Navigating Living Income in Supply Chains: Due Diligence and Collaboration
Millions of smallholder producers globally earn below living income estimates. However, due diligence has great potential to support livelihoods holistically. The Living Income Community of Practice (LICOP) and the OECD co-hosted a webinar on 27 February, which highlighted the crucial role of due diligence on living income in building fair and resilient supply chains. It also kickstarted LICOP’s series of webinars exploring good practices on due diligence on living income.
In this webinar, we heard from:
- Anny Stoikova, Manager, Sustainability Systems and Livelihoods at ISEAL
- Dorothy Lovell, Garment and Footwear lead at OECD Centre for responsible Business Conduct
- Ariana Carter, Global Cocoa Sustainability Lead at Ecom Agrotrade ltd.
- Pavithra Ram, Senior Program Manager for Cocoa at IDH
- Peter Moehringer, Advisor, Sustainable Agricultural Supply Chains Initiative (SASI) at GIZ
- Tytti Nahi, Director Business and Human Rights at Fairtrade International
- Yann Wyss, Global Head, Social Impact and Human Rights at Nestle
The webinar explored the OECD Handbook on Due Diligence for Enabling Living Incomes and Living Wages in Agriculture, Garments, and Footwear Supply Chains, and generated insightful conversation between practitioners on the challenges and solutions in implementing due diligence and the role of various stakeholders,. Finally, with the EU Commission’s Omnibus proposal introduced the day before, we delved into what defines a viable and efficient due diligence approach. Explore the key insights below:
From Voluntary to Mandatory Due Diligence on Living Income
Dorothy Lovell, Garment and Footwear Lead at OECD Centre for Responsible Business, presented the OECD Handbook on Due Diligence for Enabling Living Incomes and Living Wages in Agriculture, Garments, and Footwear Supply Chains . Informed by experts and targeted public consultations, the handbook guides companies on using the OECD due diligence framework to achieve living incomes and wages in global supply chains in a step-by-step considerations and practical examples.
Due Diligence regulation is transitioning from voluntary towards mandatory, with key examples including the EU Corporate Sustainability Due Diligence Directive (CSDDD), the EU Deforestation Regulation (EUDR), and the Forced Labour Directive. These regulations increasingly refer to living wage and living income, emphasising due diligence processes and responsible purchasing practices as crucial components for enabling sufficient livelihoods.
- CSDDD: Indirectly supports living income by requiring companies to assess and mitigate risks, with an emphasis on responsible purchasing practices.
- EUDR: Promotes sustainable production practices and responsible supply chains, indirectly supporting fair compensation but also posing potential exclusion risks due to traceability requirements.
- Forced Labour Directive: Directly relates to fair compensation by addressing non-payment or delayed payment of wages.
While mandatory due diligence is a major step, it also raises potential challenges of exclusion and cascading obligations down the supply chain without proper safeguards. LICOP has worked to develop inclusive living income indicators to address possible exclusionary effects, such as the Aligned Inclusive Living Income Narrative and Indicators.
Practitioners’ Insights into challenges and solutions on due diligence
Polling the audience highlighted several challenges for companies when embedding living income in their due diligence processes: supply chain complexity, lack of farmer income data, implementation cost, and regulatory uncertainty were major hurdles for companies.
Data on living income and the need for transparency:
Ariana Carter, Global Cocoa Sustainability Lead at ECOM Agro Trade, highlighted the role of traders in bridging the gap between producers and downstream actors and the need for increased transparency. Furthermore, she acknowledged the difficulty in setting meaningful targets around living income due to a "moving farmer base" and fluctuations in prices and weather patterns, implying a challenge in consistent data over time.
Several speakers highlighted that collecting data around living income is extremely complex and often requires making lots of assumptions due to the nature of data collection. However, collaborative efforts and data sharing initiatives within sectors have the potential to mitigate these challenges and improve transparency. Examples of this include the CHIS methodology for harmonised data collection in cocoa and the Living income inventory.
Collaboration and sector –wide initiatives:
Throughout the discussion, speakers repeatedly stressed the importance of multistakeholder collaboration and shared responsibility in addressing complex risks in global value chains. Pavithra Ram, Senior Program Manager for Cocoa at IDH, highlighted the role of sector-wide initiatives in the cocoa sector (ISCOs) in promoting shared responsibility and creating forums for addressing challenges collectively. A lack of collaboration is a significant challenge, while collaborative partnerships have proven effective.
Ram highlighted that living income is a joint responsibility and there is a need for increased alignment of agendas and investments of public and private sector stakeholders across value chains. There is an opportunity for alignment and pre-competitive collaboration on different steps of the due diligence framework to improve efficiencies and direct more investments to communities.
Support for producers
The goal of meaningful due diligence is to find solutions that are inclusive and equitable, and that empower all producers to earn a decent living. Tytti Nahi, Director Business and Human Rights at Fairtrade International emphasised the importance of living income reference price calculations, risk mapping, and producer support in various forms-on productivity, financial assistance, product quality, and climate resilience.
Furthermore, Nahi emphasised the need to strengthen suppliers' own due diligence capabilities required for them to maintain market access and ensure fair purchasing practices along the supply chain. When discussing successful collaborations, Carter gave examples of the Nestle Income Accelerator and Mars' Thrive program, both of which are conditional cash transfer programs paid directly to farmers, underscoring how support at the producer level is crucial for addressing sustainability issues.
The role of governments for creating an enabling environment:
Peter Moehringer, Advisor for Sustainable Agricultural Supply Chains (SASI) outlined how governments can advance living income through normative frameworks, strengthening structures/actors (e.g., supporting ILO), and implementing concrete measures (e.g., joint projects). Moehringer also shared learnings from the implementation of the German Due Diligence Act, including the challenges of over-compliance and the need for risk-based approaches.
Nahi emphasised that Fairtrade's Public Policy Roadmap on living income and living wage in global agricultural supply chains also advocates for strong due diligence laws. She highlighted additional key areas where governments need to step up: producer governments in strengthening their national action plans on business and human rights and engaging in strong negotiations with the EU; competition policy to enable collective action on prices paid to producers; recognition as unfair trading practice the sale or purchase of commodities below the cost of sustainable production, etc.
The Future of Due Diligence
Panellists criticised the EU's proposed changes in the Omnibus to limit the CSDDD's scope to Tier 1 suppliers. Moehringer stressed that due diligence should be risk-based and proportionate. A Tier 1 limit is therefore inadequate and risk-based, whole-chain due diligence should be advocated for.
Lovell reinforced this, as a Tier 1 limit contradicts OECD guidelines, potentially overlooking severe risks and increasing red tape. Building on this, Nahi argued that a risk-based approach allows for proactive risk management, while Tier 1 leads to reactive, inefficient measures.
Speakers unanimously emphasised that effective due diligence requires considering the entire value chain as per UN Guiding Principles and OECD guidelines, not just direct suppliers, to truly address supply chain risks.
Smallholder producers globally continue to earn below living income estimates, highlighting a need for change in our supply chains. The tide is shifting, and mandatory due diligence regulation is a critical step forward. However, complexities in supply chains, lack of data, and regulatory uncertainty pose significant hurdles for companies implementing due diligence.
Collaboration is key to overcoming these hurdles. Multistakeholder and sector-wide initiatives and collaboration allows for greater alignment. Simultaneously, empowering producers through financial access, capacity building, and fair purchasing practices is a crucial step for organisations to take. While governments must support this by creating enabling environments through strong frameworks, risk-based approaches, and producer communities’ support.
This webinar is the first in a series of webinar’s that LICOP is hosting on Due Diligence on Living Income. To shape the future of these webinars, please fill in this survey.