investor initiative in partnership with UNEP Finance Initiative and UN Global Compact
THE SIX PRINCIPLES

PREAMBLE TO THE PRINCIPLES

As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role,
we believe that environmental, social and governance (ESG) issues can affect the performance of investment portfolios (to
varying degrees across companies, sectors, regions, asset classes and through time). We also recognise that applying these
Principles may better align investors with broader objectives of society. Therefore, where consistent with our fiduciary
responsibilities, we commit to the following:

1
We will incorporate ESG issues
into investment analysis and
decision-making processes.

2
We will be active owners and
incorporate ESG issues into our
ownership policies and practices.

3
We will seek appropriate
disclosure on ESG issues by
the entities in which we invest.

4
We will promote acceptance and
implementation of the Principles
within the investment industry.

5
We will work together to
enhance our effectiveness in
implementing the Principles.

6
We will each report on our
activities and progress towards
implementing the Principles.

PRI's MISSION
We believe that an economically efficient, sustainable global financial system is a necessity for long-term value creation.
Such a system will reward long-term, responsible investment and benefit the environment and society as a whole.

The PRI will work to achieve this sustainable global financial system by: encouraging adoption of the Principles and
collaboration on their implementation; fostering good governance, integrity and accountability; and addressing obstacles to
a sustainable financial system that lie within market practices, structures and regulation.

PRI DISCLAIMER
The information contained on this document is meant for the purposes of information only and is not intended to be investment, legal, tax or other advice, nor is it intended to be relied upon in making an investment
or other decision. All content is provided with the understanding that the authors and publishers are not providing advice on legal, economic, investment or other professional issues and services. PRI Association is
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 SUSTAINABILITY IN SUPPLY CHAINS | 2025

FOREWORD

Our private markets signatories continue to make These changes come as private markets signatories are
meaningful strides in advancing their responsible investment undergoing a broader transition from a primary focus on risk
practices. We are encouraged by the high levels of mitigation to one that seeks to generate and capture value
collaboration and innovation across this community, through sustainability. We hope this guide supports our
reflected in the engagement of more than 200 investors in private markets signatories in evolving and advancing their
the development of this guide. thinking and practice, helping to embed effective risk
management alongside value creation by fostering more
The business case for responsible investment must be transparent, sustainable and resilient supply chains among
resilient amid an evolving geopolitical and regulatory portfolio companies.
landscape. Our conversations with investors throughout this
project have reaffirmed that the rationale remains robust, As we face today’s complex and dynamic challenges, it is
namely that incorporating financially material sustainability more important than ever for the responsible investment
risks and opportunities is part of fulfilling fiduciary duty. community to stay connected – sharing insights, fostering
dialogue and championing best practice. I extend my sincere
Regulatory developments are increasingly reshaping thanks to all the signatories who participated in the survey,
investor responsibilities regarding investee supply chains interviews and workshops that underpin this guide. Your
and associated sustainability due diligence. Investors are openness and commitment are essential to the continued
now expected to take a more holistic view of investee advancement of responsible investment globally.
companies, delving deeper into their supply chains to
uncover and manage hidden risks and identify long-term I am also grateful to LRQA and Travers Smith for their
value creation opportunities. At the same time, shifting valued support in the production of this guide.
trade policies are reconfiguring global supply chains,
introducing new uncertainties that require thoughtful David Atkin
navigation. CEO, PRI

3
 CONTENTS

FOREWORD �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������3

1. EXECUTIVE SUMMARY ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 5

ACKNOWLEDGMENTS �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 6

ABOUT THIS GUIDE ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 7

2. INTRODUCTION............................................................................................................................................................................................................8

3..THE BUSINESS CASE FOR SUPPLY CHAIN DUE DILIGENCE ��������������������������������������������������������������������������������������������������������� 11

3.1. Human rights and environmental risks in global supply chains................................................................................ 11

3.2. Implications for portfolio companies and investors ���������������������������������������������������������������������������������������������������� 15

3.3. A changing regulatory landscape ������������������������������������������������������������������������������������������������������������������������������������������� 16

4. PRACTICAL INSIGHTS ON INTEGRATING SUPPLY CHAIN DUE DILLIGENCE..................................................................... 19

4.1. Supply chain due diligence as an investor �������������������������������������������������������������������������������������������������������������������������� 19

4.2. Supply chain due diligence as a portfolio company ��������������������������������������������������������������������������������������������������� 40

USEFUL SOURCES AND FURTHER READING ��������������������������������������������������������������������������������������������������������������������������������������������� 51

CREDITS................................................................................................................................................................................................................................ 52

4
 SUSTAINABILITY IN SUPPLY CHAINS | 2025

1. EXECUTIVE SUMMARY

The current environment makes it more critical than ever ■ Mapping out supply chains can uncover hidden risks and
for companies and investors to understand the detail and opportunities. Limited supply chain visibility remains a
structure of supply chains and the associated sustainability major challenge for businesses, often masking critical
risk and opportunity. As geopolitical and regulatory shifts risks such as forced labour or poor working conditions.
continue – creating conflict and uncertainty – having Companies and leading investors are addressing this
visibility into and a deep understanding of supply chains by integrating supply chain mapping exercises into due
can enable the identification of points of leverage and the diligence – starting with tier 1 suppliers and extending
flexibility needed to ensure their resilience. deeper in high risk areas. Not doing so limits the ability
of investors and portfolio companies to exert leverage
This guide explores why and how private markets investors to mitigate risk.
might approach sustainability risks in the supply chains of
investee companies. It addresses the regulatory, operational ■ Risks in the supply chain vary across regions and
and financial implications for private markets investors and industries and can be mitigated when portfolio
corporate stakeholders. companies have mature risk management processes.
Sound due diligence identifies and prioritises human
Our findings underscore that embedding supply rights and environmental risks, followed by evaluation
chain visibility requirements and due diligence, both and ongoing performance monitoring of the portfolio
preinvestment and during ownership, is no longer optional company’s supply chain risk management capabilities.
but is a strategic driver of value creation and protection
and an enabler of exit readiness. Firms that proactively ■ To protect and create value, portfolio companies
assess and manage supply chain risks can safeguard assets, should establish robust supply chain frameworks
enhance financial performance, unearth opportunities and processes. These include supply chain mapping,
and strengthen long-term resilience. This guide offers targeted risk assessments and focused due diligence, as
leading practices and practical guidance for integrating due well as risk-based mitigation measures such as supplier
diligence into investment processes, equipping investors and training and continuous performance monitoring.
portfolio companies with a roadmap to navigate regulatory
complexities while unlocking new growth opportunities. To support active engagement, this guide discusses key
practices across the investment cycle, from early screening
Its key takeaways are: and investment decision-making, to exit and re-investment.
It offers practical insights on:
■ There is a clear business case for supply chain due
diligence. Failing to identify or manage human rights ■ industries with high exposure to human rights and
and environmental impacts in the supply chain creates environmental risks in the supply chain;
exposure to financial, operational and reputational ■ key considerations for general partners, limited partners
harm. Real world cases illustrate these business risks and portfolio companies when assessing supply chain
and the corresponding economic impacts. sustainability;
■ critical questions for integrating supply chain topics into
■ Supply chain due diligence can be embedded across early investment screening and due diligence;
all investment stages. While many investors have ■ varying approaches to engaging with companies on
responsible investment policies and conduct initial supply chain risk management, based on investors’
high-level sustainability risk screening, a more rigorous leverage;
assessment of portfolio companies’ supply chain risks ■ managing subcontracting risks.
and management practices should form a core part
of due diligence. This deeper evaluation is particularly
critical for companies operating in or sourcing from
high-risk countries and industries and can enhance
investors’ ability to monitor, engage with and incentivise
performance improvements across the entire
investment cycle.

5
 ACKNOWLEDGEMENTS

This guidance document was developed in collaboration

with LRQA, a risk and assurance advisory firm appointed Our special thanks to the following organisations
by the PRI. We are also grateful to Travers Smith and for their contributions:
the Responsible Contracting Project for their valuable
contributions to key sections of the guide. ■ Adenia

■ Actis

The PRI would like to extend thanks to its ■ Alterra Capital

Private Equity Advisory Committee for feedback
■ BC Partners
throughout the development of this guide. As of
June 2025, its members included: ■ Coller Capital

■ Goldman Sachs Asset Management

■ Aware Super
■ IK Partners
■ Blackstone
■ Inspired Evolution
■ Blue Wolf Capital Partners
■ Nextalia
■ British International Investment
■ PAI Partners
■ Carlyle
■ Permira
■ EQT
■ Skandinaviska Enskilda Banken (SEB)
■ FountainVest
■ Seviora Group
■ Healthcare of Ontario Pension Plan (HOOPP)

■ Helios Investment Partners

■ IG4 The opinions, recommendations, findings and conclusions in

■ KKR the guide are those of the PRI alone and do not necessarily
represent the views of the contributors.
■ Kohlberg & Company

■ New York City Office of the Comptroller

■ OPTrust

■ PGGM

■ Samara Capital

■ San Francisco Employees’ Retirement System

(SFERS)

■ StepStone Group

■ Verod Capital

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 SUSTAINABILITY IN SUPPLY CHAINS | 2025

ABOUT THIS GUIDE

This guide sets out the business case and provides practical The content in the guide was developed based on:
guidance for private markets investors to assess and
manage sustainability risks in the supply chains of investee ■ 20 in-depth interviews with a diverse set of GPs
companies, both before investment and during the holding and LPs;
period. ■ five workshops, involving more than 200 private
markets investors across Asia, Europe, Africa, Latin
General partners (GPs) can use the guide to inform their America and North America;
supply chain due diligence and ongoing management ■ a global survey of private markets investors;
processes, while limited partners (LPs) can use it to better ■ LRQA expert insights;
understand their GPs’ approaches to sustainable supply ■ desk research.
chains. It also provides guidance applicable to private
markets investors’ portfolio companies. The PRI collaborated with LRQA, a global risk and assurance
advisory firm with expertise in supply chain sustainability
The guide is intended for investors and portfolio companies and resilience, to produce the research and this guidance.
at different stages of maturity and practice on sustainable The PRI’s Private Equity Advisory Committee provided
supply chains. inputs throughout.

■ For those new to or less familiar with the topic, it

provides a general introduction to the importance of
supply chain sustainability risks and breaks down the
different elements of conducting sustainability diligence
and ongoing management of supply chains.
■ For those with an existing supply chain due diligence
process, the guide can be used to review and
benchmark their current processes against leading
industry practices and learn from peers using the
case studies and examples provided throughout the
document.

7
 2. INTRODUCTION

In the context of this guide, supply chain due diligence refers and diversification, reducing the potential for operational
to the processes used by companies and investors (both disruption due, for example, to delivery delays or limited
pre- and post-investment) to identify and address potential availability of inputs. By assessing suppliers’ financial
and actual negative impacts on people and the environment stability and sustainability practices, businesses can evaluate
occurring within their supply chains. These impacts are alternative options for sourcing that meet compliance and
linked to issues such as forced labour, poor working sustainability standards, thereby reducing dependency on
conditions, environmental violations and governance any single region or supplier.
failures, and they vary across industries and geographies.
Conducting thorough supply chain due diligence and VALUE CREATION THROUGH COMPETITIVE
understanding the associated business risks not only helps ADVANTAGE AND OPERATIONAL EFFICIENCIES
mitigate such impacts but also supports key business
objectives of risk management and value creation. Supply chain due diligence also presents opportunities
for value creation. Companies that prioritise visibility over
Global uncertainty and recent developments in and resilience of their supply chains can attract clients
geoeconomics have prompted a deep review of supply seeking well-managed partners who can meet specific
chains and the rethinking of sourcing strategies, expectations, secure valuable contracts and demonstrate a
requiring investors to ensure portfolio companies can better asset value. As consumer and regulatory expectations
adapt quickly and mitigate exposure. For private equity- rise, businesses with strong sustainability and governance
backed businesses, this means supply chain due diligence practices can position themselves as preferred partners and
can no longer be treated as a deliberate, compliance- investments.
driven process. It must be immediate, agile and tightly
integrated with commercial decision-making. A diverse Supply chain due diligence can improve operational
and flexible supply chain has become essential not only to efficiencies and create cost savings. By identifying potential
maintain business continuity but also to safeguard against disruptions early, companies can optimise logistics, reduce
regulatory, reputational and operational shocks. Embedding waste and improve supplier performance. Companies
sustainability into procurement strategies can further that help their supplier base maintain compliance with
enhance this resilience, helping companies to future-proof international standards are less vulnerable to sudden
operations and adapt more effectively to evolving market regulatory changes or trade restrictions.
and policy expectations.
In addition, a growing number of companies, government
RISK MITIGATION THROUGH REGULATORY agencies and development finance institutions require
COMPLIANCE AND SUPPLIER DIVERSIFICATION suppliers and project sponsors to demonstrate strong
human rights and environmental due diligence before
Supply chain due diligence helps businesses avoid legal agreeing contracts, providing those with robust risk
repercussions and reputational damage linked to non- management systems a competitive advantage in tendering
compliance, especially in an evolving regulatory environment processes.
where supply chain accountability is increasingly mandated
by law. Over the past decade, there has been a shift from This guide explores guidance for human rights and
voluntary guidelines to legally binding regulations on human environmental supply chain due diligence (Section 4) and
rights due diligence, enhancing corporate responsibility provides practical guidance on how to integrate supply chain
along supply chains, as we discuss in section 3.2. considerations into the investment cycle (Section 4.1) and
on portfolio companies’ risk management and responsible
In addition to mitigating legal risk, effective supply chain sourcing approaches (Section 4.2). Further reading and
due diligence can also help to enhance supplier visibility useful resources are included in section 5.

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 SUSTAINABILITY IN SUPPLY CHAINS | 2025

DEFINITION:

WHAT IS SUPPLY CHAIN DUE DILIGENCE?

Supply chain due diligence refers to an extended scope Due to the proximity to the end buyer (the company),
of risk assessment and management activities, which transparency regarding tier 1 suppliers is generally the
includes a company’s supply chain. It is an extension of highest. Many companies know their first-tier suppliers,
both the wider corporate due diligence that a private where they are based and which products or services
markets investor will carry out on a potential acquisition they supply. In turn, companies can more easily audit and
pre-investment and active monitoring and engagement assess these suppliers’ operations, ensuring compliance
conducted post-investment. with ethical, environmental and labour standards.

A supply chain generally refers to the system of people However, it can nonetheless be challenging for
and things that are involved in creating and delivering companies to have full visibility of their tier 1 suppliers’
a product or service, from the raw materials involved labour conditions, sustainability practices and the
to the ultimate buyer. While a value chain refers to all broader impact of their operations, and manage the
stages of a product or service’s lifecycle, from design, associated data, especially in complex global supply
production and use to end-of-life and disposal, the chains and when sourcing from hundreds or thousands
term supply chain focuses on the ‘upstream’ sourcing of first-tier suppliers.
and production phases, from the production of the
raw material, usually over multiple manufacturing and INDIRECT SUPPLIERS (TIERS 2, 3 AND BEYOND)
refinement processes, to the delivery of the sourced good,
product component or service to the sourcing company. Indirect suppliers at tier 2, tier 3 or beyond supply
product components, raw materials or services to the
For the final production of a good or provision of a previous tier of suppliers. Direct suppliers to tier 1 are
service, a company usually sources from multiple considered tier 2, direct suppliers to tier 2 are considered
suppliers, who in turn get their product components tier 3, and so on.
from multiple suppliers, who in turn get materials for
these product components from multiple suppliers, and The more upstream the supplier in the supply chain, the
so on. These are referred to as supply chain tiers, with further removed it is from the end buyer, and the more
suppliers being differentiated between first-tier suppliers difficult it becomes to assess those less visible suppliers’
(closest to the company, with direct contractual sustainability exposure and practices. This is particularly
relationships) and second-, third- and n-tier suppliers the case for suppliers located in regions with less
(indirect suppliers who supply to first-, second-, third-tier stringent regulations or oversight or which are involved
suppliers etc.). in processes that are more prone to health and safety
issues or exposed to the risk of child and forced labour.
Visibility of company suppliers, including what, where
and how they produce, can vary significantly across the Tier-n suppliers can be several steps removed from the
different tiers of a supply chain, often making it challenging final buyer, making it nearly impossible for companies
for companies to monitor and manage risks effectively. to directly identify, monitor or audit these operations.
Visibility and transparency at the higher tiers of the
DIRECT SUPPLIERS (TIER 1) supply chain can require extensive collaboration with
first-tier suppliers and below to improve visibility.
Tier 1 suppliers are typically the direct suppliers
of a company, providing the finished goods or key The example below details the value chain of a textile
components that companies integrate into their brand, with a focus on its upstream supply chain.
products, or supporting services or products such as IT
equipment or office cleaning services.

9
 Figure 1: The value chain of a textile brand ​

Tier-n Tier-n Tier 3 Tier 2 Tier 1

Upstream supply chain Own operations Downstream

Raw materials​ ​Fibre processing Fabric Garment Garment Buyer/ End user​
and yarn spinning​ manufacturing​ manufacturing finishing​ Company​ ​
​ ​ ​ ​ ​ ​​
• Cotton • Spinning mills • Weaving, • ​Cutting, • ​Trimming and • Textile brand • Warehouses, retailers,​
farms, wool (fibres to yarn)​ knitting to turn sewing, embellishments​
• End consumers​
producers, yarn into fabric​ assembling
• Dyeing and • Quality • Disposal
hemp growers​ chemical textiles into
• Dyeing, printing​ control,
garments​
• Chemical dyes treatment of packaging,
yarn shipment

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 SUSTAINABILITY IN SUPPLY CHAINS | 2025

3. THE BUSINESS CASE FOR SUPPLY

CHAIN DUE DILIGENCE

Human rights and environmental supply chain due diligence can be of strategic importance for private
markets investors, especially given the degree of leverage they have over their portfolio companies.
Exposure to sustainability risks varies across sourcing regions, industries and manufacturing activities,
while inadequate due diligence can lead to financial, operational and reputational risks and impacts. An evolving
regulatory landscape and key human rights and environmental due diligence requirements are shaping
corporate accountability and investment decision-making.

3.1 HUMAN RIGHTS AND According to data from LRQA, at least 60% of the 362
ENVIRONMENTAL RISKS IN GLOBAL sourcing regions it covers (both at the national and
SUPPLY CHAINS subnational level) are at high or extreme risk relating to the
treatment of labour, health and safety, the environment,
To get a better picture of sustainability risks within supply business ethics and management systems.1 Figure 2 shows
chains, many companies use third-party software products the global risk landscape as per LRQA data, indicating its
to support them in their supply chain due diligence and risk overall risk score per geography, aggregating risk scores
management. These can, among other things, help identify across five pillars (labour, health and safety, environment,
which regions and sectors are particularly exposed to business ethics and management systems). This data is
specific risks, helping companies to focus their scrutiny. derived from nearly 30,000 onsite audits per year.

Figure 2: Global landscape of overall sustainability risk level. Source: EiQ

Risk key: ■ Extreme ■ High ■ Medium ■ Low

1. LRQA (2024), 2025 Supply Chain ESG Risk Outlook Report

11
 This data identifies the following key risks and trends: ■ Working hours: While forced labour and child labour
remain at the forefront of salient issues threatening
■ Forced labour: At least 28 million people are subject supply chain integrity and responsible sourcing,
to forced labour,2 with LRQA data revealing that at excessive working hours is another common violation
least 20 regions have shown rising forced labour that masks the real costs associated with suppliers.
risk since 2024. Countries like India, Vietnam, China, Supply chain sites assessed by LRQA for one Western
Indonesia and even the United States and Mexico show retailer and its suppliers showed at least 25 factories
high or extreme risks of forced labour. These are key where employees worked more than 90, and
manufacturing and sourcing countries for companies sometimes even more than 100, hours per week, with
in sectors such as electronics, textiles and garments, corresponding pay violations concealing the true cost of
pharmaceuticals, seafood and agriculture. production.

LRQA data indicates that at least 57 countries/regions, ■ Health and safety: LRQA data shows at least 54
representing more than 55% of assessed geographies, countries/regions at high or extreme risk of health
were judged to be at high or extreme risk of forced and safety violations in 2025, encompassing issues
labour in 2025, with more geographies at extreme risk like building safety, machine safety, fire safety and
for forced labour issues than any year prior. workplace injuries. Key sourcing regions at high or
extreme risk include Pakistan, Bangladesh, India,
While issues of forced labour can occur across all Vietnam, Turkey and Mexico – regions that all play a
sectors and tiers of a supply chain, the extraction of central role in global manufacturing and raw material
raw materials and production of primary commodities, extraction. These risks, associated with unsafe factory
such as in agriculture, fishing or mining, for example, conditions, exposure to hazardous chemicals and lack
are typically linked to high-risk exposure. Forced labour of proper protective equipment, are prevalent in – but
also persists in many processing industries – including not limited to – sectors such as textiles, electronics,
in companies’ own operations, if left unchecked. The construction materials and mining.
textile and apparel industry remains a major culprit but,
in reality, the challenge is much more widespread. Importantly, unsafe working conditions may often
go undetected, as sporadic audits may not provide a
■ Migrant workers: Migrant workers are more than true reflection of a site’s conditions. Addressing these
three times as likely to be in forced labour situations vulnerabilities requires comprehensive strategies,
than non-migrant workers.3 They face greater including robust legal protections, targeted health
exploitation due to issues such as language barriers, and safety training, accessible reporting mechanisms
lack of awareness of their rights and lack of access to and efforts to integrate migrant workers into local
resources, making it difficult for them to seek help or communities.
report abuses. This risk is particularly pronounced in
countries with weaker labour protections, high levels of ■ Environmental violations: At least 46% of sourcing
corruption and unregulated markets with less oversight, markets exhibit high or extreme risk of environmental
but it occurs in all markets with migrant workers. violations. This highlights a gap in how sites manage
critical environmental issues, such as wastewater
■ Child labour: UNICEF estimates that 160 million treatment, hazardous waste disposal and the
children are victims of child labour worldwide.4 LRQA establishment and enforcement of emissions targets.
data shows that at least 46 geographies are at high or In addition to site-level environmental issues, broader
extreme risk of child labour violations in 2025, including environmental and climate related impacts – such as
regions such as India, where exposure to child labour flooding or extreme heat events – pose direct risks of
issues has risen significantly since 2024. operational disruptions in supply chains.

2. ILO (2022), Global Estimates of Modern Slavery: Forced Labour and Forced Marriage, 3. UN News (12 September 2022), 50 million people in modern slavery: No justification for

‘fundamental’ human rights abuse 4. UNICEF (undated), Action Against Child Labour

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 SUSTAINABILITY IN SUPPLY CHAINS | 2025

■ Biodiversity loss and deforestation: Biodiversity Democratic Republic of Congo, Malaysia and Côte
and ecosystem loss pose escalating risks to supply d’Ivoire.5 Regulations such as the EU Deforestation
chains, particularly where raw material extraction, Regulation (EUDR)6 and the EU Battery Regulation7
agricultural expansion and forest-risk commodities are are compelling companies to assess and mitigate
involved; industries most exposed include agriculture, environmental impacts in their supply chains: without
food and beverage, timber, paper, palm oil and mining. visibility and transparency of information, capturing the
Deforestation hotspots include Brazil, Indonesia, the data these regulations require is a formidable task.

Figure 3: Global landscape of supply chain forced labour risks. Source: EiQ

Risk key: ■ Extreme ■ High ■ Medium ■ Low

The risk of adverse social and environmental impacts occurring ■ small-scale farming, family-run businesses and informal
in supply chains is not uniform but is rather industry and manufacturing activities, due to the challenges of
country-specific. Depending on the industry and product or enforcing labour laws;
service provided, a company may rely on suppliers from a range
of different sourcing countries, each presenting varying levels ■ dependence on seasonal and labour-intensive work;
of social and environmental risk exposure.
■ reliance on high-risk commodities with a documented
The level of risk exposure is also influenced by the nature history of child and forced labour violations.
of products or services provided, the input materials and
components required, and the underlying manufacturing As a result, supply chain risks should be assessed and
processes. For example, the following factors can suggest addressed based on geographical sourcing patterns and
higher risk: industry dependencies. The spotlight below provides a non-
exhaustive overview of different high-risk industries, the
■ reliance on detailed, repetitive or manual labour, which sourcing countries that are typically involved and related key
may be more susceptible to child and forced labour; social and environmental risk issues in their supply chains.

5. Global Canopy (2025), Companies profit, forests fall: everyone pays the price - Forest 500 Report 2025, 6. European Union (2023), Regulation (EU) 2023/1115 on products associated

with deforestation and forest degradation, 7. European Union (2023), Regulation (EU) 2023/1542 of the European Parliament and of the Council of 12 July 2023 concerning batteries and

waste batteries

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 SPOTLIGHT:

EXAMPLES OF SELECTED INDUSTRIES WITH HIGH-RISK EXPOSURE TO ADVERSE

HUMAN RIGHTS AND ENVIRONMENTAL IMPACTS IN THEIR SUPPLY CHAINS
Figure 4: Examples of industries with exposure to selected human rights and environmental risks (LRQA, 2025)

Industry Common sourcing

Forced labour (e.g., bonded labour, human trafficking)

Gender discrimination (e.g., unequal pay, harassment)

countries ​
(not exhaustive)

Unsafe working conditions (occupational health)

Greenhouse gas emissions/Energy consumption

Community displacement (e.g., land grabbing)
Lack of labour rights (e.g., union suppression)
Wage theft (non-payment or underpayment)

Waste generation and management issues

Low wages (below living wage standards)

Exploitation of migrant workers

Indigenous Peoples‘ rights

Soil pollution/Soil erosion

Excessive working hours

Water consumption

Chemical pollution
Conflict financing ​

Biodiversity loss
Water pollution

Deforestation
Air pollution
Child labour

Social impact topics of increased attention​ Environmental impact topics of increased

(not exhaustive) attention (​ not exhaustive)

Apparel and footwear China, Vietnam,

Bangladesh, India,
Indonesia

Automotives and China, Mexico,

components/parts Germany, Japan,
United States

Battery storage and Democratic republic

associated metals of Congo China,
Chile, Indonesia

Chemicals and United States,

materials such as China, Germany,
polyvinyl chloride (PVC) France, Japan

Food and beverages Brazil, Indonesia,

(e.g. seafood, beef, soy, West Africa,
cocoa, palm oil) Southeast Asia

Forestry and logging Brazil, Canada,

Russia, China,
Indonesia, Malaysia

Mining and quarrying Chile, China,

Australia, India,
Brazil, Chile, Peru

Renewable energy China, Malaysia,

(wind, solar) Japan, Germany

Services sector (e.g. Global

facilities mgmt., IT, call
centres, hospitality)

14
 SUSTAINABILITY IN SUPPLY CHAINS | 2025

3.2 A CHANGING REGULATORY (and therefore liability for) human rights and environmental
LANDSCAPE impacts, which are themselves determined by reference
to international conventions and standards. In this way,
A growing number of laws and regulations around the world the EU is seeking to drive higher standards of conduct by
are creating requirements on companies to conduct due international companies doing business in its territory, even
diligence, or similar obligations, anywhere within the supply where the impacts in question occur in other parts of the
chain. These laws generally require businesses to identify world where such behaviours may be more common and
and/or act to prevent human rights or environmental where the relevant international convention or conventions
impacts, or explain these actions, including regulations may not be applicable.
that apply across sectors and those that are sector/impact
specific. Law firm Travers Smith has undertaken a review of With that said, as of mid-2025, the CSDDD was subject
these laws for the PRI, highlighting the following trends. to a proposal by the European Commission to revise it by
somewhat weakening the diligence obligations. The EU has
Emerging global regulatory requirements: The OECD also delayed the introduction of due diligence requirements
Guidelines for Multinational Enterprises on Responsible in respect of certain products linked to deforestation by 12
Business Conduct and the United Nations Guiding Principles months via a last-minute amendment to its Deforestation
on Business and Human Rights (UNGPs) are central pillars Regulation. The EU nonetheless remains a global leader
of many emerging global regulatory requirements for supply in respect of supply chain laws, having both horizontal
chain diligence and behaviours, particularly ‘horizontal’ and sector-specific measures available to it, and with due
measures without any specific sector or product focus. The diligence becoming a more common feature as it revisits
EU’s Sustainable Finance regulatory framework, including some existing legislation (such as the Batteries Regulation).
the Sustainable Finance Disclosure Regulation (SFDR)8
and the Taxonomy Regulation,9 both incorporate them by Product-specific regulation: A number of jurisdictions
reference; the SFDR includes breaches of the principles, or have introduced regulations targeting products presenting
lack of monitoring of compliance with them, as a ‘principal particular risks. This is most evident in respect of forestry
adverse impact’ or PAI indicator, and the Taxonomy products, where several Asian countries have legislation
Regulation requires that any entity claiming its economic addressing the management and traceability of products to
activity as sustainable within the meaning of the regulation combat illegal logging and deforestation. Similarly, Brazil has
must conduct its business in alignment with the OECD a regulation requiring certification of diamonds in line with
Guidelines and the UNGP. the Kimberley Process to ensure that they are conflict-free.
Conflict-free minerals have been the focus of a number of
Primarily aimed at providing transparency to facilitate flows measures, including in the US and the EU, with regulation
of sustainable finance, the inclusion of responsible business seeking to promote responsible sourcing practices and
conduct frameworks are indicative of the holistic view that improve the transparency and accountability of mineral
many investors take of sustainability. supply chains.

The EU CSDDD: The EU Corporate Sustainability Due Some supply chain laws have a specific geographic focus.
Diligence Directive (CSDDD),10 represents the highwater This may be expressed as a core part of the legislation, for
mark of active due diligence obligations, applying across example in the US Uyghur Forced Labor Prevention Act
sectors and to a broad range of actors regardless of their (UFLPA).11 It creates a presumption that products imported
country of domicile. It uses concepts from international from the Xinjiang region of China are created with forced
frameworks to determine involvement with or proximity to labour.

8. European Union (2019), REGULATION (EU) 2019/2088 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 27 November 2019 on sustainability-related disclosures in the financial

services sector; 9. European Union (2020), REGULATION (EU) 2020/852 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 18 June 2020 on the establishment of a framework to

facilitate sustainable investment, and amending Regulation (EU) 2019/2088; 10. European Union (2024), Directive (EU) 2024/1760 on corporate sustainability due diligence; 11. United States

Congress (2021), Public Law 117-78 – An Act to ensure that goods made with forced labor in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China do not enter the United

States market, and for other purposes, 2021; 12. European Union (@017), REGULATION (EU) 2017/821 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 17 May 2017 laying down

supply chain due diligence obligations for Union importers of tin, tantalum and tungsten, their ores, and gold originating from conflict-affected and high-risk areas

15
 Alternatively, laws may provide for subsequent identification 3.3 IMPLICATIONS FOR PORTFOLIO
of high-risk areas. For example, the EU’s Conflict Minerals COMPANIES AND PRIVATE MARKETS
Regulation required the European Commission to establish a INVESTORS
list of conflict-affected high-risk areas which can be updated
as necessary without the need for new legislation.12 A similar All of the above-mentioned issues, whether incidents of
system is foreseen by the EUDR, under which the European forced labour, occupational health and safety failings or
Commission will establish a system to classify countries as inadequate waste management, for example, can damage
low, standard or high risk. the financial performance, operations and reputations of
businesses or assets owned by private markets investors.
A global sustainability reporting standard: The creation They can also negatively affect the investor’s own
of a global baseline in sustainability reporting by the investment performance and reputation. At the same time,
International Sustainability Standards Board (ISSB) has rigorous processes to identify and manage supply chain-
encouraged many jurisdictions to substantively address related sustainability impacts can help create value.
sustainability issues beyond climate for the first time.
For portfolio companies and their investors, conducting
Some standard setters that have adopted or are in the thorough human rights and environmental due diligence
process of adopting the ISSB standards, of which there is therefore not only a regulatory obligation but is also
are now more than 30 worldwide, may go beyond the a strategic necessity to safeguard assets and ensure
global baseline and require positive improvement actions sustainable growth. Engagement with investors conducted
to be associated with disclosures. This is in contrast to as part of this project confirmed that most consider
mandatory sustainability reporting in the EU, which requires sustainability issues in their investment processes due to:
transparency but does not explicitly dictate any change in the financial significance associated with the risk; potential
behaviour as a result. It is possible to see changing patterns reputational implications; expectations from LPs; and
over time, whereby reporting requirements are frequently regulatory pressures.
a precursor to more active obligations, and reporting
obligations may catalyse action by reporting entities in any Compared with their peers in public markets, private
event. markets investors tend to have significant leverage over
portfolio companies. This puts them in a strong position to
REGULATORY TRACKER encourage these companies to address human rights and
environmental exposures within their supply chains.
To help investors navigate the evolving regulatory landscape,
the PRI and Travers Smith have published a supply chain BUSINESS DRIVER: MITIGATION OF FINANCIAL
regulation tracker to accompany this guide. AND OPERATIONAL RISKS

The tracker was assembled using a third-party software The lack of a robust supply chain due diligence system
tool, C2P, which provides access to almost 15,000 global to identify and mitigate the potential adverse impacts on
regulations and supporting sources, of which more than 600 people or the environment can pose direct financial and
were potentially relevant to this project. operational risks. These may result in companies having to
pay fines for regulatory non-compliance, settlement costs
It focuses on laws, regulations and other legally binding in cases of actual violations, losses in revenue due to supply
instruments for due diligence or similar obligations in the chain disruptions or operational inefficiencies, or disruption
supply chain regarding human rights and/or environmental of capital raising plans.
damage, whether horizontal or sectorspecific. It does not
include supporting sources, including court judgments, Recent examples include:
codes of practice, guidance or similar.
■ Investigations by Germany’s Federal Office for Economic
Affairs and Export Control, initiated in late 2023, into 58
companies for potential violations under the country’s
Supply Chain Act, related to their engagement with a

16
 SUSTAINABILITY IN SUPPLY CHAINS | 2025

transport company accused of poor labour practices.13 The enforcement of the US UFLPA has led to significant
These companies could face fines of up to €8 million or detentions of goods at US ports, with Vietnam being notably
2% of their global annual turnover for failing to address affected. In 2023, US Customs and Border Protection (CBP)
human rights impacts in their supply chains.14 detained shipments from Vietnam valued at approximately
US$1.01bn.19 This is due to Vietnam’s role in assembling
■ Reports of thousands of Volkswagen vehicles being products using components including cotton and polysilicon
held at US ports, amid claims they contained parts that are suspected to originate from China’s Xinjiang region.
potentially made with forced labour in China.15 Consequently, companies importing these goods from
Vietnam face supply chain disruptions, storage costs for
■ Disruption to Shein’s listing plans. Alleged links to detained goods and the consequences of the seizure and
human rights abuses – particularly concerns over forfeiture of shipments that fail to comply with UFLPA
sourcing cotton produced by Uyghur forced labour in requirements.20
China – and concerns around inadequate due diligence
at the fast fashion giant led to the company reportedly Such disruptions can delay production schedules, strain
shelving plans to list on the New York Stock Exchange relationships with clients and make it more expensive to
in 2023. The company is now exploring a London IPO raise capital. It is expected that the US administration will
instead. These London plans also face opposition, with increasingly utilise both the UFLPA and Withhold Release
campaigns already preparing to seek a judicial review of Orders as policy levers within its broader geopolitical trade
the IPO.16 strategy.

■ Meat processing and packing companies Perdue Farms BUSINESS DRIVER: VALUE CREATION AND
and JBS, which paid US$8m in a settlement with the PROTECTION
US Department of Labor after employing migrant
children in dangerous work at their slaughterhouses. Monitoring supply chains and managing the related
Investigations revealed that children were working exposures is an important means for both portfolio
overnight sanitation shifts in meatpacking plants and companies and investors to manage and mitigate risks
were engaged in hazardous tasks in poultry processing and can be a strategic lever for value creation. Good
plants, including using electric knives and heat-sealing sustainability practices, including the effective management
presses.17 of supply chain due diligence, can drive top-line growth. If
a portfolio company has a high dependency on its supply
■ ArcelorMittal, one of the world’s largest steelmakers, chain, the visibility of suppliers, diligence regarding their
was placed under judicial supervision in France, being practices and improvement in their performance must be a
accused of endangering the lives of others, forgery key focus to generate the greatest return on investment.
and environmental damages in connection to industrial
pollution in the Fos-sur-Mer region.18 Protecting a licence to operate: Businesses that proactively
address human rights violations or environmental harm
Similarly, the EU’s CSDDD, as drafted, contains penalties for can better protect their social licence to operate and
non-compliance and, in the United States, companies found enhance credibility. One private equity firm gave the
in violation of the UFLPA risk having their goods seized at example of a multinational food company it owns that
ports, facing significant financial losses and reputational specialises in organic and plantbased food products. Its
damage. strong commitment to sustainability, with key environmental

13. Noerr (10 October 2023), German Supply Chain Act update: Federal Office for Economic Affairs and Export Control investigates possible violations of the Supply Chain Act; 14. Please

note that the coalition agreement of the new German government includes plans to repeal the German Supply Chain Act and has called on the European Union similarly to abandon entirely

the EU CSDDD. This may impact the further outcome of these investigations; 15. Business & Human Rights Resource Centre (14 February 2024), Volkswagen cars held up at US ports over

part linked to allegations of forced labour in Xinjiang; 16. Reuters (3 February 2025), Shein IPO faces judicial review challenge from Uyghur rights group; Financial Times (26 June 2024),

FCA urged to block Shein London listing over forced-labour concerns; 17. New York Times (16 January 2025), Meatpacking Companies to Pay $8 Million for U.S. Child Labor Violations; 18.

Reuters (25 March 2025), ArcelorMittal indicted in Fos-sur-Mer pollution case in France; 19. Reuters (18 September 2024), Labor rights seeing increased enforcement throughout global

supply chains; 20. US Customs and Border Protection (12 April 2024), CBP will seize products manufactured using forced labor

17
 initiatives and investments in sustainable production, has Improving exit strategies: Robust strategies for managing
helped it strengthen its reputation and attract new clients. human rights and environmental impacts in the supply
chain can improve a portfolio company’s exit opportunities.
Such efforts not only support brand equity but can also yield Demonstrating and documenting the strength of a
tangible benefits in supplier performance, as safe and stable company’s approach to and resilience of its supply chain can
working environments can reduce staff turnover and improve position it more favourably to potential buyers during the
output quality and efficiency. As an example, ITC Limited, an exit process, enhance the company’s perceived value and
Indian company with a growing presence in the agriculture, help to avoid devaluation.
manufacturing and services sectors, has leveraged its deep
engagement in agriculture to work with farmers to create new Starting from a baseline enterprise value without embedded
opportunities that enhance farm incomes.21 sustainability considerations, the initial costs of regulatory
compliance, risk mitigation and opportunity loss can be
Cutting costs: Enhanced risk management can also lead offset by subsequent value drivers. These include: enhanced
to cost savings. Measuring Scope 3 emissions occurring resilience; stronger bottom-line performance driven by cost
in the supply chain and reducing them through measures savings from energy efficiency; reduced regulatory penalties;
such as optimising modes of transport, routes or delivery and greater supply chain efficiency. In addition, these actions
schedules, can reduce operating costs while contributing to can generate top-line growth through increased demand
decarbonisation goals. for sustainable offerings, access to new markets enabled
by legitimate sustainability credentials and improved brand
For suppliers, this focus on decarbonisation can attract new reputation supporting higher sales.
clients that are trying to reduce their supply chain emissions.
In parallel, investments in safe, clean and efficient supply Together, these factors can help deliver stronger enterprise
chain operations can help minimise operational disruptions value at exit. Initiatives and programmes such as the one
caused by, for example, health and safety incidents, exemplified in the case study below can directly contribute
ultimately improving reliability and speed of delivery, and to value creation by reducing operational overheads and
helping to increase productivity. accelerating progress towards sustainability commitments.
Collaborative models can unlock economies of scale and
enhance supplier accountability.

CASE STUDY:

HOW THE CARBON LEADERSHIP PROGRAM IS ADVANCING

SUSTAINABILITY IN THE APPAREL INDUSTRY
RESET Carbon and the Apparel Impact Institute (aii) have RESET and aii are working with the brands and suppliers
developed the Carbon Leadership Program, working with on implementing action plans to align with brand and
19 apparel brands in nearly 300 manufacturing facilities manufacturer 2030 carbon targets. The programme
to identify carbon reduction opportunities and develop is also reducing transaction costs for participants by
implementation plans. The programme has identified deploying a single methodology used by all participating
aggregate investable opportunities to reduce more than brands to assess, plan and report carbon reduction. It has
8m tonnes of CO2e, with associated cost savings of also identified significant procurement overlaps between
US$250m per year, mainly from reduced energy spend. participating brands, providing opportunities for them to
Key project opportunities include switching from coal to collaborate with the same suppliers and further reinforce
gas or biomass, onsite solar photovoltaics, steam system the business case for manufacturers to invest in facility-
optimisation, industrial heat pumps and stenter waste level reductions.
heat recovery.

21. ITC (2021), Supporting NexGen Agriculture and Inclusive Growth

18
 SUSTAINABILITY IN SUPPLY CHAINS | 2025

4. PRACTICAL INSIGHTS ON INTEGRATING

SUPPLY CHAIN DUE DILIGENCE

There is a growing body of guidance and practice that sets out how human rights and environmental due
diligence on company supply chains can be integrated. From the perspective of investors, this includes
establishing governance and policies, screening portfolios, undertaking due diligence, establishing
agreements with investee companies, engagement and monitoring and ensuring supply chain issues are well
managed at exit.

4.1 SUPPLY CHAIN DUE DILIGENCE AS 3. Due diligence. Thorough due diligence to identify and
AN INVESTOR assess actual and potential impacts on people and the
environment in the supply chain enables findings to
Human rights and environmental supply chain due diligence be integrated into an action plan with measures for
can be integrated along every stage of the investment process, prevention, mitigation or remediation.
from early screening and subsequent in-depth due diligence,
within legal agreements, as part of ongoing monitoring 4. Decision-making and agreements. It is important to
and engagement and in exit planning. Practice ranges from ensure that investment decisions are informed by due
foundational approaches to more advanced methods adopted diligence outcomes and that agreements with investee
by frontrunners. companies clearly define expectations, responsibilities,
required actions and monitoring provisions related to
To effectively identify and manage risks of adverse supply chain sustainability.
environmental and social impacts within supply chains,
investors need to critically assess and integrate relevant 5. Engagement and monitoring. Actively engaging with
practices across all stages of the investment cycle. There are portfolio companies supports capacitybuilding and
multiple entry points to embed supply chain sustainability continuous improvement on supply chain due diligence.
considerations throughout the investment process, including: Systematic monitoring ensures progress is tracked and
emerging or evolving risks are identified.
1. Governance and policies. Putting clear governance
structures, roles, policies and procedures in place 6. Exit strategy. Sustainability impacts should be taken
helps ensure supply chain-related risks are considered into account when planning and executing an exit, which
in origination, investment decisionmaking, portfolio should also aim to ensure that key mitigation measures
management and oversight activities. remain in place after investment.

2. Early screening. Reviewing potential investments early

on can identify any red flags or sustainability incidents
that may conflict with investor policies and standards or
represent risks that cannot be sufficiently mitigated.

19
 The chart below outlines standard and advanced activities for each step of the investment cycle. The activities apply
specifically to GPs that have a significant stake or ownership in the portfolio company (see Spotlight on page 32).

Figure 5: Overview of standard and advanced activities by step in the investment cycle.

1. Governance 2. Early due 3. Due diligence​ 4. Decision and 5. Engagement 6. Exit and
and policies dilligence agreement​ and monitoring​ re-investment​
screening

• Sustainability policies • Materiality • Risk exposure and • 100-day action plan​ • Developing policies ​ • Ensuring relevant
and principles​ assessment ​ maturity assessment • Environmental and • Monthly media screens​ policies and processes
• Exclusion lists • Self-assessment (inhouse or with third social action plan are in place and
• Staff training,
Standard practice

questionnaire​ party)​ documented

knowledge sharing and
• Review of Supplier • Document reviews​ networking sessions​
Code of Conduct and • Management • Post-investment visits​
sustainability policy​ interviews
• Monitoring and
• Screen for sanctions, reporting ​
media allegations etc.
at portfolio company • Regular impact
level assessments​

• Dedicated supply • Third-party risk • Supply chain mapping • Including performance • Establishing relevant • Screening new buyers
chain policies​ assessment​ (priority products/ clauses in agreements ​ teams ​ for alignment with
• Clearly defined roles • On-site assessments​ suppliers) for high • Escalation plan priorities
and responsibilities ​ priority/risk suppliers ​ and remediation
• Screen for sanctions
Leading practice

• Management etc. at supplier level ​ • Spot checks of high- procedures​

leadership and board risk suppliers​ • Grievance
• Product-level
involvement at screenings/ • Stakeholder mechanisms and
portfolio company​ certifications and engagement with handling of complaints​
• Training ​ standards suppliers, NGOs, etc. • Engagement with
• Data and systems affected stakeholders​
(e.g., sanction • Crisis management
screenings, survey plan (at investor level)​
tools, etc.)

20
 SUSTAINABILITY IN SUPPLY CHAINS | 2025

1. GOVERNANCE AND POLICIES

1. Governance 2. Early due 3. Due diligence​ 4. Decision and 5. Engagement 6. Exit and
and policies dilligence agreement​ and monitoring​ re-investment​
screening

• Sustainability policies • Materiality • Risk exposure and • 100-day action plan​ • Developing policies ​ • Ensuring relevant
and principles​ assessment ​ maturity assessment • Environmental and • Monthly media screens​ policies and processes
• Exclusion lists • Self-assessment (inhouse or with third social action plan are in place and
• Staff training,
Standard practice

questionnaire​ party)​ documented

knowledge sharing and
• Review of Supplier • Document reviews​ networking sessions​
Code of Conduct and • Management • Post-investment visits​
sustainability policy​ interviews
• Monitoring and
• Screen for sanctions, reporting ​
media allegations etc.
at portfolio company • Regular impact
level assessments​

• Dedicated supply • Third-party risk • Supply chain mapping • Including performance • Establishing relevant • Screening new buyers
chain policies​ assessment​ (priority products/ clauses in agreements ​ teams ​ for alignment with
• Clearly defined roles • On-site assessments​ suppliers) for high • Escalation plan priorities
and responsibilities ​ priority/risk suppliers ​ and remediation
• Screen for sanctions
Leading practice

• Management etc. at supplier level ​ • Spot checks of high- procedures​

leadership and board risk suppliers​ • Grievance
• Product-level
involvement at screenings/ • Stakeholder mechanisms and
portfolio company​ certifications and engagement with handling of complaints​
• Training ​ standards suppliers, NGOs, etc. • Engagement with
• Data and systems affected stakeholders​
(e.g., sanction • Crisis management
screenings, survey plan (at investor level)​
tools, etc.)

Standard practice Leading practice

■ Integrating supply chain considerations into ■ Dedicated supply chain policies

sustainability policies and principles ■ Clearly defined roles and responsibilities and full
■ Exclusion lists incorporating supply chain integration in deal teams
considerations ■ Training and subject matter expert support
■ Leadership and board involvement at portfolio
companies
■ Data and systems (e.g. screenings, survey tools, etc.)

Sustainability policies and principles: Having a sustainability While having a dedicated commitment on sustainable supply
or responsible investment policy in place is an established chains is still rare, many investors address potential issues
private equity practice. Investors committing to the PRI’s six through commitments on specific topics, such as human
principles integrate environmental, social and governance rights or greenhouse gas emissions, where potential risks
factors into their investment decisions and ownership arise across a company’s value chain.
practices and encourage transparency from the companies
they invest in. They also promote these principles within Exclusion lists: Another standard practice is the definition
the industry, collaborate with others to improve their of strict exclusion criteria. Supply chain-related topics may
effectiveness and report on their progress regularly. indirectly feature in these criteria, as exclusion lists typically

21
 focus on controversial industries, products or practices Some sustainability teams are expanding their remits to
that present potential environmental or social risks. While include training for portfolio company boardm embers and
typical areas of exclusion include controversial weapons, deal teams, equipping investment decision-makers with
animal testing, gambling and tobacco, more impact-oriented the knowledge necessary to identify and mitigate adverse
investors may commit specifically to excluding companies impacts in supply chains at the earliest possible stage.
linked to, for example, child labour, illegal logging or sourcing Insights from the interviews emphasise capacity-building
of conflict minerals. and training, embedding sustainability expertise across
investment teams to strengthen internal capabilities.
Dedicated supply chain policies: More advanced investor
practice is to develop a standalone policy that describes Leadership and board involvement: Other more advanced
the investor’s approach to conducting human rights and practices include involvement and steering at the senior
environmental supply chain due diligence and improving partner or managing director level of the investment
supply chain transparency in more detail. Such policies firm, setting clear expectations and allocating resources.
and underlying processes should align with international Sustainability priorities, including the management of supply
standards, such as the UNGPs, and applicable due diligence chain risks, may be part of the firm’s investment philosophy
legislation. and value-creation strategy. Members of the GP’s leadership
can play a direct role post-investment, sometimes through
Defining roles and responsibilities, resourcing training: board positions at portfolio companies, in setting supply
Most investors that helped with the drafting of this guide chain risk management expectations and by holding the
recognise the importance of sustainability and have company’s management accountable for improvements.
dedicated staff in place. A common practice is to have
a small team of sustainability professionals, often part Data and systems: Policies are ineffective without systems
of the investment team, that manages the sustainability to enforce and monitor them. Robust data collection and
performance across the portfolio and may support monitoring systems are key, as they allow tracking of
deal teams with reviews into specific sustainability performance. This helps to ensure compliance by conducting
topics. Resources are increasingly allocated for internal regular real-time supplier screening for policy violations, for
sustainability training and specialist support, with external example, and enables informed decision-making, prioritised
consultants often engaged to provide deeper expertise action and effective resource allocation.
where needed.
However, many investors struggle to obtain relevant,
More advanced practices include having dedicated staff in-depth data at the earliest deal stages. Solutions can
with expertise in supply chains and key industry risks. They be found in screening tools, which help investors assess
might include, for example, a renewables specialist who portfolio companies and their suppliers for links to,
understands issues related to critical minerals, a human for example, forced labour, or survey tools to collect
rights specialist to identify forced and child labour risks, or performance data, such as on greenhouse gas emissions,
engagement with external subject matter experts. directly from companies.

22
 SUSTAINABILITY IN SUPPLY CHAINS | 2025

RECOMMENDATIONS

1. Formalise commitments: Establish formal responsible 3. Define responsibility within the team: Assign clear
investment commitments, with a specific focus on responsibilities for supply chain due diligence within
supply chain impacts, including commitments to the investment team.
incorporate supply chain risks and considerations into
the investment decision-making process. 4. Secure budget for external expertise: Ensure
dedicated budget is available to bring in third-party
2. Train teams on emerging risks: Provide ongoing support for high-risk industries and targets.
training to deal and legal teams about emerging
issues and high-risk products and geographies to 5. Collaborate with industry experts: Engage with
ensure that supply chain issues are front and centre external experts and industry bodies for best
during the rest of the due diligence process and practices in high-risk industries. For example,
risks are identified at an early stage. Share case participate in industry-specific initiatives to gain
studies and examples to bring the subject to life and insights and best practices for managing supply
demonstrate material impacts. chain risks.

SPOTLIGHT:

ASSESSING SUPPLY CHAIN SUSTAINABILITY – KEY LP CONSIDERATIONS

Sustainability risks can cascade through investment responsibility, LPs should evaluate whether GPs
structures, originating at the supplier level and impacting have established strong monitoring and reporting
portfolio companies, their investors and, ultimately, mechanisms. Key questions to ask include:
limited partners through their commitments to general
partners. ■ Has the GP put supply chain sustainability policies in
place before committing capital?
GPs and LPs have distinct but complementary roles ■ Has the GP implemented clear reporting
when it comes to integrating supply chain due diligence frameworks specifically focused on supply chain
into the investment process. While GPs are responsible sustainability?
for implementation and oversight within their portfolios, ■ Are there well-defined protocols for reporting and
LPs focus on setting expectations, monitoring and addressing supply chain-related human rights or
holding GPs accountable. More precisely, LPs, such as environmental violations?
pension funds, sovereign wealth funds and institutional ■ What monitoring procedures does the GP enforce to
investors, act as stewards of capital and ensure GPs align mitigate risks?
with responsible investment standards.
In turn, GPs are directly responsible for assessing and
An LP can use its position to assess its GP’s policies, mitigating sustainability risks within portfolio companies’
request transparency on supply chain risks and impact supply chains. To do so, a GP can use its leverage to
responsible investment standards through capital actively conduct due diligence, set sustainability policies,
allocation and engagement. To ensure responsible engage with portfolio companies on compliance and
investment practices with a focus on supply chain implement monitoring frameworks.

23
 2. EARLY DUE DILIGENCE SCREENING
1. Governance 2. Early due 3. Due diligence​ 4. Decision and 5. Engagement 6. Exit and
and policies dilligence agreement​ and monitoring​ re-investment​
screening

• Sustainability policies • Materiality • Risk exposure and • 100-day action plan​ • Developing policies ​ • Ensuring relevant
and principles​ assessment ​ maturity assessment • Environmental and • Monthly media screens​ policies and processes
• Exclusion lists • Self-assessment (inhouse or with third social action plan are in place and
• Staff training,
Standard practice

questionnaire​ party)​ documented

knowledge sharing and
• Review of Supplier • Document reviews​ networking sessions​
Code of Conduct and • Management • Post-investment visits​
sustainability policy​ interviews
• Monitoring and
• Screen for sanctions, reporting ​
media allegations etc.
at portfolio company • Regular impact
level assessments​

• Dedicated supply • Third-party risk • Supply chain mapping • Including performance • Establishing relevant • Screening new buyers
chain policies​ assessment​ (priority products/ clauses in agreements ​ teams ​ for alignment with
• Clearly defined roles • On-site assessments​ suppliers) for high • Escalation plan priorities
and responsibilities ​ priority/risk suppliers ​ and remediation
• Screen for sanctions
Leading practice

• Management etc. at supplier level ​ • Spot checks of high- procedures​

leadership and board risk suppliers​ • Grievance
• Product-level
involvement at screenings/ • Stakeholder mechanisms and
portfolio company​ certifications and engagement with handling of complaints​
• Training ​ standards suppliers, NGOs, etc. • Engagement with
• Data and systems affected stakeholders​
(e.g., sanction • Crisis management
screenings, survey plan (at investor level)​
tools, etc.)

Standard practice Leading practice

■ Materiality assessments ■ Third-party risk assessments

■ Self-assessment questionnaires ■ On-site assessments
■ Media screening ■ Screening for sanctions and policy violations, media
■ Reviews of supplier codes of conduct and reports etc. at supplier level
sustainability policies ■ Product-level screenings/certifications and
■ Screening for sanctions and policy violations, media standards
reports etc. at portfolio company level

Materiality assessments: During the early screening and industry, the company’s products and operations, the
due diligence phase, investors can gain initial insights into geographic scope and complexity of its supply chain, as well
supply chain-related sustainability risks by engaging target as the materiality of specific sustainability issues. Tools like
companies with a set of sustainability-related questions, the SASB materiality finder are often used by investors to
reviewing key documentation such as supplier codes of identify the most material sustainability topics for a given
conduct, and conducting preliminary desk-based research. industry.

Typically, investors apply a materiality lens first to determine Surveys and self-assessment questionnaires: For
whether and in how much depth they want to assess companies active in industries that are more exposed to
potential supply chain risks. Factors that usually influence risks of human rights violations in their supply chain, such
this determination during the early screening include size, as companies producing solar panels, investors can then

24
 SUSTAINABILITY IN SUPPLY CHAINS | 2025

choose to request additional information on the target’s To streamline processes, some investors utilise compliance
supplier portfolio, its supplier code of conduct and its platforms from providers such as Moody’s and Zapflow,
responsible sourcing policies. This is typically done via which offer sanction solutions to help navigate international
surveys or self-assessment questionnaires. sanctions screening and watchlists. Automated screening
tools can be used by investors and companies to enhance
A common practice is for investors to ask supply chain- existing assessment and monitoring mechanisms through
specific questions, tailored to the potential high-risk areas more real-time insight and additional data sources.
identified. These typically include questions on the target’s
most critical suppliers and practices observed in relation to Advanced practices: More advanced practices include
specific human rights or environmental compliance risks. leveraging third-party risk assessment tools to better
understand the inherent risk exposure of the target’s supply
Media screening: Some investors conduct desktop research chain. Some may decide to conduct on-site assessments of
to screen for media allegations or links to sanction lists key operations or top suppliers of the target (e.g. the top 80%
associated with the company. A standard approach is to by spend, or the top 20 suppliers), and screen actual supplier
do this via open keyword searches in publicly available data for links to sustainability incidents or sanctions. Some
resources; a more advanced approach involves leveraging investors incorporate product-level screenings of sustainability
professional media and sanctions screening tools. Sources risks as part of their initial screening to assess a target
to tap into for sanction screening include the United Nations company’s adherence to recognised certifications and industry
Security Council (UNSC) sanction lists, the EU consolidated standards. This involves evaluating whether products comply
sanction lists, the World Bank listing of ineligible firms and with sustainability benchmarks such as Fair Trade or Forest
individuals and lists maintained by the US Department of Stewardship Council certification, or whether production
Labor on goods produced by child or forced labour. processes and sites are certified with an ISO standard.

SPOTLIGHT:

KEY QUESTIONS TO CONSIDER FOR INTEGRATING SUPPLY CHAIN TOPICS

AS PART OF PRE-INVESTMENT DUE DILIGENCE

To understand supply chain risks when considering 2. Risk assessment and supply chain due diligence
a potential acquisition, GPs might ask the following
questions: ■ Does the company conduct regular environmental
and social risk assessments? A risk assessment
1. Governance and policy framework can include the use of third-party risk analytics data,
regular media screening, stakeholder engagement,
■ Does the company have a supplier code of etc.
conduct which includes environmental and ■ Does the company incorporate environmental and
social considerations? Does the company have social risk factors into its supplier onboarding and
a responsible sourcing strategy or policy, with monitoring?
management or board buy-in?
■ Does the company have responsible sourcing 3. Supplier engagement and monitoring
oversight for core programme functions, e.g.
monitoring supplier performance, implementing ■ Does the company conduct third-party social and
audit programmes and engaging or training environmental compliance audits, using a standard
suppliers? audit protocol, such as SMETA (Sedex Members
Ethical Trade Audit), ERSA (Elevated Responsible

25
 Sourcing Assessment by LRQA) or BSCI (Business ■ Does the company maintain its tier 1 supplier data
Social Compliance Initiative), with all or selected tier on an easily accessible database?
1 suppliers? ■ Does the company have any visibility over tier 2
■ Does the company have an approval process for suppliers and beyond?
subcontractors? ■ Can the company access documentation and
■ Do supplier contracts include terms from the data from its tier 1 and tier 2 suppliers and
supplier code of conduct? subcontractors?
■ Does the company have long-term engagements ■ Has the company mapped all its high-risk supply
with its suppliers (e.g. multi-year contracts with chains, up to the raw material level? If not, what
regular orders)? initiatives have been taken to increase supply chain
visibility?
4. Supply chain transparency and data management
Additional due diligence steps should be triggered to
■ Has the company identified and mapped its tier 1 cover any information gaps if the company answers“no”
suppliers? or “not available” to the majority of these questions, as a
■ Is the company able to provide the number of tier 1 lack of information might indicate additional risk.
suppliers?

RECOMMENDATIONS

1. Exchange knowledge with other investors 3. Perform detailed (pre-investment) due diligence
to identify risks early
■ This can help keep knowledge up to date. Some
investors have partnered with others to share ■ Detailed pre-investment screening helps identify
knowledge on responding to emerging high-risk risks before the investment process progresses.
areas, such as critical minerals, solar, etc., in an ■ Advanced tools and platforms, including EiQ,
informal setting. RepRisk and EcoVadis, allow continuous monitoring.

2. Conduct risk assessments 4. Provide training and resources

■ Risk assessments can be conducted internally ■ Providing training and resources to portfolio
(provided sufficient information is available) or companies, and organising webinars and workshops,
with the help of a third party. Most investors will can help to educate and engage them on relevant
require a third-party risk assessment if the portfolio supply chain issues and regulations.
company operates in, or sources from, geographies ■ A focus on education and capacity-building,
or industries that are deemed high risk. especially for early-stage companies, can ensure
■ Real-time monitoring or data analytics should be they understand and implement frameworks to
integrated into risk assessment as part of in-depth navigate legislative landscapes and potential risks.
sustainability due diligence.

■ Teams should have access to up-to-date risk

assessment tools that incorporate real-time
information as well as publicly available datasets.

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 SUSTAINABILITY IN SUPPLY CHAINS | 2025

CASE STUDY:

INSPIRED EVOLUTION’S COMMITMENT TO RESPONSIBLE SOURCING

Inspired Evolution is an investment advisory business Additional risk identification and management practices
specialising in climate-driven principal investment vary based on the industry involved. For example, in
themes. Its commitment to responsible sourcing is the renewable energy industry, the focus is on the
described within its Responsible Procurement Policy, procurement of solar panels, wind turbines and batteries.
as part of its wider sustainability-related management Suppliers are screened for compliance with relevant
system. This public-facing policy sets out detailed legislative requirements, human rights standards and
requirements and actions to guide investment decisions international labour standards. This includes assessing
and minimise risks associated with supply chains and the supplier’s environmental management systems,
procurement practices. occupational health and safety practices, and overall
compliance with sustainability criteria. Inspired Evolution
All investments and portfolio companies are required also seeks to emphasise the importance of responsible
to comply with applicable national and international waste management, requiring portfolio companies to
laws. They are also asked to establish codes of conduct, screen waste processors and conduct audits before
include ethical sourcing clauses in their legal contracts and contracting. This ensures that waste processors hold
continuously monitor their suppliers to ensure ongoing the required licences, comply with applicable regulations
adherence to sustainability-related standards. This includes and have robust environmental and social management
regular assessments, audits and the implementation of systems in place.
corrective action plans where necessary.

3. DUE DILIGENCE
1. Governance 2. Early due 3. Due diligence​ 4. Decision and 5. Engagement 6. Exit and
and policies dilligence agreement​ and monitoring​ re-investment​
screening

• Sustainability policies • Materiality • Risk exposure and • 100-day action plan​ • Developing policies ​ • Ensuring relevant
and principles​ assessment ​ maturity assessment • Environmental and • Monthly media screens​ policies and processes
• Exclusion lists • Self-assessment (inhouse or with third social action plan are in place and
• Staff training,
Standard practice

questionnaire​ party)​ documented

knowledge sharing and
• Review of Supplier • Document reviews​ networking sessions​
Code of Conduct and • Management • Post-investment visits​
sustainability policy​ interviews
• Monitoring and
• Screen for sanctions, reporting ​
media allegations etc.
at portfolio company • Regular impact
level assessments​

• Dedicated supply • Third-party risk • Supply chain mapping • Including performance • Establishing relevant • Screening new buyers
chain policies​ assessment​ (priority products/ clauses in agreements ​ teams ​ for alignment with
• Clearly defined roles • On-site assessments​ suppliers) for high • Escalation plan priorities
and responsibilities ​ priority/risk suppliers ​ and remediation
• Screen for sanctions
Leading practice

• Management etc. at supplier level ​ • Spot checks of high- procedures​

leadership and board risk suppliers​ • Grievance
• Product-level
involvement at screenings/ • Stakeholder mechanisms and
portfolio company​ certifications and engagement with handling of complaints​
• Training ​ standards suppliers, NGOs, etc. • Engagement with
• Data and systems affected stakeholders​
(e.g., sanction • Crisis management
screenings, survey plan (at investor level)​
tools, etc.)

27
 Standard practice Leading practice

■ Risk exposure and maturity assessment (in-house ■ Deeper supply chain mapping (priority products/
or with a third party) suppliers) for high-priority or high-risk suppliers
■ Document reviews ■ Spot checks of high-risk suppliers through on-the-
■ Management interviews ground visits
■ Stakeholder engagement with suppliers, NGOs, etc.

RISK ASSESSMENT should include the name of the supplier (ideally also in
the local language, as this can unlock additional findings
Once a potential investment has passed initial screening, a when screening local media reports), supplier location
more in-depth due diligence process is typically conducted (address and country), products or services supplied and an
to evaluate sustainability-related supply chain risks and to indication of the company’s leverage or ability to engage the
assess the company’s capacity to manage them effectively. supplier (often reflected by, for example, order volumes in
The scope and depth of this due diligence are influenced relation to the supplier’s total turnover, the type of supplier
by several factors, including the initial risk classification, relationship, contracts etc.).
industry-specific supply chain vulnerabilities, regulatory and
geopolitical risks, and company-specific concerns, such as Consequently, investors should consider requesting that
past violations or lack of supplier transparency. such supply chain-specific information is uploaded to the
data room at the beginning of the due diligence process.
Risk exposure and maturity assessment: During the due
diligence process, most investors conduct an indepth risk Deeper supply chain mapping: More advanced practices
exposure and maturity assessment of the company to include a mapping of the deeper supply chain,
ensure it has the necessary practices and people in place
to manage its supply chain. The assessment should be typically for high-risk products or geographies. For instance,
risk-based and is usually based on a thorough document when companies identify supply chains that pose a greater
review, interviews with management and key personnel, and risk of negative human rights impacts, for example through
targeted site visits. While some investors have sufficient their sourcing of minerals or agricultural products, they may
capacity available to do this internally, most leverage third- choose to examine suppliers beyond tier 1 to create a more
party specialists to conduct the expanded due diligence, detailed overview of the entire supply chain for goods or
including on-the-ground assessments where relevant, to materials.
verify whether policies and procedures are implemented
effectively. Key elements to address during this mapping exercise
should include:
Mapping the supply chain: To better assess the specific
risks inherent to the company in focus – rather than at ■ identifying the main components or raw materials used
a more general product or industry-related level – some in the supplied product (or component);
investors first undertake a supply chain mapping exercise. ■ determining the suppliers of these materials and their
This process starts with mapping the company’s primary, locations;
first-tier suppliers and later extends to additional suppliers ■ establishing whether any part of the production process
if a deeper assessment is required due to identified risk is outsourced to other suppliers (subcontractors), along
factors. Key information to seek during this exercise with their locations.

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 SUSTAINABILITY IN SUPPLY CHAINS | 2025

To facilitate this supply chain mapping exercise, investors To accurately assess risk, it is critical to examine not just
and companies should consider creating visual supply chain what is being sourced, but also where it is being sourced.
diagrams or models as this enables a clearer understanding Applying a geographical lens to the supply chain helps
of the different stakeholders, tiers and business uncover context-specific risks. For example, a cosmetics
relationships involved. manufacturer sourcing mica from regions where artisanal
mining is prevalent would warrant a higher degree of due
Where actual data on suppliers is difficult to obtain – diligence, given the potential for child labour and hazardous
which is still one of the largest obstacles to conducting working conditions.
supply chain due diligence – investors and companies are
recommended to create proxy supply chain maps, based An in-depth risk assessment should involve an initial
on industry data and typical supply chains, production evaluation of the likelihood and severity of potential
processes, sourcing countries, etc. impacts, as well as identifying affected rightsholders, such
as suppliers’ employees or local communities, with particular
Identifying supply chain-specific risks: The supply chain attention to vulnerable groups.
mapping exercise helps to identify and prioritise supply
chains for a subsequent in-depth human rights and To conduct such an assessment, investors typically use
environmental risk assessment. Typically, this assessment different resources, including existing knowledge within
starts with the company’s key products and services, as their organisation and sustainability teams, as well as
these fundamentally shape the nature and structure of external sources, which can include desk research or
the supply chain. Sourced products and services may be support from specialised third-party consultancies. (See
prioritised based on the greatest strategic value or highest Section 5 for examples of useful sources to consult for
procurement volume, or their relevance to the company’s additional risk information.)
business operations.

Figure 6: Illustrative risk assessment matrix

High
Risk type Severity Likelihood Potential Priority Monitor closely Top priority for
affected and plan immediate action
rights holders mitigation
Severity of impact

Forced labour High High Workers in Immediate

in raw material mining regions action
extraction

Low priority/ Manage

Water pollution High Medium Local Monitor periodic review proactively
in production communities closely
processes

Occupational Medium High Factory Proactive

health risks in workers management
Low
packaging

Deforestation Low Low Ecosystems Low Low High

linked to minor priority
packaging material Likelihood of impact

29
 High-risk suppliers: To further advance the risk assessment, companies’ risk management. While most investors typically
some investors request evidence through onsite spot checks expect companies to adhere to local legislation, others may
with high-risk suppliers and engage stakeholders such as set more advanced expectations to ensure alignment with
suppliers or civil society organisations to better understand their own responsible investment commitments or meet
underlying issues and risk management opportunities. This specific industry or commodity requirements.
can take the form of a social and environmental compliance
audit for selected strategic high-risk suppliers, and/or direct Companies that do not have to abide by certain regulations,
engagement with relevant stakeholders that can provide such as the EU’s CSDDD, may nevertheless be expected
further insights into the risks associated with a particular by their investors to meet these requirements, as they
supply chain, sourcing country or industry. ensure a thorough approach to managing human rights and
environmental risk.
Stakeholder engagement: This can take different forms,
including dialogue interviews with suppliers’ workers, trade Key policies review: An evaluation of the maturity level of
unions, industry peers, experts with specialised knowledge, the company’s risk management approach typically involves
civil society organisations and local communities likely to be reviewing key policies and frameworks, such as the supplier
affected by the company’s business activities. code of conduct, human rights commitments and modern
slavery statements, to determine whether robust guidelines
As this requires substantial time and financial investment, are in place.
it is recommended to focus such efforts on supply chains
and products that have been identified as particularly high External certifications: Relevant certifications, such as the
risk during the initial risk mapping, where investors have Roundtable on Sustainable Palm Oil Supply Chain Standard
reasonable leverage, and/or where the most significant or the Kimberley Process Certification Scheme, can help
information gaps exist. streamline the diligence process and reduce the level of
effort required. As the diligence process is often a race
When identifying external consultancies to support with against time, external certifications against independent
supply chain due diligence, investors are advised to use standards can provide a reasonable proxy for the company’s
those with long track records in this area and with in- level of commitment and maturity.
depth expertise in the industry or geographies of focus.
The outcome of an in-depth risk assessment is typically Checking implementation: Policies alone are not sufficient,
a list or matrix detailing the identified human rights and however. It is essential to validate their implementation
environmental risks across the company’s supply chain. through, for example, interviews with company management
and employees, and to assess the availability and
RISK MANAGEMENT – EVALUATING THE effectiveness of grievance mechanisms, audit practices or
COMPANY’S MATURITY supplier engagement processes.

After gaining a thorough understanding of the risk exposure When evaluating the effectiveness of grievance mechanisms
associated with the company’s supply chain, it is crucial or preventive measures implemented, affected stakeholders
to assess the company’s ability to identify, mitigate and in the supply chain should be consulted and engaged with.
respond to adverse impacts occurring there. Such a maturity They should include not only suppliers’ employees but
evaluation exercise should be informed by the investor’s also local communities potentially affected by respective
established minimum requirements on its portfolio business activities.

30
 SUSTAINABILITY IN SUPPLY CHAINS | 2025

By assessing both documented policies and their practical Depending on the company’s maturity, this action plan
application, investors can determine whether a company has may include implementing standard policies addressing
the necessary capabilities to effectively manage supply chain risk topics, such as a supplier code of conduct, ensuring
risks. necessary resources and capacities are secured internally
to oversee the risk management approach, or implementing
Recommendation report: The last step of the due diligence mandatory supplier screening and audits through verified
process typically includes writing up a recommendation parties.
report with detailed actions to enhance the company’s
risk management approach and ensure identified risks are
effectively managed.

CASE STUDY:

A PRIVATE EQUITY INVESTOR CONDUCTING SUPPLY CHAIN

DUE DILIGENCE FOR A FOOD COMPANY

A European private equity firm was considering the 2. Assessment of management system maturity
acquisition of a mid-sized food ingredients company that
sources coffee from Latin America and cocoa from West To evaluate the target company’s ability to manage
Africa, among other things. Given the welldocumented these risks, the private equity firm reviewed key
risks of child labour and deforestation in these supply policies, including the company’s supplier code of
chains, the investor undertook a structured human rights conduct, ethical sourcing commitments and its
and environmental due diligence assessment before modern slavery statement. While these documents
finalising the investment. outlined strong commitments, further investigation
was needed to assess their implementation. Key
1. Assessment of risk exposure findings included that:

The private equity firm conducted a thorough review ■ The company had a supplier code of conduct in
of the target’s supplier data, including supplier lists by place, but it did not adequately communicate about
spend, country and product. Public sources, such as NGO this document to suppliers nor ensure adherence to
reports, trade association findings and certifications the code.
(e.g. Fairtrade and Rainforest Alliance) were analysed to ■ Risk mitigation measures such as supplier audits
assess inherent risks. In addition, the investor conducted were undertaken, but only infrequently and often
a media screening of the target’s top 20 commodity based on self-reporting rather than independent
suppliers, revealing previous allegations of labour rights verification.
violations for a tier-n supplier associated with one of ■ No grievance mechanism was available for workers
the target’s key suppliers. The assessment highlighted at supplier sites, raising concerns about the
critical risks, including child labour in cocoa farming, effectiveness of risk monitoring.
deforestation linked to coffee plantations in Brazil, and ■ Sustainability commitments were broad, but there
reports of abusive and unsafe labour practices, including was no deforestation policy in place.
wage theft and failures to provide clean drinking water
and personal protective equipment.

31
 3. Engagement with company management 4. Recommendation report and outcome

The private equity firm engaged the target’s leadership Based on the due diligence findings, the investor outlined
to clarify outstanding concerns. Discussions focused on: a set of recommendations, requesting that the company:

■ its approach to child labour risk mitigation, including ■ strengthened its supplier code of conduct
existing partnerships with NGOs and third-party communication and approach to verification;
auditors; ■ implemented a robust, risk-based supplier audit
■ plans for enhancing supply chain traceability, programme;
particularly in regions with high deforestation risks ■ strengthened its grievance mechanism.
and in light of requirements under the EUDR;
■ the company’s willingness to invest in stronger The private equity firm proceeded with the acquisition,
supplier oversight, including third-party audits and conditional upon the company committing to a
certification schemes. 24- month action plan to strengthen supply chain due
diligence. A post-acquisition monitoring framework was
The target company’s leadership acknowledged the established to track progress.
gaps and expressed interest in strengthening risk
management but lacked a concrete action plan.

32
 SUSTAINABILITY IN SUPPLY CHAINS | 2025

4. DECISION AND AGREEMENT

1. Governance 2. Early due 3. Due diligence​ 4. Decision and 5. Engagement 6. Exit and
and policies dilligence agreement​ and monitoring​ re-investment​
screening

• Sustainability policies • Materiality • Risk exposure and • 100-day action plan​ • Developing policies ​ • Ensuring relevant
and principles​ assessment ​ maturity assessment • Environmental and • Monthly media screens​ policies and processes
• Exclusion lists • Self-assessment (inhouse or with third social action plan are in place and
• Staff training,
Standard practice

questionnaire​ party)​ documented

knowledge sharing and
• Review of Supplier • Document reviews​ networking sessions​
Code of Conduct and • Management • Post-investment visits​
sustainability policy​ interviews
• Monitoring and
• Screen for sanctions, reporting ​
media allegations etc.
at portfolio company • Regular impact
level assessments​

• Dedicated supply • Third-party risk • Supply chain mapping • Including performance • Establishing relevant • Screening new buyers
chain policies​ assessment​ (priority products/ clauses in agreements ​ teams ​ for alignment with
• Clearly defined roles • On-site assessments​ suppliers) for high • Escalation plan priorities
and responsibilities ​ priority/risk suppliers ​ and remediation
• Screen for sanctions
Leading practice

• Management etc. at supplier level ​ • Spot checks of high- procedures​

leadership and board risk suppliers​ • Grievance
• Product-level
involvement at screenings/ • Stakeholder mechanisms and
portfolio company​ certifications and engagement with handling of complaints​
• Training ​ standards suppliers, NGOs, etc. • Engagement with
• Data and systems affected stakeholders​
(e.g., sanction • Crisis management
screenings, survey plan (at investor level)​
tools, etc.)

Standard practice Leading practice

■ 100-day action plan​ ■ Including performance clauses in agreements

■ Environmental and social action plan

The due diligence process should enable investors to gain The action plan should provide estimated timelines and
a clearer understanding of both the human rights and costs for implementing corrective measures, ensuring
environmental impacts associated with the company’s that capacity-building efforts are realistic in light of the
supply chain, as well as the company’s risk management investment horizon and budget constraints. Incorporating
practices. these action plans into legal and investment agreements
is a crucial leverage point for investors, with milestones
Environmental and social action plans: A key outcome of within such action plans potentially linked to disbursement
this process is the creation of time-bound environmental conditions.
and social action plans (ESAPs) to help companies
achieve compliance, mitigate risks or implement effective Performance clauses: Advanced practice includes adding
management systems. Typically, an ESAP clearly outlines performance clauses to the legal agreements, with a view to
the identified key risk topics, such as child labour or weak closing those gaps. For example, the Responsible Investor
supplier oversight, along with the necessary actions to close Model Clauses developed by the Responsible Contracting
gaps in the company’s management systems. Project (RCP) are designed to help investors and portfolio
companies integrate human rights and environmental
performance goals directly into their investment agreements.

33
 Under the RCP framework, model investor clauses case for high-risk issues such as sanctions, child labour
cover areas such as human rights, supply chain due exposure, dependence on extreme-risk sourcing regions
diligence, climate impact and governance, ensuring that and subsequent risks of unstable raw material supply, or
such commitments are not just voluntary but are legally significant issues within the company’s own operations (e.g.
embedded in investment agreements. Incorporating health and safety).
model clauses can help investors drive accountability,
align portfolio companies with international sustainability While few investors will veto an investment based on supply
standards and safeguard against sustainability-related chain risks alone, many indicate that these risks often go
financial, legal and reputational risks. hand in hand with other material risks that can terminate a
deal – such as inadequate management of product quality
Deal termination: In some cases, the outcomes of an or data management. Critical to avoiding such an outcome
in-depth supply chain due diligence process can lead to is the capacity and willingness of company management to
termination of a deal, especially if occurring in combination acknowledge potential risks and allocate resources to the
with other ‘deal-breaker’ findings. This usually depends management of risk and performance improvements.
on the severity of the findings and is particularly the

5. ENGAGEMENT AND MONITORING

1. Governance 2. Early due 3. Due diligence​ 4. Decision and 5. Engagement 6. Exit and
and policies dilligence agreement​ and monitoring​ re-investment​
screening

• Sustainability policies • Materiality • Risk exposure and • 100-day action plan​ • Developing policies ​ • Ensuring relevant
and principles​ assessment ​ maturity assessment • Environmental and • Monthly media screens​ policies and processes
• Exclusion lists • Self-assessment (inhouse or with third social action plan are in place and
• Staff training,
Standard practice

questionnaire​ party)​ documented

knowledge sharing and
• Review of Supplier • Document reviews​ networking sessions​
Code of Conduct and • Management • Post-investment visits​
sustainability policy​ interviews
• Monitoring and
• Screen for sanctions, reporting ​
media allegations etc.
at portfolio company • Regular impact
level assessments​

• Dedicated supply • Third-party risk • Supply chain mapping • Including performance • Establishing relevant • Screening new buyers
chain policies​ assessment​ (priority products/ clauses in agreements ​ teams ​ for alignment with
• Clearly defined roles • On-site assessments​ suppliers) for high • Escalation plan priorities
and responsibilities ​ priority/risk suppliers ​ and remediation
• Screen for sanctions
Leading practice

• Management etc. at supplier level ​ • Spot checks of high- procedures​

leadership and board risk suppliers​ • Grievance
• Product-level
involvement at screenings/ • Stakeholder mechanisms and
portfolio company​ certifications and engagement with handling of complaints​
• Training ​ standards suppliers, NGOs, etc. • Engagement with
• Data and systems affected stakeholders​
(e.g., sanction • Crisis management
screenings, survey plan (at investor level)​
tools, etc.)

34
 SUSTAINABILITY IN SUPPLY CHAINS | 2025

Standard practice Leading practice

■ Developing policies ■ Establishing relevant teams

■ Monthly media screens ■ Escalation plans and remediation procedures
■ Staff training, knowledge-sharing and networking ■ Grievance mechanisms and handling of complaints
sessions ■ Engagement with affected stakeholders
■ Post-investment visits ■ Crisis management plans (at investor level)
■ Monitoring and reporting
■ Regular risk assessments

Regular engagement with portfolio companies on the Sharing knowledge: Some investors will support this
management of human rights and environmental impacts process by reviewing and commenting on a company’s
in the supply chain provides an opportunity to identify policy document, while others provide access to standard
and manage risks early, reinforce investors’ expectations templates or share best practices from other portfolio
and foster a relationship of trust and transparency. While companies. Other standard practices include providing
engagement may in some cases occur informally during portfolio companies with an overview of useful third-party
regular business interactions, more structured, formal guidance documents, directing them to consultancies that
engagements can be more productive and effective. provide tools to screen for suppliers’ risk exposure and
Engagement can be carried out across the portfolio or with organising knowledge-sharing sessions.
specific companies.
These sessions might involve one-to-one or joint training
Policy commitments: A key form of engagement for most of key portfolio company staff , covering topics such
investors is to support portfolio companies with establishing as managing supply chain risk and identifying high-risk
a clear policy commitment on their responsibility to respect issues. These key staff typically include the procurement
human rights and protect the environment, as well as and sourcing teams, which play a critical role in evaluating
communicating those expectations to suppliers, for example suppliers, negotiating contracts and integrating
through a supplier code of conduct. sustainability criteria into purchasing decisions.

This involves approving a meaningful policy at the most Compliance and legal teams should also be equipped to
senior level of the company that: assess any legal obligations and implement appropriate
governance mechanisms. Sustainability leads also require
■ is informed by relevant internal and external expertise; deep understanding of the potential environmental and
■ stipulates the company’s expectations of its own human rights impacts in the supply chain and typically oversee
employees and its business partners; the due diligence process to identify and mitigate risks.
■ is publicly available and communicated internally and
externally; Most investors also share emerging knowledge with specific
■ is reflected in the operational policies and procedures companies on an ongoing basis, as new information about
necessary to embed it throughout the company. potential risks, regulations, etc. becomes available.

These policies should define expectations for suppliers, Monitoring implementation: Regular post-investment visits
outline company commitments and ensure alignment allow investors to directly observe the implementation of
with international standards, such as the UNGPs, or with company policies and potential emerging risks, facilitating
applicable legislation. more informed decision making. We also see engagement

35
 over regular reporting on identified risks and performance Escalation and remediation procedures: The development
improvements emerging as standard practice. of escalation plans and remediation procedures is a key
advanced practice. This includes developing crisis playbooks
Monitoring portfolio companies on supply chain human that set out how the company and the investor respond
rights and environmental practices may include tracking to findings or allegations (e.g. media reports, complaints,
progress on specific supply chain-related commitments whistleblower reports, etc.) and remediate any issues, such
defined in the action plan, conducting workforce or as by working with a dedicated party to institute proper
supplier surveys, or overseeing management of concerns health and safety practices at a supplier site or investigating
raised via the grievance mechanism to ensure accessibility, the root causes of a child labour case.
responsiveness and efficacy.
In addition, the establishment and control of a dedicated
Similarly, investors can help ensure portfolio companies are grievance mechanism and process to handle and escalate
on track with their sustainability goals by helping them carry complaints and grievances is critical (and is a requirement
out regular risk assessments and periodically evaluating the under the CSDDD).
effectiveness of their due diligence processes. This is done
by guiding portfolio companies to useful resources, enabling Investors should ensure that all portfolio companies
knowledge sharing or linking them to external third-party implement a robust employee stakeholder consultation
consultancies. programme and have accessible grievance mechanisms
available both for their own employees but also affected
Human resources: Encouraging companies to establish stakeholders in the supply chain, including their suppliers’
dedicated teams with expertise to address supply chain employees, contractors and local communities. Having
risks is a critical but more advanced engagement practice. effective grievance mechanisms in place enables early
Some investors defer to the company to assign these identification of potential adverse impacts on people or the
responsibilities to an existing resource, with people often environment and allows companies to prevent and mitigate
showing the underlying skills needed even if supply chain any incidents.
management is not part of the core role. Others mandate a
dedicated sustainability/supply chain hire. Stakeholder engagement: As part of prevention and
remediation efforts, stakeholder engagement should be a
Investors seeking professionals for dedicated roles tend strategic and ongoing process for investors. Best practice
to prioritise individuals with a strong blend of qualitative here involves supporting portfolio companies to conduct
and quantitative skills, coupled with critical thinking and a early, inclusive and culturally appropriate consultations to
pragmatic understanding of effective solutions. Emotional identify potential risks, concerns and expectations from
intelligence and the ability to assess dynamics within a affected stakeholders.
business context are also highly valued, enabling teams
to conduct thorough analyses while remaining attuned This involves mapping key stakeholder groups, such as local
to broader commercial and operational considerations. residents, workers, Indigenous communities and civil society
Expertise in data analysis, reporting and stakeholder organisations, and ensuring that two-way communication
engagement, and strong communication skills are essential channels are established.
for driving meaningful initiatives. Crisis management
capabilities and a problem-solving mindset are critical Investors should align any stakeholder engagement
for responding to emerging risks and implementing approach with international standards, such as the UNGPs
remediation measures where necessary. Likewise, robust or the CSDDD requirements, and should require portfolio
risk assessment and compliance expertise are fundamental companies to document engagement outcomes, integrate
in identifying supply chain vulnerabilities and ensuring stakeholder feedback into decision-making and monitor
alignment with relevant regulatory and industry standards. impacts.

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 SUSTAINABILITY IN SUPPLY CHAINS | 2025

SPOTLIGHT:

ENGAGING WITH COMPANIES ON SUPPLY CHAIN SUSTAINABILITY

RISK MANAGEMENT – VARYING APPROACHES BASED ON THE
INVESTOR’S LEVERAGE

Investors’ approaches to integrating and engaging on Co-investments: Shared governance means that any
sustainability supply chain due diligence differ, depending integration of sustainability efforts must be negotiated
on their level of control over portfolio companies. among investors. Influence is exerted through risk
mapping, disclosure requirements and knowledgesharing
Majority buyouts: With full operational control, investors rather than direct enforcement.
can request that companies establish key sustainability
policies and supplier codes of conduct. They may At the portfolio company level, the ability to manage
conduct direct audits or be involved in supplier choices supply chain risks depends on the leverage the company
and have sustainability oversight integrated at the has over its suppliers. Companies with strong purchasing
company’s board level. power (e.g. high spend volumes) and longstanding
supplier relationships have greater ability to enforce
Minority stakes: Limited influence requires a sustainability conditions with suppliers, while companies
collaborative approach, encouraging companies to with less leverage may need to rely on certifications,
adopt better supplier standards through engagement, partnerships or industry-wide initiatives to increase their
executive incentives and improved sustainability leverage.
reporting. Investors may push for certifications and third-
party audits, but they cannot dictate supplier choices.

CASE STUDY:

ACTIS – HELPING PORTFOLIO COMPANIES MANAGE ENVIRONMENTAL AND

SOCIAL SUPPLY CHAIN RISKS

Actis applies a rigorous environmental and social (E&S) either solely by the Actis Sustainability Team or in
due diligence approach to all investments, which includes conjunction with third-party experts. They are tailored
careful consideration of supply chain E&S risks in its for maximum relevance and utility to Actis portfolio
portfolio companies. Analysis of these risks extends companies, which are infrastructure investments,
well beyond the due diligence phase and remains a key mostly in emerging markets. Most are launched with an
focus area throughout the asset management phase. As accompanying webinar to provide an opportunity for
an investor which takes majority stakes in investments, discussion and live question and answer sessions.
Actis actively manages these risks during ownership.
The guidance documents are accessible to portfolio
Actis has developed a large suite of practical E&S companies via a best practices portal. E&S topics
guidance documents, playbooks, toolkits and best covered include:
practice frameworks to help its portfolio companies
manage E&S risks in the supply chain. These guidance ■ Guidance on developing a responsible procurement
documents provide views on best practice, common policy
challenges and solutions. They have been developed ■ Contracting with third-party security services

37
 ■ Gender-based violence and harassment The Actis Sustainability Team does not rely solely on
■ Health and safety, and including cascading distribution of guidance materials, however, and a
requirements/minimum standards in contracts with key driver of successful implementation is hands-on
suppliers partnership with the portfolio company leadership.
■ Procurement of solar panels (addressing traceability Actis hosts an annual in-person offsite with heads of
and human rights risks in supply chains) sustainability, which provides an opportunity for portfolio
■ Grievance mechanisms for workers and for companies to come together, share lessons learned
communities, and speak-up (whistleblower) and insights, and accelerate knowledge transfer on E&S
channels at corporate level supply chain issues, among other things.
■ Best practice guidelines on labour accommodation
standards at site Finally, in terms of governance and monitoring, a
crucial limb of the Actis approach is that most portfolio
companies have sustainability sub-committees that
report to their boards: these are crucial forums for Actis
oversight of all E&S risks and opportunities.

6. EXIT AND RE-INVESTMENT

1. Governance 2. Early due 3. Due diligence​ 4. Decision and 5. Engagement 6. Exit and
and policies dilligence agreement​ and monitoring​ re-investment​
screening

• Sustainability policies • Materiality • Risk exposure and • 100-day action plan​ • Developing policies ​ • Ensuring relevant
and principles​ assessment ​ maturity assessment • Environmental and • Monthly media screens​ policies and processes
• Exclusion lists • Self-assessment (inhouse or with third social action plan are in place and
• Staff training,
Standard practice

questionnaire​ party)​ documented

knowledge sharing and
• Review of Supplier • Document reviews​ networking sessions​
Code of Conduct and • Management • Post-investment visits​
sustainability policy​ interviews
• Monitoring and
• Screen for sanctions, reporting ​
media allegations etc.
at portfolio company • Regular impact
level assessments​

• Dedicated supply • Third-party risk • Supply chain mapping • Including performance • Establishing relevant • Screening new buyers
chain policies​ assessment​ (priority products/ clauses in agreements ​ teams ​ for alignment with
• Clearly defined roles • On-site assessments​ suppliers) for high • Escalation plan priorities
and responsibilities ​ priority/risk suppliers ​ and remediation
• Screen for sanctions
Leading practice

• Management etc. at supplier level ​ • Spot checks of high- procedures​

leadership and board risk suppliers​ • Grievance
• Product-level
involvement at screenings/ • Stakeholder mechanisms and
portfolio company​ certifications and engagement with handling of complaints​
• Training ​ standards suppliers, NGOs, etc. • Engagement with
• Data and systems affected stakeholders​
(e.g., sanction • Crisis management
screenings, survey plan (at investor level)​
tools, etc.)

Standard practice Leading practice

■ Ensuring relevant policies and processes are in ■ Screening new buyers for alignment with priorities
place and documented

38
 SUSTAINABILITY IN SUPPLY CHAINS | 2025

When preparing for an exit, investors (sellers) typically in turn typically look for evidence of strong governance,
focus on attracting high-quality buyers, maximising the supplier oversight and risk mitigation efforts and may seek
value of the business and ensuring a smooth transition. For assurances that the company has a clear escalation process
business with complex or higher-risk supply chains (e.g. for addressing supplier noncompliance. For companies with
those active in more high-risk industries or geographies), more risk-exposed supply chains, a robust due diligence
demonstrating robust human rights and environmental due approach to manage supply chain risks can help to lower the
diligence practices, effective risk management and improved overall risk of the investment by demonstrating stronger
performance, such as a decarbonised supply chain, can be resilience against regulatory changes, litigation or activist
a key differentiator, enhancing both valuation and buyer scrutiny.
confidence. Sellers can leverage progress in the company’s
supply chain due diligence by providing comprehensive, More advanced practices in this context include sellers
welldocumented data, clear policies and structured risk screening buyers for their sustainable supply chain
assessments, easily accessible for buyer review. commitments, responsible business practices and long-term
strategic goals to help safeguard the company’s progress
This transparency can help mitigate legal, operational post-exit.
and reputational risks that can devalue an asset. Buyers

SPOTLIGHT:

MATURITY LEVELS IN THE INTEGRATION OF SUSTAINABLE SUPPLY CHAIN

MANAGEMENT IN THE INVESTMENT CYCLE

The table below outlines investor maturity levels in terms of integrating human rights and environmental supply chain
management into the investment process.

Key characteristics Examples of implementation

Nascent – Investors acknowledge sustainability factors but lack a structured approach to assessing and managing supply chain risks

Sustainability considerations included ■ Standardised sustainability questionnaires used for initial

in investment policies, but supply chain screening, indirectly including supply chain-related topics
impacts not systematically assessed. ■ Focus on compliance with local regulations
Formal commitments to supply chain ■ No formal supply chain-specific policies beyond general
management less frequently observed. sustainability considerations

Standard – Investors integrate supply chain due diligence into sustainability policies, conduct risk assessments and build internal capacity

Companies with more mature ■ Use of external consultants and platforms for screening of
sustainability frameworks, more likely high-risk industries
including explicit commitments to supply ■ Development of supplier codes of conduct and supply chain
chain management. They engage in risk policies
assessments beyond basic screening ■ Internal training programmes to build sustainability and
and develop sustainability policies that supply chain capacity in investment teams
integrate supply chain risks. ■ Participation in industry-specific sustainability initiatives and
collaboration with industry bodies

39
 Leading – Investors embed rigorous sustainability monitoring, legal enforcement and supplier engagement to align with best practice and mitigate risks

Advanced practices involve detailed supply ■ Sustainability compliance clauses included in all legal
chain policies with rigorous monitoring, agreements
reporting mechanisms and legal ■ Grievance mechanisms required and rolled out to monitor
integration into investment decisions. and manage supplier risks and worker concerns
Firms actively evolve their supply chain ■ Engagement in supplier capacity-building, such as providing
management practices to align with best templates for codes of conduct and procurement policies
practices and international standards. ■ Supplier monitoring at tier 1 and/or beyond
Grievance mechanisms established to
resolve issues transparently.

4.2 SUPPLY CHAIN DUE DILIGENCE AS A PORTFOLIO COMPANY

It is important that portfolio companies understand the specific actions they can take in conducting human
rights and environmental due diligence for effective risk management and value creation. Standard and
best practices require designing effective due diligence programmes, mapping and screening suppliers,
assessing risks, training suppliers, monitoring, remediation and disclosure.

Below is an illustrative workflow to help companies design supply chain due diligence programmes.

Figure 7: Overview of activities for portfolio companies

1. Programme 2. Supplier mapping 3. Risk 4. Supplier 5. Monitoring and 6. Remediation

design and screening assessment ​ training ​ investigation ​

• Map programme • Mapping of the supply • Assess suppliers • Standardised and/ • Social and • Stakeholder facilitation​
against regulatory chain ​ based on social and or topic-specific environmental audits • Root-cause analysis​
requirements​ • Screening for: ​ environmental risk training on company (onsite/remote) ​
exposure, and spend expectations and • Targeted training ​
• Roadmap development​ • Self-assessment
– sanctions ​ requirements​ • Regular review and
• Establish/review questionnaires​
– allegations ​ consultation​
Supplier code of • Dedicated training • Worker surveys ​
– ownership LOW MEDIUM
conduct ​ programmes for high-
risk, critical suppliers ​ • Grievance mechanisms​

HIGH EXTREME

8. Reporting and 7. Regular review

disclosure​ and benchmarking

40
 SUSTAINABILITY IN SUPPLY CHAINS | 2025

1. PROGRAMME DESIGN

1. Programme 2. Supplier mapping 3. Risk 4. Supplier 5. Monitoring and 6. Remediation

design and screening assessment ​ training ​ investigation ​

• Map programme • Mapping of the supply • Assess suppliers • Standardised and/ • Social and • Stakeholder facilitation​
against regulatory chain ​ based on social and or topic-specific environmental audits • Root-cause analysis​
requirements​ • Screening for: ​ environmental risk training on company (onsite/remote) ​
exposure, and spend expectations and • Targeted training ​
• Roadmap development​ • Self-assessment
– sanctions ​ requirements​ • Regular review and
• Establish/review questionnaires​
– allegations ​ consultation​
Supplier code of • Dedicated training • Worker surveys ​
– ownership LOW MEDIUM
conduct ​ programmes for high-
risk, critical suppliers ​ • Grievance mechanisms​

HIGH EXTREME

8. Reporting and 7. Regular review

disclosure​ and benchmarking

Mapping due diligence programme: As a starting point, Supplier code of conduct: This is a crucial component
a portfolio company should have a clear overview of the of a responsible sourcing programme, as it sets clear
investor requirements and regulatory requirements that its expectations for social and environmental standards
human rights and environmental due diligence approach throughout the supply chain. By establishing guidelines on
should adhere to. This can help identify key risk hotspots human and labour rights, environmental sustainability and
and inform the level of due diligence required and establish business integrity, companies can ensure their suppliers
product-specific performance and disclosure requirements. align with their values and regulatory requirements on
conducting human rights and environmental due diligence.
Companies should conduct a scope-setting exercise and gap
analysis to identify applicable requirements and evaluate A company’s supplier code of conduct should be aligned
where existing processes already meet these requirements with key conventions, including the International Bill of
and where enhancements or additions to processes are Human Rights22 and the International Labour Organization
needed. (ILO) conventions.23

Roadmap development: A clear roadmap that details the More advanced practices include making adherence to its
actions needed, responsibilities assigned, timelines and code of conduct part of contractual requirements with
estimated costs can help develop a more comprehensive, suppliers, and actively communicating its requirements
robust human rights and environmental due diligence during the negotiation and onboarding phase. Some
system. Any existing due diligence processes, such as supply companies will also require suppliers to take a mandatory
chain risk assessments, should be reviewed regularly and digital learning course about their code of conduct as part of
updated when there are material changes, such as mergers the pre-approval process.
and acquisitions or the rollout of new business lines or
products.

22. OHCHR (undated), International Bill of Human Rights webpage; 23. ILO (undated), ILO Conventions webpage

41
 2. SUPPLIER MAPPING AND SCREENING

1. Programme 2. Supplier mapping 3. Risk 4. Supplier 5. Monitoring and 6. Remediation

design and screening assessment ​ training ​ investigation ​

• Map programme • Mapping of the supply • Assess suppliers • Standardised and/ • Social and • Stakeholder facilitation​
against regulatory chain ​ based on social and or topic-specific environmental audits • Root-cause analysis​
requirements​ • Screening for: ​ environmental risk training on company (onsite/remote) ​
exposure, and spend expectations and • Targeted training ​
• Roadmap development​ • Self-assessment
– sanctions ​ requirements​ • Regular review and
• Establish/review questionnaires​
– allegations ​ consultation​
Supplier code of • Dedicated training • Worker surveys ​
– ownership LOW MEDIUM
conduct ​ programmes for high-
risk, critical suppliers ​ • Grievance mechanisms​

HIGH EXTREME

8. Reporting and 7. Regular review

disclosure​ and benchmarking

For many portfolio companies, supply chains are vast, multi- For deeper tiers (tier 2 and beyond), companies can either
layered and often extend beyond their direct relationships, cascade information requests down the supply chain,
making full visibility across all tiers challenging. Given this requiring suppliers to disclose their own sourcing partners,
complexity, it is crucial to conduct regular risk assessments to or rely on industry research and credible data sources to
identify and prioritise human rights and environmental impacts estimate typical supply chain structures. Leveraging third-
within their supply chains. Establishing transparency and party audits, supplier selfassessments, trade data and
traceability is a key first step, allowing businesses to gain full industry-specific reports can provide insights into common
visibility into the supply chain’s scope, pinpoint areas of highest sourcing patterns and risk exposure associated with specific
risk and take a phased approach to addressing them. products, raw materials and sourcing regions.

Supply chain mapping: While companies often maintain To ensure successful data gathering, it is important to
strong relationships with their tier 1 suppliers, visibility and ensure buy-in from key internal stakeholders at the
direct engagement with tier 2 suppliers and beyond can be company, specifically the buying/procurement units,
far more limited. To address this, businesses should conduct and build up capacities so that they can communicate to
a supply chain mapping exercise, covering both direct and suppliers why and how data-sharing can be beneficial. As
indirect suppliers. suppliers may be reluctant to share potentially sensitive
information, it is important to reassure suppliers that
There are various online tools on the market that information is not being misused and that due diligence
support supply chain mapping through supplier outreach, activities will benefit their businesses.
questionnaires and/or the use of AI to identify supply chain
links. To map their supply chains, companies are advised Supply chain screening: Once supply chain visibility is
to document their tier 1 suppliers, categorising them established, companies are advised to screen their key
by product type, industry and region (their physical site suppliers, using a (third-party) screening tool or publicly
locations rather than vendor addresses or headquarters) available information, for any risks, allegations, ownership
to understand direct sourcing risk. This can be followed by issues, sanctions or other human rights or environmental
mapping lower tiers (tier 2, 3 and n.) for high-risk products. impact-related incidents.

42
 SUSTAINABILITY IN SUPPLY CHAINS | 2025

SPOTLIGHT:

MANAGING SUBCONTRACTING RISKS

Subcontracting, whereby business allocated to a supplier To mitigate these risks, most companies include
is outsourced or assigned to another party, is a common dedicated clauses in their supplier codes of conduct and/
practice in many industries and can significantly reduce or supplier contracts that explicitly prohibit unauthorised
supply chain transparency and visibility. This can create subcontracting. In addition, businesses can develop a
risks related to quality control, human and labour standalone subcontracting policy that outlines:
rights violations, and environmental compliance, as
subcontractors may not adhere to the same standards ■ approval procedures requiring suppliers to disclose
as direct suppliers. Furthermore, liability can become and seek permission for any subcontracting
complex – while the original direct supplier remains arrangements;
contractually responsible, the hiring company may also ■ roles and responsibilities of suppliers in ensuring
face reputational, financial or even legal consequences subcontractors meet the company’s sustainability
if subcontractors in its deeper supply chain engage in standards;
unethical or illegal practices. ■ consequences of violations, such as contract
termination or corrective action plans;
■ ongoing monitoring and reporting requirements,
including audits, self-assessments or regular
disclosures.

3. RISK ASSESSMENT

1. Programme 2. Supplier mapping 3. Risk 4. Supplier 5. Monitoring and 6. Remediation

design and screening assessment ​ training ​ investigation ​

• Map programme • Mapping of the supply • Assess suppliers • Standardised and/ • Social and • Stakeholder facilitation​
against regulatory chain ​ based on social and or topic-specific environmental audits • Root-cause analysis​
requirements​ • Screening for: ​ environmental risk training on company (onsite/remote) ​
exposure, and spend expectations and • Targeted training ​
• Roadmap development​ • Self-assessment
– sanctions ​ requirements​ • Regular review and
• Establish/review questionnaires​
– allegations ​ consultation​
Supplier code of • Dedicated training • Worker surveys ​
– ownership LOW MEDIUM
conduct ​ programmes for high-
risk, critical suppliers ​ • Grievance mechanisms​

HIGH EXTREME

8. Reporting and 7. Regular review

disclosure​ and benchmarking

Following the identification of key suppliers and products/ human rights frameworks. A structured risk assessment
components involved throughout the supply chain, the should evaluate both the likelihood of potential adverse
human rights and environmental risk assessment is core to impacts materialising and their potential severity.
supply chain due diligence.
Companies can use supplier disclosures, third-party audits,
Companies should conduct regular risk assessments of industry reports and stakeholder consultations to collect
their supply chain, in compliance with the growing body of risk-related data. This information should then be used
regulations that require this, as well as the UNGPs and other to categorise risks, for example as low, moderate, high or

43
 extreme. Suppliers can be grouped accordingly to prioritise There are a variety of risk assessment tools and service
risk mitigation actions, with the most severe and likely risks providers on the market that can be used for the risk
addressed first. assessment. These include LQRA’s EiQ, Verisk Maplecroft,
NAVEX ESG and reports from the Danish Institute for
Given potential resource constraints, portfolio companies Human Rights and the Business and Human Rights Resource
should initially focus risk mitigation efforts on higher-risk Centre. Alternatively, some companies maintain proprietary
products, supply chains and geographies. High-risk suppliers internal databases to assign risk scores to their suppliers.
should be subject to enhanced due diligence measures, such These scores can be used to determine the level of due
as targeted audits (ensuring that they cover relevant risk diligence required for the supplier and highlight critical
topics) and capacitybuilding programmes, or required to dependencies. Where risks are identified, it is important
implement grievance mechanisms. By integrating a risk- they are mitigated.
based approach into their responsible sourcing strategies,
portfolio companies can proactively address human A reasonable timeframe for conducting a risk assessment
rights and environmental impacts, comply with regulatory would be every two years, depending on the regulatory
expectations and enhance overall supply chain resilience. requirements applicable to the company. New suppliers
should be reviewed and assigned a risk score during their
onboarding.

4. SUPPLIER TRAINING
1. Programme 2. Supplier mapping 3. Risk 4. Supplier 5. Monitoring and 6. Remediation
design and screening assessment ​ training ​ investigation ​

• Map programme • Mapping of the supply • Assess suppliers • Standardised and/ • Social and • Stakeholder facilitation​
against regulatory chain ​ based on social and or topic-specific environmental audits • Root-cause analysis​
requirements​ • Screening for: ​ environmental risk training on company (onsite/remote) ​
exposure, and spend expectations and • Targeted training ​
• Roadmap development​ • Self-assessment
– sanctions ​ requirements​ • Regular review and
• Establish/review questionnaires​
– allegations ​ consultation​
Supplier code of • Dedicated training • Worker surveys ​
– ownership LOW MEDIUM
conduct ​ programmes for high-
risk, critical suppliers ​ • Grievance mechanisms​

HIGH EXTREME

8. Reporting and 7. Regular review

disclosure​ and benchmarking

To effectively mitigate adverse impacts within their supply Some companies also request suppliers to take specific
chains, companies should adopt a risk-based approach, courses on high-risk topics, such as responsible recruitment
prioritising actions based on the severity and likelihood of or health and safety, either online or in person. This can
identified impacts. High-risk suppliers should be subject be done through a service provider or the company’s own
to enhanced oversight and corrective measures, while teams, assuming they have sufficient expertise in the topic.
lower-risk suppliers may require periodic assessments Leveraging third-party training platforms that also provide
and capacity-building efforts, such as training, workshops virtual courses – such as EiQ Learn, Quizrr and EcoVadis
and direct engagement. Companies can decide to roll out Academy – can help scale these efforts across global
training for all suppliers or specifically for high-risk/high- supplier networks.
spend suppliers.

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 SUSTAINABILITY IN SUPPLY CHAINS | 2025

5. MONITORING AND INVESTIGATION

1. Programme 2. Supplier mapping 3. Risk 4. Supplier 5. Monitoring and 6. Remediation

design and screening assessment ​ training ​ investigation ​

• Map programme • Mapping of the supply • Assess suppliers • Standardised and/ • Social and • Stakeholder facilitation​
against regulatory chain ​ based on social and or topic-specific environmental audits • Root-cause analysis​
requirements​ • Screening for: ​ environmental risk training on company (onsite/remote) ​
exposure, and spend expectations and • Targeted training ​
• Roadmap development​ • Self-assessment
– sanctions ​ requirements​ • Regular review and
• Establish/review questionnaires​
– allegations ​ consultation​
Supplier code of • Dedicated training • Worker surveys ​
– ownership LOW MEDIUM
conduct ​ programmes for high-
risk, critical suppliers ​ • Grievance mechanisms​

HIGH EXTREME

8. Reporting and 7. Regular review

disclosure​ and benchmarking

Companies can use a variety of tools to monitor and assess for low-risk/low-spend suppliers only. For high-risk issues,
supplier performance, such as industry audit schemes (e.g. companies might decide to launch an investigation (typically
SMETA, ERSA and BSCI) whereby a third party will conduct through a third party) to better understand the situation and
an in-person or remote assessment of a factory or farm and identify the root cause.
identify any compliance gaps. An audit should be accompanied
by a corrective action plan (CAP) to highlight compliance gaps Grievance mechanisms can be a valuable tool to gain additional
and which requires the supplier to close or resolve any issues information about the situation on the ground and receive
within a defined number of days. A CAP can also include a early warnings. Companies can use third-party grievance
root-cause analysis to support the supplier in addressing the mechanisms, deploy their own hotline, or request suppliers
issue. In addition to an audit, companies can deploy anonymous make their own independent grievance mechanisms available.
worker surveys to gain additional insights into working It is important to ensure the grievance mechanism meets
conditions, labour issues or other sustainability concerns. the effectiveness criteria set out in the UNGPs – i.e. that it
is legitimate, accessible, predictable, equitable, transparent,
For higher-risk suppliers, companies are advised to use rights-compatible, a source of continuous learning and
more robust monitoring tools, such as in-person audits or based on engagement and dialogue. (See UNGP 31 for more
investigations, with self-assessment questionnaires used information.)

6. REMEDIATION
1. Programme 2. Supplier mapping 3. Risk 4. Supplier 5. Monitoring and 6. Remediation
design and screening assessment ​ training ​ investigation ​

• Map programme • Mapping of the supply • Assess suppliers • Standardised and/ • Social and • Stakeholder facilitation​
against regulatory chain ​ based on social and or topic-specific environmental audits • Root-cause analysis​
requirements​ • Screening for: ​ environmental risk training on company (onsite/remote) ​
exposure, and spend expectations and • Targeted training ​
• Roadmap development​ • Self-assessment
– sanctions ​ requirements​ • Regular review and
• Establish/review questionnaires​
– allegations ​ consultation​
Supplier code of • Dedicated training • Worker surveys ​
– ownership LOW MEDIUM
conduct ​ programmes for high-
risk, critical suppliers ​ • Grievance mechanisms​

HIGH EXTREME

8. Reporting and 7. Regular review

disclosure​ and benchmarking

45
 Legislation and international frameworks like the UNGPs punitive sanctions or prevention of harm through, for
specify that remediation is required when a company’s example, injunctions or guarantees of non-repetition.
activities directly or indirectly contribute to harm, whether To effectively remediate adverse impacts, companies
caused by its own operations or those of its suppliers. are advised to first engage with affected stakeholders –
According to the UNGPs, remediation can take the form including workers, local communities and suppliers – to
of rehabilitation, financial or nonfinancial compensation, understand the nature and scale of the harm.

SPOTLIGHT:

MESCALATING AND REMEDIATING IN RESPONSE TO FORCED

LABOUR CONCERNS
In March 2021, Top Glove Corporation Bhd., a Malaysian workforce. These efforts led the CBP to modify its
manufacturer of disposable gloves, faced scrutiny over forced labour findings in September 2021, allowing Top
forced labour practices within its supply chain. The Glove’s products to be imported into the United States
US CBP identified multiple forced labour indicators once more.24
at the company’s Malaysian facilities, including debt
bondage, excessive overtime, abusive working and living In a different case, Dyson Ltd. terminated its contract
conditions, and retention of identity documents. with Malaysian supplier ATA IMS Bhd. following an
audit that uncovered labour practice concerns. ATA had
In response to these findings, Top Glove implemented faced accusations of excessive overtime, illegal wage
a number of corrective measures, including issuing deductions and physical abuse. After receiving the audit
over US$30m in remediation payments to affected findings and engaging with ATA to address the issue,
workers. In addition, it upgraded hostel facilities for its Dyson eventually terminated the relationship, citing
migrant workers, who constitute a majority of its factory insufficient progress.25

Most companies (or investors) will develop a dedicated Actions can include, for example:
escalation plan (see above) to respond to such issues.
Recommended key steps include: • additional investigations into underlying issues,
e.g. the use of a particular recruitment agency that
■ An independent, third-party investigation should may charge recruitment fees to workers (a forced
be carried out to further understand the issue and labour indicator)
identify possible root causes and underlying concerns. • engagement with local communities and civil
Professional services firms such as law firms, human society organisations to develop an action plan
rights advisers and investigators are often engaged. • facility management training
■ Results should be shared with the supplier and/or site • establishing procurement and supplier incentives to
management (e.g. of the farm or factory), if appropriate ensure issues are resolved (see e.g. Better Buying)
and safe, an action plan should be put in place to • repayment of recruitment fees, remediation of child
address issues. labour issues, etc., with local/expert organisations
that can advise on local sensitivities and context

24. US Customs and Border Protection (9 September 2021), CBP Modifies Forced Labor Finding on Top Glove Corporation Bhd.; Euronews (10 September 2021), U.S. lifts import ban on

Malaysia's Top Glove over forced labour concerns; 25. Euronews (25 November 2021), Exclusive-Dyson dumps Malaysian supplier ATA over labour concerns

46
 SUSTAINABILITY IN SUPPLY CHAINS | 2025

■ Follow-up visits and meetings should be carried out to helpful to develop a formal responsible exit policy to support
ensure the remediation plan is being implemented and this process.
findings arew addressed. For examples of responsible exit plans, see:

If meaningful progress is lacking and there is no willingness • Fair Wear Foundation: Responsible Exit Strategy
from the supplier to address the issue, a company can Guidance
consider a responsible exit from the relationship. It can be • ACT: Responsible Exit Policy and Checklist

7. REGULAR REVIEW AND BENCHMARKING

1. Programme 2. Supplier mapping 3. Risk 4. Supplier 5. Monitoring and 6. Remediation

design and screening assessment ​ training ​ investigation ​

• Map programme • Mapping of the supply • Assess suppliers • Standardised and/ • Social and • Stakeholder facilitation​
against regulatory chain ​ based on social and or topic-specific environmental audits • Root-cause analysis​
requirements​ • Screening for: ​ environmental risk training on company (onsite/remote) ​
exposure, and spend expectations and • Targeted training ​
• Roadmap development​ • Self-assessment
– sanctions ​ requirements​ • Regular review and
• Establish/review questionnaires​
– allegations ​ consultation​
Supplier code of • Dedicated training • Worker surveys ​
– ownership LOW MEDIUM
conduct ​ programmes for high-
risk, critical suppliers ​ • Grievance mechanisms​

HIGH EXTREME

8. Reporting and 7. Regular review

disclosure​ and benchmarking

Companies can periodically review and benchmark supply data using the CDP platform.26 Suppliers can respond to
chain due diligence programmes to ensure they remain standardised questionnaires, allowing buyers to benchmark
aligned with regulatory requirements, peer practices and performance, assess risks and track improvements.
industry practice. Civil society organisations such as the The platform also encourages knowledge-sharing and
World Benchmarking Alliance and Know the Chain publicly collaboration, supporting capacity-building and enabling
benchmark (listed) companies based on their social and suppliers to learn from best practices.
environmental performance and assign a score. The
methodologies underlying the scoring can be a useful tool Organisations like Cascale and the Apparel Impact Institute
to review a company’s own performance and understand (aii) collaborate with supplier networks to advance
where it falls within its industry. decarbonisation efforts. Cascale’s Decarbonization
Program supports companies in setting and achieving
In addition, companies can use industry dialogue and science-based targets for emissions reductions.27 Similarly,
multistakeholder groups to discuss best practices, identify aii has introduced its Brand Playbook for Financing
areas for industry collaboration and benchmark their Decarbonization, which provides financial strategies to help
programmes. For example, more than 24,000 organisations brands fund supply chain decarbonisation efforts.28
disclose social, environmental and governance-related

26. CDP homepage; 27. Cascale (undated) Combat Climate Change; 28. Apparel Impact Institute (17 September 2024), Aii Launches New Roadmap to Accelerate Supply Chain

Decarbonization

47
 8. REPORTING AND DISCLOSURE

1. Programme 2. Supplier mapping 3. Risk 4. Supplier 5. Monitoring and 6. Remediation

design and screening assessment ​ training ​ investigation ​

• Map programme • Mapping of the supply • Assess suppliers • Standardised and/ • Social and • Stakeholder facilitation​
against regulatory chain ​ based on social and or topic-specific environmental audits • Root-cause analysis​
requirements​ • Screening for: ​ environmental risk training on company (onsite/remote) ​
exposure, and spend expectations and • Targeted training ​
• Roadmap development​ • Self-assessment
– sanctions ​ requirements​ • Regular review and
• Establish/review questionnaires​
– allegations ​ consultation​
Supplier code of • Dedicated training • Worker surveys ​
– ownership LOW MEDIUM
conduct ​ programmes for high-
risk, critical suppliers ​ • Grievance mechanisms​

HIGH EXTREME

8. Reporting and 7. Regular review

disclosure​ and benchmarking

Tracking key performance indicators (KPIs) and regular Companies are recommended to report on their due
reporting on supply chain due diligence is crucial for diligence policies, processes, efforts and outcomes, e.g. the
companies to assess the effectiveness of their approach results of risk assessments and the effectiveness of their
and to ensure accountability, transparency and continuous risk mitigation measures. Regular monitoring of outcomes
improvement. To assess the effectiveness of implemented should inform updates to human rights risk assessments and
measures, companies should use assessment metrics and relevant management measures. By measuring performance
indicators that are relevant, measurable, responsive and and effectiveness against clear benchmarks, companies
resourced. Potential KPIs include: can identify risks early on and strengthen their responsible
sourcing practices. In addition, regular disclosures build
■ the number and percentage of suppliers that have trust with stakeholders, including consumers, investors and
signed the supplier code of conduct; regulators. To effectively gauge evolving risks, companies
■ the number of internal training days by role and topic, should gather both quantitative and qualitative indicators,
including the percentage change in awareness levels as tailored to the specific risks within their supply chains. (See
a result and corresponding performance improvements; the GLI Labor Outcomes Metrics Policy Brief for examples
■ the number and percentage of suppliers attending of possible KPIs to track and report performance.)
capacity-building programmes, based on their
risk exposure categorisation and corresponding
performance improvements;
■ the number and percentage of (critical) suppliers
in specific risk categories, including changes in risk
assessments on a year-on-year-basis.

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 SUSTAINABILITY IN SUPPLY CHAINS | 2025

SPOTLIGHT:

RESPONSIBLE CONTRACTING IN SUPPLY CHAINS

As human rights and environmental practices in global However, to manage social and environmental risks in
supply chains come under increasing scrutiny, investors complex supply chains, a shared responsibility approach
can look to innovative approaches to effectively is more effective than simply shifting risks to suppliers.
prevent and address adverse impacts. For example, the This is why the RCP emphasises that, when it comes to
Responsible Contracting Project (RCP) has developed social and environmental matters, risk shifting is not the
responsible contracting principles that companies can same thing as risk management.
integrate into their supply chain agreements.29
In practice, this means that responsible contracts
Responsible Contracting Principles are structured to support effective human rights and
environmental due diligence as outlined in the UNGPs
Responsible contracting refers to the practice of and the OECD Guidelines. More specifically, responsible
integrating human rights and environmental obligations contracts put into action the shared responsibility
into commercial contracts in a way that commits both principles established by these widely accepted
parties to work together to uphold human rights and international frameworks.
environmental standards.30
RCP has set out three core principles of responsible
There is no universal contract template that fits every contracting (its three Rs):
situation, but the responsible contracting approach –
also known as the shared responsibility approach – can 1. Responsible allocation of risks and obligations:
be applied across various contract types. This includes The parties set aside guarantees of perfect
agreements for the sale and production of goods, service compliance in favour of a joint commitment
provision, equity investment, debt financing, licensing, to cooperate to uphold human rights and
franchising and even carbon offset transactions. environmental standards and carry out related due
diligence.
This approach is also sector-neutral, making it adaptable 2. Responsible purchasing practices: The buyer
to any supply chain. A defining characteristic of commits to fair purchasing practices that support
responsible contracts is their alignment with the UNGPs positive human rights and environmental outcomes.
and the OECD Guidelines. (This principle could extend to include fair investing,
lending and licensing practices.)
In most cases, when companies include human rights 3. Remediation first and responsible exit: If an
and environmental obligations in their contracts with, adverse impact happens, the parties commit to
for example, suppliers, service providers, portfolio provide remediation to victims as a matter of
companies or licensees, they use conventional priority, ahead of traditional contract remedies (e.g.
contracting methods that place the full burden – suspending payment and cancelling orders). Exit
including cost – of compliance on their business partner. or termination can be pursued only as a last resort
This happens because contracts are primarily designed and should be done responsibly, taking measures to
to protect company interests and minimise risk exposure, mitigate the impact.
rather than protect workers or the environment.

29. RCP (undated), Core Principles of Responsible Contracting; 30. UN Global Compact (2025), Decent Work Toolkit for Sustainable Procurement

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 Responsible contracting tools The Responsible Investor Model Clauses

RCP’s open access toolkit31 includes pan-industry The Responsible Investor Model Clauses (RIMCs) are
and sector-specific model clauses, template codes of model contract clauses designed to help investors
conduct, implementation guidance and policy briefs. The and portfolio companies integrate human rights and
tools that may be of most interest to investors include: environmental performance goals directly into their
investment agreements.
Investor Guidance on Responsible Contracting
In February 2025, the RCP, together with the American
Developed by the RCP and the Interfaith Center on Bar Association Business Law Section’s Corporate
Corporate Responsibility, the guidance equips investors Sustainability Law Committee and in collaboration
to engage their portfolio companies on how they with the PRI, launched an initial draft of the RIMCs for
integrate human rights and environmental due diligence consultation.32 Consultations are now underway to
into their commercial contracts. receive input from stakeholders and the RIMCs 1.0 are
scheduled to be published in the second half of 2025.
It provides an overview of key concepts to explain the In addition to the model clauses, the RIMCs include a
critical role that due diligence-aligned contracts play in company human rights and environmental due diligence
promoting better human rights and environmental due plan template, sources with guidance on responsible
diligence and outcomes, and better legal compliance. It investment (Annex 1) and a sample due diligence request
includes the following tools for carrying out company list (Annex 2).
engagement:
Responsible Purchasing Code of Conduct
■ sample questions that investors can use in their
dialogues with companies The Responsible Purchasing Code of Conduct, also
■ a shareholder resolution template known as the Buyer Code, is a model code of conduct
■ an investor engagement letter template designed specifically for buyers. Traditional codes of
■ sample responses to frequent pushback from conduct only address suppliers and do not account
companies for the role buyers play in upholding human rights and
environmental standards, nor hold buyers accountable
These tools can help investors assess whether when their actions undermine them. The Buyer Code
companies are using their international supply contracts bridges the gap by setting out steps the buyer can take
in a way that supports – or undermines – effective due to support positive human rights and environmental
diligence processes. outcomes. Like other tools in the RCP toolkit, the Buyer
Code promotes the shared-responsibility approach of
the UNGPs and the OECD Guidelines.

31. RCP (2025), The RCP Toolkit; 32. RCP (2025), The Responsible Investor Model Clauses (RIMCs); Business Law Today (2025), Draft Model Clauses for Responsible Investing: Call for

Consultation

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 SUSTAINABILITY IN SUPPLY CHAINS | 2025

5. USEFUL SOURCES AND

FURTHER READING

1. Policy development ■ Forced Labour Observatory | ILO

■ Labour considerations for private equity investors in
Key practices: emerging markets| Ergon
■ Verisk Maplecroft (for country and industry risk
■ Defining environmental and human rights commitments analysis)
■ Establishing responsible investment and exit policies ■ Using maps to protect human rights | Rainforest
■ Aligning with global frameworks (e.g. UNGP, OECD, ILO) Alliance
■ ESG Toolkit for Fund Managers | BII
Relevant sources: ■ Task Force on Climate-related Financial Disclosures
(TCFD)
■ BII ESG Toolkit for Fund Managers ■ Taskforce on Nature-related Financial Disclosures
■ ESG Toolkits | FMO (TNFD)
■ How to Develop a Human Rights Policy | UN Global
Compact 3. Due diligence
■ Responsible Business Conduct | OECD (supply chain mapping and risk assessment)
■ Step-By-Step Guide to Mandatory CSRD | Netherlands
Ministry of Economic Affairs Key practices:
■ Toolkit on Corporate Governance | Corporate
Governance Development Framework ■ Conducting supply chain mapping and risk assessments
■ UN Guiding Principles on Business and Human Rights ■ Engaging suppliers on ESG risks
(UNGP)| OHCHR ■ Assessing labour, human rights and environmental risks
■ UN Guiding Principles Reporting Framework
■ UN Global Compact Relevant sources:
■ Human Rights Toolkit for Financial Institutions | UNEP
Finance Initiative ■ Managing human rights risk in supply chains: A toolkit
for companies | Ergon
2. Early screening ■ The Business & Human Rights Resource Centre
■ Managing Social and Environmental Risks in Supply
Key practices: Chains for IDB-Financed Projects
■ Managing Risks Associated with Modern Slavery | BII
■ Identifying high-risk industries, regions and business ■ Managing labour risks and opportunities of platform
models work | BII
■ Screening against sanction lists and global watchlists ■ New private sector guidance on tackling modern slavery
■ Integrating social and environmental risk factors into risks | BII
investment screening ■ NAVEX One GRC software platform
■ EcoVadis Academy
Relevant sources: ■ EiQ Analyse and EiQ Training | LRQA
■ ILO Forced Labour Convention, 1930 (No. 29) | OHCHR
■ List of Goods Produced by Child Labor or Forced Labor ■ Forced Labour Observatory | ILO
| US Department of Labor ■ 2025 Supply Chain ESG Risk Outlook Report | LRQA
■ Consolidated list of persons, groups and entities subject ■ Contractual Clauses Project | American Bar Association
to EU financial sanctions | European Union ■ Women, Business and the Law 2024 | World Bank
■ The World Bank Listing of Ineligible Firms and Group
Individuals ■ Working Time | UN Global Compact
■ Sanction List Materials | United Nations Security Council ■ Reports | Danish Institute for Human Rights

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 4. Engagement (supplier and portfolio company ■ Addressing Forced Labor and other Modern Slavery
engagement) Risks | GBCAT
■ Addressing Gender-Based Violence and Harassment |
Key practices: BII
■ Preventing Fatalities and Serious Accidents | BII
■ Implementing responsible recruitment and fair labour ■ Quizrr
practices ■ Amnesty International
■ Enhancing supplier training and sustainability
performance improvement 5. Exit strategy
■ Engaging with stakeholders and third-party auditors
Key practices:
Relevant sources:
■ Ensuring responsible exit and transition planning
■ General principles and operational guidelines for fair ■ Avoiding negative human rights or environmental
recruitment and Definition of recruitment fees and impacts post-exit
related costs | ILO
■ IRIS Ethical Recruitment Relevant sources:
■ Responsible Recruitment Toolkit
■ Better Buying – Improving purchasing practices in ■ ACT Responsible Exit Policy and Checklist
global supply chains ■ Responsible Exit Strategy Guidance | Fair Wear
■ Responsible Business Alliance Foundation
■ Managing labour risks and opportunities of platform ■ Responsible Business Conduct | OECD
work | BII ■ Contractual Clauses Project | American Bar Association

CREDITS

AUTHORS:

■ Aditya Vikram, PRI

■ Daram Pandian, PRI
■ Selina Rathke, LRQA
■ Suzanne van Huijgevoort, LRQA
■ Erin Lyon, LRQA

EDITOR:

■ Mark Nicholls, MRG Comms Ltd.

DESIGNER:

■ Mat Wiggins

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 SUSTAINABILITY IN SUPPLY CHAINS | 2025

The Principles for Responsible Investment (PRI)

The PRI works with its international network of signatories to put the six Principles
for Responsible Investment into practice. Its goals are to understand the investment
implications of environmental, social and governance (ESG) issues and to support
signatories in integrating these issues into investment and ownership decisions. The
PRI acts in the long-term interests of its signatories, of the financial markets and
economies in which they operate and ultimately of the environment and society as
a whole.

The six Principles for Responsible Investment are a voluntary and aspirational set of
investment principles that offer a menu of possible actions for incorporating ESG is-
sues into investment practice. The Principles were developed by investors, for inves-
tors. In implementing them, signatories contribute to developing a more sustainable
global financial system.

More information: www.unpri.org

The PRI is an investor initiative in partnership with

UNEP Finance Initiative and the UN Global Compact.

United Nations Environment Programme Finance Initiative (UNEP FI)

UNEP FI is a unique partnership between the United Nations Environment Programme

(UNEP) and the global financial sector. UNEP FI works closely with over 200
financial institutions that are signatories to the UNEP FI Statement on Sustainable
Development, and a range of partner organisations, to develop and promote linkages
between sustainability and financial performance. Through peer-to-peer networks,
research and training, UNEP FI carries out its mission to identify, promote, and realise
the adoption of best environmental and sustainability practice at all levels of financial
institution operations.

More information: www.unepfi.org

United Nations Global Compact

The United Nations Global Compact is a call to companies everywhere to align their
operations and strategies with ten universally accepted principles in the areas of hu-
man rights, labour, environment and anti-corruption, and to take action in support
of UN goals and issues embodied in the Sustainable Development Goals. The UN
Global Compact is a leadership platform for the development, implementation and
disclosure of responsible corporate practices. Launched in 2000, it is the largest cor-
porate sustainability initiative in the world, with more than 8,800 companies and
4,000 non-business signatories based in over 160 countries, and more than 80 Local
Networks.

More information: www.unglobalcompact.org

An investor initiative in partnership with UNEP Finance Initiative and UN Global Compact