Corresponding to the concept of “supply chain due diligence”, regulations on supply chain due diligence (also referred to as “supply chain due diligence law”) can be understood as a set of principles and specific rules regarding corporate responsibilities to conduct due diligence in their supply chains.

In terms of objectives, the regulations on supply chain due diligence are primarily designed to:

- Prevent the risk that a company’s supply chain may cause or contribute to adverse impacts on people, the environment, and society;

- Mitigate adverse impacts on people, the environment, and society arising from business activities, products, or services within the company’s supply chain; and

- Where adverse impacts cannot be entirely avoided, reduce the consequences, remedy the damage, and prevent recurrence.

In terms of content, a supply chain due diligence regulatory framework may include specific provisions on various aspects, such as:

- Scope of application (Which entities are required to carry out due diligence?)

- Scope of due diligence (The due diligence covers the company’s own business operations? Upstream and downstream supply chain activities? Activities of direct and indirect suppliers?)

- Areas of due diligence (Which actual or potential adverse impacts and risks of non-compliance with standards are assessed, and in which fields?);

- Due diligence process (What are the steps of the due diligence process? What are the specific requirements for each step? Are there options available?);

- Related matters if any (Competent authorities, penalties for violations of due diligence obligations, mechanisms for monitoring corporate compliance with due diligence requirements, etc.).

In terms of entities and scope, supply chain due diligence regulations commonly found worldwide primarily focus on large multinational enterprises (MNEs). In other words, the entities covered by these regulations are mostly those conducting business at a significant scale, with the potential to have a considerable impact on social and environmental aspects (human rights, the environment, etc.) on a broad scale.

However, regarding the scope of due diligence, most regulations require that due diligence be carried out for all three groups, including:

- The company subject to the due diligence regulation;

- Subsidiaries of the company; and

- Suppliers/business partners having direct or indirect business relationships with the company.

Thus, even though they are not directly the primary subjects of the regulation, suppliers in the company’s supply chain (e.g., providers of raw materials, manufacturers/processors, logistics and service providers) are also impacted by supply chain due diligence regulations. 

This explains why not only large multinational companies but also smaller enterprises in export-oriented economies like Viet Nam need to pay attention to supply chain due diligence regulations in export markets.

In terms of the scope of due diligence, supply chain due diligence regulations commonly found worldwide currently focus primarily on controlling the risk of violations, or actual/potential adverse impacts on relevant stakeholders in two main and prevalent areas:

- Human rights (mainly labour rights, along with certain other human rights issues).

- Environment (mainly environmental issues directly related to human well-being, as well as other environmental aspects such as biodiversity and ecosystems).

In some recently updated or amended regulations, the scope of supply chain due diligence has been considered to expand to additional areas, such as climate change mitigation, anti-corruption and security technology control.

Concerning specific standards, supply chain due diligence regulations often provide a list of due diligence standards and reference relevant provisions in international conventions.

In terms of the due diligence process, these regulations typically outline a cyclical process with the following common basic steps:

- Developing policies and plans for due diligence;

- Implementing identification and assessment of actual and potential risks/adverse impacts on relevant areas (human rights, environment, etc.) in business operations;

- Taking necessary measures to prevent, mitigate, address, or remediate identified and assessed risks/adverse impacts;

- Establishing grievance mechanisms for violations and providing information on actions/measures taken and their results.

Table: Distinguishing traditional legal obligations and supply chain due diligence obligations

Source: Compiled by the TTWTO-VCCI Research Group

• Definition of “Supply chain due diligence”
• Characteristics of Supply chain due diligence
• Supply chain due diligence in international organization documents
• European Union supply chain due diligence regulations