Daniel Schönfelder and Michaela Streibelt of the Responsible Contracting Project (RCP) published an article, The obligations to responsible purchasing and responsible procurement established by the CSDDD (January 2025). The article delves into the reasons why purchasing and procurement matter for human rights and the environment and its grounding under the EU Corporate Sustainability Due Diligence Directive (CSDDD).
Human Level’s Take:
- Companies' purchasing practices impact suppliers' ability to uphold human rights and environmental standards. When suppliers are chosen based only on price and quality, they may cut corners on fair wages, safety and sustainability in order to keep prices down. Low prices can also drive suppliers to rely on excessive overtime and uncontrolled subcontracting to stay competitive.
- The EU Corporate Sustainability Due Diligence Directive (CSDDD), grounded in the UN Guiding Principles on Business and Human Rights (UNGPs), outlines that companies can be held responsible for adverse impacts caused alone, jointly with others, or by their business partners. They are expected to financially participate in the remediation of adverse impacts if they have caused them alone or jointly with others.
- Companies can ensure responsible purchasing by assessing risks, adopting clear policies, and embedding responsibility in contracts. They should establish fair payment terms, price escalation clauses, and labor cost protections. Providing grievance mechanisms, stable orders, and responsible exit strategies mitigates negative impacts.
- In addition, companies can train purchasing teams, support suppliers, and engage experts. Incentivizing sustainability with long-term contracts and integrating it into procurement decisions further promotes responsible practices, along with collaboration with industry peers when needed.
Some key takeaways:
- Responsible purchasing and procurement matter for human rights and the environment: Companies’ purchasing practices directly impact the capacity of suppliers to respect human rights and the environment. Companies that select suppliers based solely on quality and price without considering their sustainability performance discourage or inhibit suppliers from investing in living wages, operational safety and health, and environmental protection. This is because sustainability costs money. And suppliers may feel forced to neglect sustainability performance to remain competitive in an environment that rewards price and quality. Low prices makes it more likely that suppliers will rely on excessive overtime and uncontrolled subcontracting to keep their own prices low and remain competitive. Simply put, irresponsible purchasing and procurement practices can lead to a ‘race to the bottom’, burdening suppliers, their workers and neighbouring communities.
- Responsible purchasing as preventive and corrective measure: The EU Corporate Sustainability Due Diligence Directive (CSDDD), that is based on the UN Guiding Principles on Business and Human Rights, differentiates between three types of involvement with adverse impacts. Companies can either cause them alone or jointly, i.e. together with other actors, or the adverse impact can be caused only by their business partners. Under the CSDDD, companies are ‘jointly causing’ an impact if their acts or omissions are “causing the adverse impact in combination with the acts or omissions of subsidiaries or business partners, including where the company substantially facilitates or incentivises a business partner to cause an adverse impact, that is, excluding minor or trivial contributions.” Therefore, if an adverse impact occurs where a company does not engage in responsible purchasing, it is likely that the company has jointly caused the impact because purchasing practices are central for suppliers’ abilities to protect human rights and the environment. If companies are found to have jointly caused an adverse impact, they are expected to participate in the remediation of this adverse impact. The authors therefore recommend that companies “analyse and adapt their purchasing practices proactively and on a risk-based basis”, rather than continue “purchasing as usual” and only reacting when adverse impacts occur.
- What can companies do? The articles provides suggestions of how companies can implement responsible purchasing practices. Companies can:
- Analyse their own purchasing practices to identify and assess the actual or potential adverse impacts arising from their purchasing practices
- Adopt internal policies outlining their obligations in relation to responsible purchasing practices. This can be a standalone buyer’s code of conduct or sections in the code of conduct specifically addressing responsible purchasing
- Openly communicate a commitment to responsible purchasing in the contract negotiation process. This incentivises suppliers to mention buyers’ actions that (jointly) cause adverse human rights impacts
- Include commitments to responsible purchasing in contracts with suppliers
- Provide suppliers with access to channels for raising issues, for example, about the human rights impacts of buyers’ actions
- Establish appropriate payment periods and adhere to them. Best practice is to keep payment periods after billing as short as possible and for buyers to be contractually obliged to meet the payment period
- Implement responsible exit strategies and clearly communicate this to suppliers, with explicit agreements on the implications for the workforce when the buyer withdraws from a commercial relationship
- Set forth specific and more detailed purchasing policies in relation to prioritised spend or supplier categories, which include risk profiles for specific supply chains and impacts
- Train purchasing departments on responsible purchasing to help them understand their obligations in relation to responsible purchasing, purchasing-related risks and impacts, and potential measures to address these risks and impacts. Measures include engaging with a selection of their suppliers, industry peers or specialised organisations, NGOs, and experts
- ‘Ring-fence’ labour costs, which means the “automatic and contractually binding increase of prices in the event of rising wage costs, and the inclusion of labour costs as non-negotiable cost components in negotiations.”
- Include price escalation clauses in contracts, which reflects rising cost factors
- Set positive incentives for good sustainability performance in relation to suppliers (potential or existing) and procurement staff. For instance, good sustainability performance can be considered as a supplier selection criterion (alongside price and quality). At the same time, suppliers can be rewarded, for example, through longer-term contracts, for demonstrating good sustainability practices. In relation to purchasing staff, this involves rewarding sustainability, for instance, rewarding progress against living wages or selecting sustainable suppliers
- Enter into longer contract periods and long-term business relationships
- Providing feasible lead times and regular order volumes, as well as avoiding cancelling booked supplier capacity. Where changes in orders happen, discussion about the human rights and environmental risks and impacts of these changes should take place between buyers and suppliers
- Support suppliers through, for example, training on regionally relevant living wages and how to calculate or estimate the prices required to cover them. This may require financial and technical support from the buyer company
- Collaborate with others in order to increase leverage, which is effective in contexts where companies purchase a small fraction of the volume produced by the supplier or impacts deeper in the supply chain need to be addressed
- Evaluate the effectiveness of responsible purchasing practices
