A risk analysis helps companies to identify, assess and prioritize human rights and environmental-related risks and enables them to implement effective prevention, mitigation and remediation activities. Risks are typically assessed from two perspectives, the probability of occurrence and the degree of impact if a risk materializes. After identifying and assessing the various types of business risks, companies can effectively prioritize and decide on appropriate actions.

The implementation of holistic risk management practices gains increasing significance in light of the rise of several legal initiatives such as

These initiatives work with a risk-based approach, meaning they require companies to regularly conduct risk analyses and implement mitigation activities to continuously improve the social, environmental and governancial conditions along their supply chains. Important to note is that a risk analysis can focus on different level of details being country, company, product and/or order level. Ultimately, depending on the chosen level, the analyzed data differs.

In the case of non-compliance, companies will be imposed with heavy sanctions by the regulatory bodies. In short, a risk analysis is the necessary first step for and serves as the basis for an appropriate, effective risk management required by main external stakeholders of companies.

Next, learn which risk factors are covered in the retraced risk analysis 2.0 here.