Risk management enables companies to identify, assess, and prioritize human rights, environmental, and governance-related risks across their supply chains. It supports organizations in understanding where negative impacts are most likely to occur and how severe those impacts could be if they materialize. By assessing both likelihood and severity, companies can prioritize risks and determine where preventive, mitigative, or remedial actions are most urgently needed.
Effective, holistic risk management has become increasingly important in light of evolving due diligence legislation and market expectations. Regulatory frameworks such as:
the German Supply Chain Act (LkSG),
the French Duty of Vigilance Law,
the Green Button (Grüner Knopf), and
the Corporate Sustainability Due Diligence Directive (CSDDD)
all apply a risk-based approach. This means companies must regularly conduct risk analyses, document their findings, and take appropriate action to improve social, environmental, and governance conditions in their supply chains.
Risk analysis can be performed at different levels of granularity—country, company, product, and order level. Each level reflects distinct types of information and delivers different visibility into potential impacts. Regardless of level, risk analysis is the foundational step required to build an effective due diligence system and to meet regulatory and stakeholder expectations.
Failure to identify and address salient risks can lead to significant legal, financial, and reputational consequences. A robust and up-to-date risk analysis therefore forms the basis for compliant, defensible, and actionable risk management.
To learn which 20 risk factors are covered in the Retraced Risk Management feature, click here.