It's time for the EU to clean up corporate supply chains
On the 10th of March, the European Parliament, with 504 votes in favour, 79 against and 112 abstentions, adopted a legislative report on corporate due diligence and corporate accountability. With support from across political groups, the plenary put its weight behind mandatory rules on responsible business conduct – something inconceivable a few short years ago. A steady string of headline-grabbing scandals, growing ethical consumerism and the COVID-19-induced necessity to reconsider overly complex global supply chains have produced a broad political coalition in favour of a binding duty of care. The EU Commission must now build on this and present an ambitious legislative proposal.
The pandemic has not only exposed vulnerabilities in our supply chains, but also our reliance on business models that fail to respect human rights or harm the environment.
In spite of the crisis, or maybe rather because of it, there has never been a better time for human rights due diligence. The pandemic has not only exposed vulnerabilities in our supply chains, but also our reliance on business models that fail to respect human rights or harm the environment. Nowhere was this more obvious than in the garment industry. In the first few weeks of the pandemic, as a consequence of government-imposed shop closures, big Western brands cancelled more than 3 billion euros worth of orders and demanded considerable discounts on others. The poorest and most vulnerable workers were made to bear the brunt of the health crisis.
There are currently few (legal) incentives for companies that put profit before people to operate in a more responsible manner. But at a time when many companies will seek to reduce the economic vulnerabilities in their supply chains as well as their dependence on risky sources, crafting a duty to equally scan those supply chains for environmental and human rights risks is vital.
We cannot build an economic paradise for the few on a social and environmental graveyard for the many. In logistical and economic terms, our world is connected enough for businesses to minimise costs and maximise profits. In legal terms, it is disconnected enough for those so inclined to disregard the negative consequences of their business decisions. As long as the international legal framework does protect multinationals better than the victims of human rights violations or of environmental degradation, this amounts to a standing invitation to environmental and social dumping.
This is why the European Parliament has now, with a strong voice, passed recommendations on rules that would require companies to identify, prevent and mitigate adverse environmental, social or governance impacts in their global supply chains.
Harm should be addressed meaningfully, violations sanctioned, and victims compensated. The legislation asks of companies to make efforts within their means. While it will not ask the impossible, it will ask companies to take their duty of care seriously and put in place robust processes to avoid harm in line with international conventions. The requirements will apply to all businesses operating on the EU internal market and to their entire value chain.
The legislative report calls for value chain civil liability in order to improve access to judicial remedy for victims. Crucially, it also includes "overriding mandatory provision" so as to enable victims in third countries to hold EU parent companies liable under EU law. This is a clear and strong signal. Of roughly 35 cases against EU companies in EU member states’ courts by foreign victims in the past ten years, just one has succeeded. The legislation begins to address well-known barriers to justice by extending liability for harm throughout the value chain; more fairly distributing the burden of proof; and ensuring reasonable time limits for bringing such claims.
While we cannot undo the collapse of Rana Plaza, pollution in the Niger delta or the deaths of migrant workers in Qatar, the COVID-19 crisis has offered us a chance to rethink and redesign global value chains.
In itself, the Parliament’s ideas on responsible business conduct are nothing new. The OECD and the UN have been working on due diligence guidance for multinational enterprises for years, and thousands of companies currently implement these standards. But while ‘soft law’ due diligence standards have been a useful tool for companies wanting to take responsibility, they have failed to transform those shunning it.
Sound EU due diligence rules will not only level but elevate the playing field for businesses that wants to sell their goods or services to the EU’s 450 million consumers – and potentially across the globe. While we cannot undo the collapse of Rana Plaza, pollution in the Niger delta or the deaths of migrant workers in Qatar, the COVID-19 crisis has offered us a chance to rethink and redesign global value chains. Let’s make them more robust, more transparent and more aligned with international standards on the environment and human rights.
About the authors
Lara Wolters is a Member of the European Parliament and Rapporteur on Corporate Due Diligence in the legal affairs committee
Manon Aubry is a Member of the European Parliament and shadow rapporteur on Corporate Due Diligence
Pascal Durand is a Member of the European Parliament and shadow rapporteur on Corporate Due Diligence
Heidi Hautala is a Member and the Vice-President of the European Parliament and shadow rapporteur on Corporate Due Diligence