Perspectives on EU Mandatory Due Diligence Legislation: A Resource Centre Introduction
The COVID-19 crisis has exposed once more the vulnerabilities in value chains and precarity of global business operations – and the weakness of voluntary corporate action in addressing these issues. The devastating consequences are felt by millions of workers and communities around the world. However, there are signs this could change.
There has been growing momentum worldwide among governments, businesses, investors and civil society, for mandatory human rights and environmental due diligence (HREDD). Cross-sectoral regulation is already in place or under discussion in a number of European countries, including France, the Netherlands, Switzerland, Finland, Sweden and Germany, paving the way towards regional harmonisation.
Earlier this year, the EU Commission committed to introducing such legislation at EU level, and has just launched a public online consultation on 'sustainable corporate governance', including mandatory HREDD.
To coincide with the German presidency of the EU Council, we have produced a compendium of reflections on these developments, supported by and in cooperation with the German Federal Ministry for Economic Cooperation and Development (BMZ), and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH. We approached diverse voices from academia, public sector, civil society and business, from the global South and North to contribute and explore what meaningful EU due diligence and corporate accountability legislation should look like. Support for mandatory HREDD echoes strongly throughout the contributions which you can read here.
Emerging from these contributions were five key themes and messages:
1) Voluntary implementation is insufficient
Businesses have a responsibility to respect human rights and the environment and should undertake due diligence. However, there is widespread acknowledgement voluntary implementation of HREDD so far has been insufficient, ultimately failing workers and communities in global value chains. It also risks putting companies taking steps to fulfil their responsibility at a competitive disadvantage.
This reflects what recent research has consistently shown: According to the 2019 Corporate Human Rights Benchmark, almost half the companies assessed (49%) scored 0 across all indicators related to the process of human rights due diligence, as introduced by the UN Guiding Principles on Business and Human Rights (UNGPs). We see similar poor performance across other benchmarks, including KnowTheChain, and a snapshot by Business & Human Rights Resource Centre (BHRRC) of the 20 largest German companies. The seminal study conducted for the EU Commission found only a third of business respondents indicated they undertake due diligence which takes into account all human and environmental impacts.
The devastating impacts of COVID-19 have only added greater urgency to this. With millions of workers in the garment industry alone laid off or facing wage loss after mass cancellations by brands amid reports of union busting, many still are not doing enough to end this abuse. As we recover and rebuild, mandatory HREDD will be critical to creating a level playing field.
2) Stake- and rightsholder involvement in legislative process, legal text and implementation
With the right provisions, EU-wide mandatory HREDD can promote a shift in companies’ conduct and have positive impact for workers, communities, and the environment around the world. For this to happen, the importance of meaningful participation of all stake- and rightsholders from the global South cannot be understated. This includes early involvement both in the process of developing the legislative initiative and reflecting their concerns in the legal text itself. The law should ensure rightsholder involvement at all stages in the due diligence process and remediation. A dedicated gender perspective and robust safeguards for human rights defenders and whistle-blowers who speak out against business-related abuse must also be included.
3) Beyond tick-box
To be effective, it is imperative the law goes beyond a mechanical or superficial tick-box approach to due diligence. The context-sensitive and scalable due diligence concept of the UNGPs also means that limiting the scope of a due diligence obligation to only large businesses, or the supply chain tiers to be covered by it, is unnecessary, if not counter-productive.
Due diligence according to the UNGPs requires proactive meaningful engagement with suppliers, and concrete efforts to increase one’s leverage if necessary. Other contributors to this compendium highlight the importance of addressing purchasing practices of lead firms or caution against relying on ‘policing’ suppliers through social audits, as private auditing must not become a synonym for HREDD.
Above all, “due diligence should not degrade into a box-ticking exercise, shielding companies from any form of liability provided they follow the standard list of ‘do’s’ and ‘do not’s’.”
4) Central importance of liability and access to remedy
There is widespread agreement that access to adequate remedy for victims of abuse is a key component of any upcoming legislation. Many contributors stress the importance of liability as an avenue to judicial remedy for victims of abuse, as well as in providing strong disincentives against abusive business practices and lack of due care. Effective judicial procedures are also a prerequisite for non-judicial and non-state-based remedy systems to really work for victims.
Without liability provisions there will be no real level-playing field as requirements can again all too easily be evaded in practice. Increasingly, businesses acknowledge this too. All three company contributions in this compendium embrace this topic, one of the arguments being raised that based on the UNGPs businesses can anticipate liability for harms caused and contributed to.
5) HREDD to be seen in context of other policies
Many agree EU regulation could provide stimulus to business and human rights efforts across the globe. Some address the question of trade policy, along with the responsibility of buyers to act responsibly, and point to the need to review EU trade and investment policy specifically: “old status quo thinking” risks undermining the enormous potential of the mandatory due diligence initiative.
This collection of reflections paves a clear path: towards respect for human rights and the environment as the future license for European and global businesses to operate. We hope it is read and shared widely.
Towards EU Mandatory Due Diligence Legislation: Perspectives from Business, Public Sector, Academia and Civil Society
Read all the contributions from around the globe in this Resource Centre collation of perspectives for the German EU Council presidency.