Evidence-Based Law-Making: What Lessons Have We Learnt for an Effective Due Diligence Law?
ECCJ, ECCHR and Initiative Lieferkettengesetz discuss key insights drawn from past efforts to advance responsible business conduct, including the pitfalls of social auditing as well as the need for judicial enforcement through civil liability.
European civil society welcomes the German Government’s initiative to bring forth national human rights and environmental due diligence legislation, whilst at the same time promoting EU legislative harmonisation. These due diligence legislative developments, combined with improvements in access to judicial remedy, should indeed take place at all levels: national, regional and international, in order to incorporate lessons-learnt in the process toward upward harmonisation.
After close to a decade, voluntary measures are now a proven failure. The price paid for this finding has been high, overwhelmingly borne by our global economy’s most vulnerable. Monitoring results revealing a lack of corporate due diligence uptake correlate to ongoing and increasing adverse human rights and environmental impacts (a common corollary of which is illicit profit-making). In the past ten years, thousands of textile workers have died or been seriously injured in preventable factory fires and collapses; rates of deforestation and local community eviction have continued to rise; as has the number of human rights and environmental defenders murdered protecting their lands from corporate exploitation. Generally, such impacts have disproportionately impacted groups such as women and girls, migrant workers, refugees and indigenous peoples.
Whilst human rights and environmental due diligence legislation is no silver bullet, it is a crucial opportunity to buck some deeply worrying global trends and to ensure respect for human rights and the environment by business. However, in order to guarantee regulatory impact that is both positive and real, it is incumbent on us to now heed certain lessons from previous efforts on responsible business conduct which have not been sufficiently delivered.
Caution: audits and MSIs ahead
Private auditing and certification must not become a surrogate for the human rights and environmental due diligence of companies. Auditing and certification failures are widespread, ranging from garment factory collapses and fires (Rana Plaza, Ali Enterprise, Tazreen) to dam collapses, resulting in thousands of avoidable deaths and injuries. We now know these mechanisms under-identify and under-document risks and impacts, and can serve as a ‘fig leaf’ disguising actual negative impacts. Currently this multi-billion euro compliance industry goes about unchecked and unregulated with various inherent conflicts of interest. If private auditing and certification is to have any role in future legislative design, specific measures must be taken to ensure that auditors and certifiers not only do their own human rights and environmental due diligence, but meet stringently enforced minimum standards of quality, integrity and governance; and are held legally liable for their professional failures.
Multi-stakeholder Initiatives (MSIs) have become highly overestimated tools in their capacity to help companies implement responsible business conduct. Evidence shows that MSIs fail to sufficiently oversee compliance with standards, evaluate human rights and environmental due diligence processes, or hold member companies to account for non-adherence. They also fail to ensure access to remedy for victims of corporate misconduct. If MSIs are to have any role in future human rights and environmental due diligence legislation, they must be subject to specific oversight and regulation mandating high standards of transparency, outcomes and accountability. Whilst MSIs may help companies implement their obligations, they cannot assume individual company responsibilities or liabilities.
“A regulation without sanctions is not a regulation”
Access to remedy will not be effective without robust enforcement, especially through civil liability. For their efficacy, non-judicial and non-state based systems for access to remedy depend on the extent to which they operate “in the shadow” of effective judicial procedures (typically as last resort) so that victims’ rights be taken seriously. In the absence of a real and enhanced possibility of judicial enforcement, power imbalances in non-judicial and non-state mechanisms will persist, as will their continuing failure to provide effective remedy for victims.
Prevention is the best cure. Therefore, company law and existing civil liability rules must be updated to reflect the contemporary reality of the globalised economy. Companies must be held liable for harm caused by a breach of their duty of care. It must finally be possible to hold parent or lead companies liable for the harm caused by the subsidiaries and suppliers they control, or who economically depend upon them. Such developments would greatly incentivise the necessary behavioral change and encourage uptake of preventative measures to reduce harms occurring in their value chains.
Administrative enforcement is crucial, but must be embedded in a broader liability framework which includes the above-mentioned civil liability. State authorities should play their role to protect human rights, and be empowered to start investigations ex officio or by complaint. They must be given the powers to compel evidence, documents and testimony; publicly publish findings of investigations; as well as order specific performances and impose proportionate and dissuasive fines. Such authorities should not impede, but rather empower, victims to seek and obtain access to remedy.
It cannot be the case that European governments gain revenue from fines for corporate human rights and environmental violations, whilst victims continue to be left to cover the costs of their own remedy. Such an outcome would be contrary to the spirit of the UNGPs.
The cost of waiting has been high. It is now imperative that the painful yet valuable lessons learnt over the past ten years be taken into consideration in the design of upcoming regulation to protect, respect and remedy.
Perspectives from Business, Public Sector, Academia and Civil Society
This post is an excerpt from our collation of perspectives on Mandatory Due Diligence ahead of the German EU Council presidency. Click through below to read all of the contributions from around the globe.