Scaling up human rights due diligence through the use of blockchain

Event report

The session was organised by Hermes Equity Ownership Services and DLA Piper, and moderated by Ms Sarah Ellington (Legal Director, DLA Piper), who introduced the paper ‘Supply Chain Human Rights Risk Management: Blockchain And Emerging Technology‘ as a starting point for the discussion. The question that the session aimed to answer was, ‘Is it possible to do proper human rights due diligence across supply chains?’; and tried to address the possible role that technology could play in facilitating it. Technology in itself is not the answer: it has to work and implement the efficacy of existing systems. During the first part of the session, the panellists explained the status quo of current practices, while in the second part they focused on the application of technology as a means and tool to reinforce human rights due diligence in the supply chain.

Mr Darcy Hoogewerf (Product and Business Analyst, Everledger) gave an overview of how blockchain works. Blockchain is a distributed and immutable technology in which data is put into interconnected blocks. Keeping in mind that supply chains are quite often unstructured, the use of blockchain technologies can address the challenge of creating a structure in such processes in two main ways. First, it would allow for understanding the object of the chain, its owner and the specificities of the process. Second, it would implement transparency in the transaction analysis recording, such as for example, all the information related to moment the certificate of origin was created.

Dr Nicholas Garrett (Group CEO, RCS Global Group) talked about the current practices in place. The market is dominated by big companies actively looking for better implementation of human rights in the supply chain; however, in global terms, most companies are doing very little. To complement this picture, many companies work with industry associations and only some of them are very proactive. He argued that there is a need to solve the issue of not having full visibility in the supply chain; to this extent, it should be noticed that technology can implement the collection and analysis of quantitative data, however, qualitative data crucially depends on human activities and analysis.

With regards to the application of technology to the informal process of a supply chain, he explained that there is a need to find a way to obtain data and verify responsible processes. This would allow for the establishment of a data driven picture of what needs reform and improvement.

Ms Claire Gavini (Engagement, Hermes Investment Management) talked from the perspective of investment about the supply chain’s status quo and its relative gaps and challenges. She argued that regional legislations play a role in raising human rights issues; nonetheless, traceability remains a challenge in many cases. Investors look for the identification of the risks in the supply chain and manage them in an effective way. To this extent, collaboration would be the key to effectively address such challenges. When it comes to the application of technology to the process, she explained that it could implement the background analysis. Indeed, investors are increasingly monitoring companies practices on human rights from the perspective of risk management, as well as from the point of view of impact , in order to put in place better working practices for the working community.

Ms Nicky Black (Director, Environmental Stewardship and Social Progress, International Council on Mining and Metals) added an industry perspective to the panel. She explained three key areas that characterise the supply chain process:

• the technical area, in which the major issues and concerns are related to traceability and language, and not centralised capability

• the economic area, in which costs considerations need to be contextualised. To this extent, some initiatives tend to limit the chain of commodity to address the issue

• the cultural area, featured by extremely complex supply relationships

Respect for human rights sits at the heart of the performance expectations, based on the requirements for sustainable development. In this context, creating a good framework for human rights due diligence is based on the establishment of relationships with the community. When doing it, a question should be kept in mind: are we really implementing what we understand good practice to be? To this extent, the use of blockchain technologies can implement the diagnosis of systemic structural issues. Nonetheless, the features of each process make it difficult to automatically apply the framework on a large scale.