Maintaining Sustainability and Human Rights Principles as Supply Chains Upend

Key Points

• Compounding crises have wreaked havoc on global supply chains and show no sign of letting up.
• New U.S. tariffs, in combination with the EU weakening legal requirements on sustainability due diligence in value chains, pose significant social, human rights and environmental risks, which is eroding the long-term security of supply chains and communities which rely on them.
• BSR urges companies to work closely together with their suppliers in finding solutions to the increasing complexities, look at existing relationships from a partnership perspective, continue conducting thorough social and environmental due diligence, and practice responsible entry and exit.

Global supply chains offer plenty of opportunities for companies to innovate with their products, support local economies, and build lasting relationships across countries. However, amidst a confluence of COVID-19, wars, trade route disruption, reliance on fossil fuel-based energy, amplifying extreme weather events, aging infrastructure, social unrest, increased migration and backlash, and heightened areas of human rights impacts, we are now facing an era where supply chains are now in a permacrisis that’s growing more complex by the day.

On April 3, the U.S. Administration announced trade policy changes that will take effect in April and May 2025 with the potential to upend global supply chains. These measures involve:

1. Broad tariffs on global imports to the U.S. 
2. The elimination of duty-free de minimis treatment for low-value exports from China and Hong Kong to the U.S.

Tariffs act as a tax on imported goods, raising the price for domestic buyers of foreign products as these become more expensive than locally produced alternatives. While it remains to be seen what will emerge from the negotiations process, other countries are beginning to respond to U.S. tariffs with their own retaliatory import tariffs on the U.S.

Implications for Companies and Sustainable Business

The tariffs announcement leaves global supply chains in a state of disarray, as companies rapidly prepare for reconfiguration of their supplier relationships. On the same day, the European Parliament voted in a landslide in favor of the stop-the-clock part of the Omnibus proposal. Together, these two announcements place significant pressure by driving up the cost of doing business while reducing the incentives for companies to operate responsibly. 

Some of the envisioned implications for sustainable business are:

• Growing supply chain uncertainty as companies are not clear on import costs nor which countries or commodities may be targeted. ​
• A possibility of cascading protectionist policies in economies around the world, leading to increased cost of living and affecting the most vulnerable populations the most.
• Greater inefficiencies in supply chain and sourcing as companies may need to change import markets, which may be farther away. This is expected to impact the overall cost, delivery times, product availability in stores and credit lines, as well as sustainability initiatives, such as efforts to reduce environmental impacts of purchasing practices (e.g., incurring a higher carbon footprint from longer distances).​
• Threats to responsible sourcing programs, as companies may face tensions between the need to onboard new suppliers quickly while maintaining strong due diligence practices upfront. ​
• Responsible disengagement practices that consider implications on workers, as companies may need to reduce purchasing or terminate relationships with foreign suppliers if costs of goods become too high. ​
• Higher costs of production might threaten existing sustainability initiatives. As companies look to reduce costs, there may be reduced investment in living wages, a resort to cheaper and riskier migrant and child labor (especially with weakening child labor protections in certain states), or other labor-related issues that require capital expenditure.​
• Changes in consumer spending as prices of goods change. In the short term, consumers may stop buying higher priced goods, which can result in food waste and impact company profits and sourcing strategies. In the long term, consumers may adopt more local purchasing, with potential positive impacts on sustainability. ​
• Increased use of and higher reliance on Artificial Intelligence.

Recommendations for Business

BSR urges companies to work closely with their suppliers in finding solutions to the increasing complexities, look at the existing relationships from a partnership perspective, continue conducting thorough due diligence, and practice responsible entry and exit. To build supply chain resilience, whilst minimizing negative impacts on sourcing communities in this upheaval, companies can:  

• Gauge how your suppliers are affected. Develop contingency sourcing and sales strategies for at-risk commodities early, allowing sufficient time to incorporate sustainability considerations (e.g., responsible disengagement, appropriate due diligence processes, etc.) together with most trusted suppliers.
• Invest in a rapid supply chain and transportation channels mapping to evaluate reliance on imported commodities into the U.S. and identify primary regions of import.
• Understand reliance on replaceable versus non-replaceable commodities, particularly those imported from regions at risk of tariffs, and explore options for alternatives.​ Conduct rapid human rights due diligence to anticipate and management resulting implications for people.
• Follow OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights (UNGPs) in entering, modifying, and exiting existing relationships.

How BSR Can Support​

• Responsible Disengagement: The BSR Human Rights team can assist in developing strategies for responsible disengagement from suppliers in circumstances where tariffs may lead to contract termination. ​
• Governance: We can provide guidance for your company on how to ensure governance structures are robust and incorporate consideration for impacts of tariffs on sustainability initiatives. ​
• Identify and Assess Human Rights Impacts: Identify and assess human rights impacts stemming from emerging landscape changes as part of a company's human rights due diligence process. BSR can support companies with rapid due diligence processes to inform complex sourcing decisions with human rights considerations. Using a modular approach to human rights assessments, we can support on everything from a high-level scan to a more intensive impact assessment involving extensive stakeholder engagement.
• Futures Scenarios: The BSR Futures team can help brainstorm different impacts of tariffs specific to your company.​
• Navigating with Peers: We convene companies facing similar pressures in sourcing regions and markets to collectively digest implications and learn from each other's approaches.

In these turbulent times, navigating the complexities of global supply chains requires proactive collaboration, foresight, and a steadfast commitment to responsible practices. Contact us to learn more about how BSR’s team can support your company across the supply chain.

This article was originally published at the BSR website "Sustainability Insights" and is written by Renata Greenberg, Director Transformation, Cliodhnagh Conlon Director Consumer Sectors, Ricki Berkenfeld, Associate Director Consumer Sectors and Transformation, Ariela Levy Associate Consumer sectors, at BSR.