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Toward Further Development of Human Rights Initiatives in Procurement Activities
*This dialog was conducted in February 2024.
NEC has identified "Supply Chain Sustainability" as a materiality and is strengthening cooperation with suppliers through collaboration and co-creation. In this dialogue, we reviewed the status of NEC's sustainable procurement activities from 2022 to 2023, and had discussions with external experts on issues in human rights-related initiatives. In addition, as human rights legislation becomes more and more demanding of companies globally, we received opinions from the experts on initiatives required in future procurement activities and their expectations of NEC from a medium- to long-term perspective. They also offered advice from their perspectives on the direction of initiatives that should be considered over the medium to long term.
Review of Responsible Procurement Initiatives to Date
Sourcing and Purchasing
Department Senior Director
Toshiyuki Nakamura
Nakamura Over the past two years, we have deepened our human rights due diligence (“human rights DD"). We have set the rate of signatures to be obtained on declarations of compliance with “Guidelines for Responsible Business Conduct in Supply Chains” as a KPI for materiality, and in FY2023 we obtained declarations from suppliers covering 85% of our consolidated procurement value. With regard to the document check related to sustainable procurement (hereinafter referred to as "SAQ"), the scope has been expanded to include secondary suppliers (hereinafter referred to as “Tier 2") and suppliers of overseas offices, and suppliers identified as high risk are engaged by explaining the need for corrective action and proposing points to be corrected. We have also identified areas of risk based on a risk-based approach in line with OECD guidelines, and have conducted third-party audits of 13 suppliers to date. Other steps have been taken to expand our operational grievance mechanism to overseas suppliers, as well as to expand evaluation from an ESG perspective in the selection of suppliers.
(Business for Social Responsibility)
Managing Director
Asako Nagai
Nagai Compared to the early days, activities have progressed dramatically. I feel that progress has been made by accepting the opinions of various stakeholders.
Organization (ILO) Office
or Japan Programme Officer
Ryusuke Tanaka
Tanaka With regard to human rights DD, I feel that they are not simply filling in the checklist in response to what is required in the guidelines, but are proceeding after co-creating and collaborating with suppliers and sharing the same objectives. It is noteworthy that human rights DD and engagement are mutually complementary. It is important in this day and age to share the value of meeting society's expectations throughout the value chain in this way. In order to ensure that we hear the voices that have not reached us through human rights DD, we were also able to expand the operational grievance mechanism overseas and provide multilingual support. In addition, the company is evolving in the area of appropriate information disclosure and receiving feedback from external parties, which is positioned as part of the PDCA cycle in the human rights DD. The fact that the direction of efforts is based on the UN Guiding Principles on Business and Human Rights is also commendable.
and Master of Law
Partner
Daisuke Takahashi
Takahashi While it is commendable that the human rights DD in the supply chain has run such a course, as many companies have not been able to respond, in general, there are limits to how much influence we can exert over our business partners. In particular, it is difficult to obtain information on and encourage small and medium-sized enterprises（SMEs）, emerging economies, and informal economies. This s a challenge for another round of human rights DD in the future. Companies will need to assess human rights risks by expanding the scope of coverage to the entire value chain, including advertising and marketing as well as the supply chain.
Nagai In human rights DD, we need to include not only procurement of goods but also DD towards business partners such as service providers and consultants. It is also necessary to consider the entire value chain and look at whether customers downstream in the value chain are suspected of human rights violations and the use of NEC products. If we are to think about deepening human rights DD, we will need to make management decisions regarding resource allocation in the future. For example, if a company has conducted SAQ multiple times, the next time it will be necessary to consider the balance of resources and priorities, such as excluding companies that have already conducted SAQ or companies that do not have issues. In addition, the number of third-party audits is still low, and SAQ alone have limitations in terms of risk visualization; shifting resources from SAQ to audits would have a greater impact on risk reduction.
Takahashi If we were to prioritize, we would start with risks that could potentially result in severe human rights violations. In terms of understanding the severity, it is important to ask stakeholders which parts of NEC's business raise their concerns, and to ask their opinions accordingly.
Nakamura I hear that not only NEC but also other companies are having considerable difficulty in visualizing Tier 2 and beyond. In light of the fact that NEC's business is also changing, we have reaffirmed the need to focus on this issue.
Senior Vice President and CLCO
Yuko Yamamoto
Yamamoto How should we cover the incompleteness of SAQ and audits regarding human rights DD? I understand the importance of the role played by the Human Rights Hotline as an option, but are there other ways?
Nagai It is also good to focus on capacity building of suppliers, since audits alone may not be enough to make progress in supply chain initiatives. It is also important to check whether NEC's suppliers are among the companies that international NGOs have raised ESG alerts about, and to gather information from NGOs and media reports to understand the risks.
Tanaka As a member of society, it is important for companies to have a stance of contributing to finding and improving human rights issues throughout society. In regions where legal systems are not yet in place and there are governance gaps, NEC, as a leading global company, has to play many roles, such as providing proactive support to suppliers, in addition to auditing and promoting the collection of voices from the frontlines concerning human rights.
Senior Vice President and CSCO
Shigeki Shimizu
Shimizu In the past few years, when we visit our suppliers, the theme of human rights has naturally come up when a plant manager explains their company's activities, and we feel that the understanding of the field has deepened. On the other hand, there are challenges in securing resources and prioritizing activities. One way to think about this is to focus on supply chains and value chains that are linked to strategic businesses, etc., as businesses are changing, so that accountability can be fulfilled.
Toward Further Development of “Responsible Procurement Activities”
Nagai Related laws and regulations have been tightened mainly in Europe and the U.S., and companies are required to strengthen their response upstream of Tier 2. We would also like to hear your views on the environmental aspects that have recently been attracting attention, particularly the relationship between natural capital and human rights in the supply chain.
Takahashi Not all international code of conduct is incorporated into laws and regulations. First of all, we need to make sure that the laws and regulations are well addressed. At the same time, since there is a gap in the status of legislation in each country, it is important to show a response that takes into account international code of conduct. Regarding natural capital, multiple viewpoints are required, for example, protecting the lives of people who benefit from the bounty of nature thanks to biodiversity is linked to respect for human rights. On the other hand, it is important to note that if we do not do business because of the impact of biodiversity, it may have a negative economic impact on local people. This is in line with the Just Transition of climate change.
Tanaka Think about the actions that are required globally as a company, not just in terms of laws and regulations. It is important not to deviate from the original objective of creating a sustainable society. It is important for top management to understand again that the objective is to respect human rights in the company and in the supply chain, and that human rights risks cannot be reduced to zero, and to work with stakeholders to reduce risks while involving all concerned parties.
Nagai There is no limit to the extent to which these activities must be completed in order to pass the examination. It is desirable to catch the essence of the activities and not be swayed by trends in laws and regulations, but to work firmly on the base activities and spiral up the PDCA cycle so as to be able to comply with laws and regulations. In addition, there is currently a large gap between labor laws in different countries, and such a state of affairs cannot be considered a fair business environment from a global perspective. I hope that we will continuously think about where we are headed when we consider creating fair trade and fair competition to protect people's rights. In order to promote respect for human rights based on international code of conduct at our business partners in developing countries, we must think about how we can fill the gap between local labor laws and our own operations.
Yamamoto I understood that it is important to grasp the essence of laws and regulations, rather than to think that laws and regulations must be observed, and that it is important for companies to create fair competition that transcends national barriers.
Nakamura Recently, the number of micro-businesses, sole proprietorships, and freelancers has been increasing. Since freelancers are different from companies, how should we be interacting with them?
Takahashi It is still important to create a position and structure that is open to dialogue. For those workers who are in the informal economy, we should also consider capacity-building support depending on the situation.
Tanaka There was a case where a giant IT company was criticized for preventing workers in the platform economy from uniting. Actions that increase the vulnerability of individual businesses with whom we have business relationships run counter to respect for human rights. Efforts and dialogue are needed to learn about the situation of each and every company and individual with whom NEC is involved, including freelance workers.
Nagai When it comes to re-consignment, we can expect a situation where working hours and minimum wages are not known. Non-regular employment is also increasing worldwide. It is becoming less and less acceptable in the international community to manage employees heavily and not manage other kinds of workers. It is necessary to manage freedom of association and minimum wages when outsourcing work. In addition, if such measures are not taken, it will be impossible to secure excellent individual employers and human resources.
Nakamura We understood that whether the client is a company or an individual, it is important to build relationships and understand their respective situations from the perspective of securing human resources and maintaining the competitiveness of the company. On the other hand, given the current level of our company's efforts, it is true that the hurdles are high, and we accept this as a medium- to long-term issue.
Shimizu It is important to raise the literacy not only of the NEC Group but also of suppliers with whom we have direct relationships. If we neglect efforts to respect human rights, we may not be able to secure human resources and may even lose business opportunities.
Takahash We are discussing how to promote human rights DD with SMEs, but on the other hand, the reality is that they are occupied with day-to-day management. Simply saying that human rights are important is not enough to get the message across. As for how to share awareness, engagement in human capital management (e.g., improving employee satisfaction) and engagement with workers in human rights DD go hand in hand, and it is important to think about and respond to this together.
Nakamura I understand again the importance of not only SAQ but also audits and direct on-site dialogues. It is important to increase the number of touch points with suppliers, and we need to devise ways to do so depending on the urgency.
Tanaka I think it will work well if we are attentive to the concerns of Tier 1 suppliers, convey the message that we share common risks related to human rights, and cooperate with each other by pooling our resources to understand and reduce the risks.
Nagai I felt that the content of the activities is much richer than before, and the level of difficulty has increased and become more sophisticated. Since there is no end to these activities, we will continue to make challenging requests, but I hope that you will continue to do your best.
Shimizu Internally, the discussion is divided into three categories: compliance risk, conduct risk, and business risk. Today's discussion also goes back and forth between the three risks, and they are interrelated. I reaffirmed the importance of raising the perspective more and more and having ideas for activities to create corporate value. I always use this diagram when I talk to my business partners about sustainability, and I came up with it about five years ago. After listening to what you have said today, I would like to further integrate our collaborative and co-creation efforts with responsible procurement activities in order to expand our business and corporate value.
In closing
Through the dialogue with the experts described above, we were able to look back objectively at NEC's current position and obtain many suggestions for the direction of future initiatives.
NEC will continue to move forward with activities aimed at respecting human rights in the supply chain, while working with suppliers to prioritize the increasingly sophisticated requirements for human rights-related responses in the future.
Introduction of Experts
Asako Nagai (Facilitator)
See below
Daisuke Takahashi
Partner, Shinwa Sohgoh Law Offices and Master of Law (U.S., France, Germany, and Italy) Daisuke Takahashi advises multinational enterprises on global legal compliance and sustainability including supply chain due diligence. As the Vice Chair of the CSR Project Team at the Japan Federation of Bar Associations (JFBA), he contributed to drafting JFBA’s Guidance on Human Rights Due Diligence and ESG Risk Management Guidance. He also served as a member of the Ministry of Foreign Affairs’ Working Group on the National Action Plan on Business and Human Rights (BHR). Takahashi also serves as the Vice Chair of the BHR Committee at the International Bar Association; Steering Committee Officer of BHR Lawyers Network Japan; and Consultant for OECD Centre for Responsible Business Conduct.
Ryusuke Tanaka
Programme Officer, International Labour Organization (ILO) Office for Japan Ryusuke Tanaka is the Programme Officer at the ILO Office for Japan. In that capacity, he assumes the role of contact point for tripartite constituents in Japan and foreign embassies for various countries and has engaged in activities related to international labour standards, particularly in the context of business and human rights. He is also in charge of projects concerning global supply chains and CSR/RBC and a member of the Ministry of Foreign Affairs’ Working Group on the National Action Plan on Business and Human Rights (BHR). Previously, Tanaka was an attorney at law practicing labour/employment law in domestic and international law firms. He studied Law at the New York University School of Law (LL.M.) and Keio University (LL.B. in Political Science).