【Event】 From Passive to Active: Due Diligence Integrated into Corporate Strategy

 On December 9, the13^thSino-European CSR Roundtable Forum, co-organized by China WTO Tribune and Business Social Compliance Initiative (BSCI) – Foreign Trade Association (FTA), was held in Shanghai. The forum continues with the topic of the 12^th forum “Due Diligence and Responsible Supply Chains” . Representatives from government agencies, and well-known enterprises, experts and scholars from professional CSR institutions shared the philosophy, experience and methods to build responsible supply chains and provided guidance for enterprises to carry out social or environmental due diligence.

Government: Helping Enterprises Cut Operating Costs and Promoting Industrial Development
Yanming ZHANG, Standing Deputy Director, Corporate Social Responsibility Office of Shanghai Pudong New Area, mentioned in his speech that as an effective sustainability approach, social responsibility building is the current sustainable development orientation of Shanghai Pudong New Area and will play a key role in the area’s development. Pudong New Area government has made joint efforts with industries and society to supervise and guide enterprises to seek proactively what their own activities and social environment share in common.
Mr. ZHANG also talked about the changes of enterprises in Pudong New Area. Promoted by the government, enterprises in the region have transformed from passive implementation to active participation, and expanded their sustainable development thinking. Take responsible supply chains as an example, excellent enterprises in Pudong New Area pay attention to social responsibility building of their business partners, conduct comprehensive and in-depth evaluation on partners’ status quo of social responsibility performance in the supply chain and strive to improve the transparency of supply chains. On the one hand, it could reduce the operating costs, ensure the product quality and avoid the impact caused by suppliers’ scandals. On the other hand, it could promote the industrial development and reduce the impact on society or environment.
Trade Association: Promoting Dialogue Between Different Stakeholders and Seek Win-Win Solution
Darrell Doren, Managing Director of BSCI-FTA, has shed light on the significance of due diligence to enterprises from the perspective of trade association. He pointed out that due diligence is a continuous risk management process which could help enterprises find out and prevent the impact exerted on environment and human rights by irresponsible enterprise behaviors. To conduct due diligence, you must understand your business and its impact upon environment and human rights.
“Due diligence is about taking action by adopting and implementing processes that will contribute to remedy the identified issues. Companies have to take immediate action if they find serious violations of fundamental rights or international environmental standards.  Finally, due diligence is about being transparent and reporting on the company’s endeavour and its results.  However, enterprises themselves could not solve the problem. We have to talk to the government and citizens. We believe that we could find new solutions and achieve win-win outcomes if various stakeholders could have a brainstorm on due diligence.”He said.
Expert: Four Steps Promote the Integration of Due Diligence and Enterprise Business
Xiaohui LIANG, Chief Researcher, Office for Social Responsibility, China National Textile and Apparel Council (CNTAC), provided specific approaches for enterprises to conduct due diligence in his keynote speech. From a more professional perspective, Dr. LIANG interpreted due diligence as “responsible management” and introduced four steps to achieve it.
“The first is to identify risks to find out the risks upon product, business, human right, society, etc. in accordance with regulations and take precautions to prevent and mitigate risks. The second is to integrate due diligence into management, business, internal decisions and budgets. Due diligence is no longer a one-off business driven by external power, for example, a third party. Instead, it is a responsible method to conduct self-risk management.The third is to follow up the results to see whether the method works and to what extent it works. This includes the design for internal KPI design and external communication. Last but not least, information disclosure on reporting improvement and existing risks. The information disclosure is mainly in two forms, namely special release and report, for example, the annual report or CSR report.”He said.
Enterprise Practices: Experience Sharing on Cross-Industry Cooperation for Due Diligence
Anderson Lee, Chairman of Sustainable Fashion Business Consortium (SFBC) talked about challenges in due diligence and the solutions in apparel industry.
He said,“Faced with multiple challenges in due diligence, we have kept a balance between the upstream and downstream of the supply chain through dialogue and experience sharing. Our various stakeholders all over the world not only share due diligence practices but also contribute to the collaborative R & D projects. In addition, we are also partners with main communities to make sure relevant policies are implemented."
"Years of experience tells us we need to cooperate with each other. We should keep close relations with upstream and downstream partners in the supply chains as well as draw experience from advisory bodies and other industries so that we could make a difference. We must get to know the stakeholders, our advantages, and ways to draw on each other’s strengths. Such an information sharing platform is of vital importance." Mr. Lee added.
Enterprise Practices:  Details-oriented Brings Good Due Diligence Outcomes
Denis Liu, Ethical Supply Chain Manager, Associated British Foods China, stressed in his speech that, to begin with, a sustainable supply chain should boast competitive value with inexpensive price and good quality. Design capability is also indispensable. The second is no possibility of failure, namely to pursue good risk management, including management for financial risks as well as legal and business ethics risks. The third is sustainability. Without enough resources and labor, supply chains, despite the good-looking surface, sound quality and inexpensive price, are not sustainable.
He pointed out that due diligence requires two steps with research being the first and management the second. The first tells us devil is in the details. In the auditing industry, we need to check the scene and documents, and communicate with relevant staff. Through these tangible and intangible as well as objective and subjective details, we could integrate report and discuss the clues. Only close attention could lead to the findings of details and discover problems. In this way, enterprises could see the problems at the beginning of the cooperation so as to better perform their social responsibility.
Moreover, in the panel discussion, speakers and participants had heated discussions on how to conduct due diligence as well as cope with challenges and obstacles. In the end, they shared their discussion findings.
The participants agreed that it would make a huge difference whether enterprises shoulder their responsibility voluntarily in due diligence or not. Collaboration in this regard could save more costs on the operational level.
In the meantime, they believed government plays a key role in due diligence, as government is also an important stakeholder. With the promotion from government, due diligence could be implemented well. Government public data will effectively reduce the management costs and social costs. Government could drive to perform social responsibility through its interaction with enterprises.
For due diligence, CSR education is necessary. There is a gap of due diligence awareness and practices between buyers and sellers, or research institutions and advisory bodies. Only when stakeholders make constant progress in due diligence, raise their awareness and shoulder more responsibility, could due diligence play its role to the maximum extent.