PRI: A Guide to Supply Chain Due Diligence for Investors

Supply chains are under growing scrutiny as governments, investors and consumers demand higher standards of transparency and sustainability.

A newly-published report from the UN-supported Principles for Responsible Investment (PRI) sets out both the regulatory drivers and practical steps companies can take to embed responsible business conduct.

Billed as a guide for private market investors, Sustainability in Supply Chains underscores why supply chain due diligence is no longer just a compliance exercise, but a lever for resilience, risk management and competitive differentiation.

In his foreword, David Atkin, CEO at PRI, writes: "The business case for responsible investment must be resilient amid an evolving geopolitical and regulatory landscape. Our conversations with investors throughout this project have reaffirmed that the rationale remains robust, namely that incorporating financially material sustainability risks and opportunities is part of fulfilling fiduciary duty.

"Regulatory developments are increasingly reshaping investor responsibilities regarding investee supply chains and associated sustainability due diligence. Investors are now expected to take a more holistic view of investee companies, delving deeper into their supply chains to uncover and manage hidden risks and identify long-term value creation opportunities.

"At the same time, shifting trade policies are reconfiguring global supply chains, introducing new uncertainties that require thoughtful navigation."

PRI's report highlights that forthcoming European legislation, along with existing frameworks such as the OECD Guidelines and the UN Guiding Principles on Business and Human Rights, are pushing companies to take a more proactive approach to identifying and addressing environmental and social risks in their global value chains.

It also provides practical guidance to support companies at different levels of maturity.

What is supply chain due diligence?

PRI's report begins by explaining the concept of supply chain due diligence.

At its core, supply chain due diligence, PRI says, refers to the systematic process of identifying, preventing, mitigating and accounting for potential adverse impacts linked to a company’s supply chain operations. These impacts often relate to human rights violations, labour standards, environmental degradation and governance risks such as corruption.

Unlike traditional supplier audits, due diligence is an ongoing process. It requires companies to map their value chains, understand risk hotspots, engage with suppliers, and develop remediation measures when issues arise. 

Crucially, supply chain due diligence is not confined to tier-one suppliers. Risks frequently occur deeper in the chain, for example in raw materials sourcing or subcontracted labour. Companies therefore need visibility and engagement strategies that extend beyond their immediate suppliers.

The business case for due diligence

The report makes a compelling case that supply chain due diligence is not simply a regulatory burden but a business imperative.

Several drivers are converging to elevate its importance:

• Regulatory compliance: With the EU Corporate Sustainability Due Diligence Directive (CSDDD) and similar laws across European nations, companies face legal obligations and potential penalties if they fail to manage supply chain risks.
• Investor expectations: ESG investors are increasingly scrutinising supply chain practices, linking capital allocation to demonstrable due diligence efforts.
• Customer and brand trust: Consumers and B2B customers alike expect assurance that products are not linked to exploitation or environmental harm. Transparent due diligence builds brand reputation and loyalty.
• Operational resilience: By identifying risks early, companies can avoid costly disruptions such as supply stoppages due to environmental damage, strikes, or reputational crises.
• Competitive differentiation: Firms that can evidence strong due diligence are well positioned to win contracts, especially in sectors where responsible sourcing is a tender requirement.

Integrating supply chain due diligence

PRI's report goes on to offer actionable steps and frameworks for embedding due diligence into daily business operations.

Take a risk-based approach: The report encourages companies to prioritise the most severe and likely impacts, particularly those involving human rights or irreversible environmental harm. 

Integrate into governance structures: Due diligence should not sit in isolation within compliance teams. The report recommends integrating it into corporate governance, with clear board-level oversight and cross-functional collaboration. Procurement, sustainability, legal and operations all have roles to play.

Leverage supplier engagement: Suppliers should be seen as partners, not just monitored entities, the report continues. Practical measures include capacity-building programmes, joint remediation plans and incentives for good performance. 

Embed in procurement processes: Due diligence can be hardwired into tendering, contracting and supplier evaluation. Clauses on responsible sourcing, requirements for disclosure and performance metrics ensure expectations are clear from the outset.

Harness tech and data: Digital platforms are increasingly valuable for mapping complex value chains and monitoring risks in real time. As the report notes, technology can improve visibility far beyond tier one and provide credible evidence for regulators and investors.

Communicate transparently: The report stresses that disclosure is not about claiming perfection but about being transparent on challenges and progress. Regular reporting aligned with global frameworks helps build stakeholder trust.

Develop remediation pathways: When issues are identified, companies need clear processes for remediation. This may involve working with suppliers to correct labour conditions, compensating affected workers or supporting community recovery from environmental damage.

Continuous improvement: Due diligence is an iterative process. Companies should regularly revisit risk assessments, update processes and learn from incidents. 

Creating long-term value

Supply chain due diligence is rapidly moving from a voluntary practice to a regulatory and commercial necessity. PRI's report highlights that, while compliance is a driver, the real value lies in building resilient, trusted and sustainable value chains.

Embedding supply chain visibility and due diligence into both pre-investment and ownership phases has become essential. It's not just a compliance step, but a key driver of value creation, risk protection and exit readiness.

Firms that take a proactive approach to identifying and managing supply chain risks can protect assets, improve financial outcomes, uncover new opportunities and build long-term resilience.