Data Errors, Methodological Challenges And Transparency Gaps: Are Social Audits Still Fit For Purpose?

  • Blog
  • ESG & Sustainability

Data Errors, Methodological Challenges And Transparency Gaps: Are Social Audits Still Fit For Purpose?

Social audits and certifications — which involve independent reviews of a firm and its suppliers to ascertain compliance with human rights standards and fair working conditions — have long been used to demonstrate human rights due diligence. This is despite obvious process challenges, which range from conflicts of interest to methodological limitations, lack of transparency, and worker engagement issues due to fear of reprisals.

A recent example spotlights the shortcomings of social audits: in December 2023 Volkswagen found itself at the centre of a potential human rights scandal following an independent review of its Xinjiang plant and the resultant backlash over the audit findings. Although the independent review cleared Volkswagen of human rights abuses, the audit firm’s employees have since distanced themselves from the audit findings. Similarly, in June 2023 Tesco was accused of human rights abuses, despite contracting third-party audits of its supply chain.

There is increasing pressure globally for firms to undertake human rights and environmental due diligence. After much deliberation, a provisional agreement was reached in December 2023 between the European Parliament, member states and the European Commission, for a Corporate Sustainability Due Diligence Directive (CSDDD). This directive will require large firms in the EU to identify and remediate environmental and human rights impacts in their supply chains, or face penalties of up to 5% of net turnover. The CSDDD marks a significant milestone in terms of corporate accountability and transparency, but its success will hinge on the industry's collective effort to revolutionize the way human rights risks are managed.

To meet CSDDD requirements, firms must move beyond traditional audit-based approaches to more holistic human rights impact assessments. The recent Verdantix report Best Practices: Improving ESG Performance In The Supply Chain highlights the importance of digital technologies as part of a robust supply chain sustainability strategy. Erroneous social audit conclusions often stem from flawed data collection, due to time constraints, language barriers or workers' reluctance to speak freely. To improve data availability, firms can use tools such as LRQA’s supply chain intelligence platform, which analyses news and the trade press for media controversies related to human rights violations in the supply chain. These data can then be triangulated with information collected on the ground in factories and warehouses, to provide a holistic view of supply chain risks. Digital solution providers are also developing tools that enable firms to foster meaningful collaboration and engagement with suppliers through enhanced communication and on-site assessments. An example is Ulula, which offers an anonymous grievance feedback channel for employees to raise concerns safely and securely, to ensure early identification and prevention of potential issues.

Social audits will continue to be an important part of human rights due diligence; however, regulatory bodies must exercise greater oversight to ensure the integrity of these processes. Organizations must also use social audits as part of a broader strategy, encompassing digital technology, to build up a comprehensive picture of the human rights risks in their supply chains.

For more information on digital solution providers for supply chain sustainability, see Verdantix Smart Innovators: Supply Chain Sustainability Software, which provides a benchmark of the capabilities of 30 software providers.

Lily Turnbull

Industry Analyst

Lily is an Industry Analyst in the Verdantix ESG & Sustainability practice. Her current research agenda focuses on ESG and sustainability services, ESG assurance, and sustainable finance. Lily joined Verdantix in 2022 and has previous experience in social impact research and ESG software development. She holds an MSc in Women, Peace & Security from the London School of Economics and Political Science and a BA in Theology & Religion from the University of Bristol.