Identifying country risks: a first step in human rights risk assessment

The year 2023 is here – and with it the enforcement of the new German Supply Chain Act (LkSG). Over the past year, and even more so since 1 January, companies have been stepping up their efforts to establish human rights due diligence processes, with a human rights risk management system at their core. A risk management system such as this fulfils the overarching role of being aware of, and responding to, a company’s human rights risks.

Companies typically operate in a variety of countries, and their products and services cover a wide range of different supply chains. They also have business relationships with hundreds, sometimes thousands, of suppliers. This all means that companies need to take a pragmatic and risk-based approach to human rights, moving from an abstract to a more concrete analysis of risks over time.

An important starting point for addressing the issue of human rights risks in the supply chain is to consider the country risk: whether a country has signed and ratified key ILO conventions, whether human rights laws are in place and effectively being enforced, whether high levels of corruption or conflict are undermining such efforts, or whether the socio-cultural context allows for structural discrimination against certain groups of people. All of this plays a critical role in determining the level of risk to supply chain workers, local communities, or other rights holders. The country of operation or sourcing is therefore an important determinant of the level of human rights risk in a company’s supply chain or operations, alongside the sector and the business activity itself.

In our work, we often encounter a mindset that views these issues as less important in companies operating or sourcing from European or other developed countries. This approach, however, is not only misleading – it can also cause harm to both people and companies by failing to identify human rights risks at an early stage. The human rights situation in a country can be complex and is often not clear-cut. Companies may be operating in a democratic country with a generally high standard of living and a functioning legal system, but also in a conservative society that encourages discrimination against people from, for example, the LGBTQI+ community. This puts the company’s own employees at risk in the workplace. At the same time, companies may be sourcing from countries that, while less developed and with high levels of corruption, have made great strides in the fight against child labour. Rather than relying on intuition and prejudice, companies need to take a structured and evidence-based approach to assessing the risk of each country.

This is why we have developed the Löning Country Risk Register. Based on reputable and publicly available sources, the register provides up-to-date country-specific information on various human rights risk issues. It can therefore serve as an essential tool in any human rights risk analysis, whether for a company’s supply chain or its own operations. The register provides the various risk levels of specific human rights risk issues relevant to business, such as child labour, forced labour, freedom of association and land rights. It also describes other civil and political rights under the “risk enhancing factors” category so as to capture the broader human rights situation in a given country. Together with the assessment of sector risks, the Löning Country Risk Register can therefore serve to establish a solid foundation on which to build further risk prioritisation.

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