ESG due diligence has tended to revolve around limited matters such as conflict minerals, government sanction lists, human rights or – increasingly – climate impacts. Now, investor pressure may push companies to expand supply chain evaluations and actions related to violent conflict in general. To some extent, this comes out of the recent developments in Myanmar.
A few practical considerations have proven problematic in conflict minerals (which is based on the concept of “High Risk and Conflict Affected Areas”, or CAHRAs) that may be instructive in a broader context:
- Defining “conflict” or “violent conflict”. The terms are ambiguous. What level and types of unpleasant human interaction meet the threshold of “conflict”? How does “conflict” differ from “violent conflict”? Do domestic gang rivalries or UN Peacekeeping missions equate to “violent conflict”?
- Deferring to governmental designations/lists. Governments have published sanctioned entity lists for years. More recently, CAHRA lists were developed by the EU and various quasi-governmental and industry programs. Yet differences between them exist, leading to questions about which is the correct or best list to use, or if they are relevant to specific situations.
- Responding to rapidly changing events and conditions. Tense situations can escalate into violence quickly – as happened in Myanmar recently. While anyone can track changing or emerging situations on an almost real time basis, it is unreasonable to expect companies to respond to events in real time. Unfortunately, such expectations may develop through a company’s customer and investor base. Companies need to actively manage perceptions and expectations of stakeholders when new events occur anywhere in the globe.
What You Can Do
If investors – or other stakeholders for that matter – bring up the concept of violent conflict in company supply chains, there are a few things you should consider doing:
- Initiate dialogues with those asking for this information to understand key term definitions, such as “violent,” “conflict” & “conflict-affected”.
- Clarify how you will use governmental lists, sanctions or other actions related to use, involvement in or support of violence.
- Obtain agreement on matters of timing – how long does a situation have to exist for it to be considered violent conflict? How much time does the company have to develop a plan of action? How much time is acceptable for the final resolution to be implemented?
- If you are getting many questions, consider publishing a public statement on the matter that sets out the definitions used by the company and potentially a general plan of action. This can help you avoid inconsistencies in your responses.