Something for Europeans to celebrate – a new social contract begins to emerge?
This is the leadership the world needs after the 2008 Global Economic Crisis, and now the untold scale of economic challenge for effective recovery from the pandemic.
COVID-19 has exposed the shortcomings for many companies denying responsibility for their workers, using tax havens and left without operating reserves to respect wages and supply chain orders due to share buybacks.
This week European Justice Commissioner Didier Reynders provided important leadership towards establishing a framework for responsible business conduct. He announced a new legislative initiative to ensure companies act to prevent and reduce any negative impacts to workers and communities in their operations and supply chains through ‘mandatory due diligence.
This statement came amid so much unnecessary suffering of working people from the COVID-19 pandemic. This is the type of political and economic leadership the world needs after the collapse of public trust in global markets provoked by the 2008 Global Economic Crisis, and now the untold scale of economic challenge for an effective recovery from the pandemic. Commissioner Reynders stressed there should be no delay or postponement - the current pandemic has made human rights due diligence more urgent than ever, and is an essential part of an effective and just recovery.
Duty of vigilance
The announcement comes after years of calls for this legislation from civil society, global and European trade unions, responsible businesses and investors, government ministries in Germany and Finland, and parliamentarians, such as in France where the Duty of Vigilance law is in place. Commissioner Reynders can expect substantial and diverse support over the next year if he maintains his commitment to create effective legislation with teeth – binding obligations, effective sanctions, liability and access to justice, together with the necessary involvement of workers, unions, and affected communities.
Conversely, it is important that policy-makers resist the sharp opposition from vested interests that will issue dark warnings of how this legislation is a ‘cost to business’ that will slow recovery. Far from it. As the pan-European support from responsible business and investors shows, binding human rights due diligence and responsible business conduct is a major boost to sustainable business that can contribute to shared prosperity and security.
It also creates a level playing field that prevents unscrupulous and irresponsible business from undercutting them through externalising their social (worker abuse) and environmental (pollution) costs. Unsurprisingly, investment portfolios of responsible businesses consistently outperform others, and this advantage was sustained in the first quarterof the pandemic in 2020.
This advantage was sustained in the first quarter of the pandemic in 2020.
The International Trade Union Confederation (ITUC) and Business and Human Rights Resource Centre (BHRRC) both take up many hundreds of grassroots allegations of corporate human rights abuse each year. This has been magnified many times over by the pandemic with millions of workers – many women and migrants – facing destitution with unpaid wages, no severance pay, union-busting, and no social protection after the mass cancellation of orders by global brands, for example.
In the last fortnight this has included two million workers in Bangladesh laid off, with protests over hunger and unpaid wages; desperate supply chain workers returning to factories to avert destitution, despite no adequate protection measures in place; and Amazon warehouse workers alleging they were fired for protesting insufficient protections for workers from COVID-19 infection. Amazon has denied the allegations.
Ending the abuse
So how might Commissioner Reynders’s proposed regulation help end this abuse? Mandatory due diligence by companies and investors regarding human rights, including labour rights and environmental impact, will help stop irresponsible companies from creating unnecessary harm by massively increasing their risk from negligent or unscrupulous behaviour.
Commissioner Reynders was explicit that this law will have sanctions for violation and abuse: “A regulation without sanctions is not a regulation”, he said. Effective due diligence regulation needs to include sanctions, a strong liability framework and effective access to justice for victims. This would fundamentally change the calculus of legal risk in boardrooms across Europe.
For the first time, all major companies and investors will have to demonstrate they have taken action to identify human rights and environmental and social risks, and taken preventive action, or they can expect the full force of the law when things go wrong.
They can expect the full force of the law when things go wrong.
Responsible companies and investors have nothing to fear, and much to gain through the exclusion of unfair competition from irresponsible rival companies. But those companies that abuse workers in their factories, fields, offices, and supply chains; those that pollute our environment with impunity; and those that win favour through graft and corruption have a great deal to fear.
This is why, in the last week, Dutch business association MVO Nederland, representing 2,000 Dutch business, issued a statement in support of mandatory due diligence. And in the last fortnight, 105 international investors with USD 5 trillion in assets under management signed ‘The Investor Case for Mandatory Human Rights Due Diligence’. There are similar statements of broad corporate support for due diligence in Germany, Finland, and Switzerland.
The ITUC and BHRRC have worked as part of the diverse alliance for this legislation, led by the European Coalition for Corporate Justice and trade unions, to go beyond laws mandating transparency. Transparency is a necessary but insufficient condition for change in the behaviour of the vast majority of companies’ leadership, who interpret their fiduciary duty as maximizing return to shareholders, while enhancing executive compensation.
Transparency is a necessary but insufficient condition for change in the behaviour of the vast majority of companies’ leadership.
The Corporate Human Rights Benchmark finds 50% of the largest companies in the highest-risk sectors like apparel, agriculture, and mining score zero on all the indicators for human rights due diligence. On forced labour, KnowTheChain found that the 119 largest companies in three highest risk sectors on average score a meagre 33/100 for their efforts to address forced labor risks in supply chains, with a particularly staggering gap between policies and evidence of any implementation.
The seminal study for the Commissioner by BIICL conclusively demonstrates the benefits to society and business of this legislation. Meanwhile, companies that have been supporting their workers have been outperforming their peers during the COVID-19 crisis, and will be far better positioned after the crisis.
Building back better
This is why we, with our allies across Europe, have argued for this new legislation both in Europe and around the world. The next year will be crucial. First, we need to continue to build the movement across Europe, especially with the opportunity of the German Presidency of the EU Council from July. We must strengthen the groundswell for bold action for a just recovery from the pandemic that ‘builds back better’, as the UN Secretary General has said.
We need diverse voices that together can counter siren calls for a rapid return to ‘business-as-usual’ – the past that has created our twin crises of gross inequality in markets, and climate breakdown, to which the pandemic has been added. We should also seek to work with allies around the world to help build further the global movement as part of efforts to create a new social contract, and green new deals.
Second, we need to build strong consensus about the essential elements to make this legislation as effective and smart as possible to build shared prosperity out of our current crises. We need to ask Commissioner Reynders and his team to act quickly to mandate that business and finance respect international standards for human rights, environmental protection and anti-corruption, as expressed in the UN Guiding Principles and the OECD Guidelines for Multinational Enterprises.
A directive should empower workers and communities to fight against violations of human rights. It should ensure the full involvement of trade unions and workers’ and community representatives in the whole due diligence process. They should also create statutory oversight and enforcement mechanisms to ensure implementation, sanctions when ignored, and access to justice for workers and communities abused by irresponsible companies.
Companies should be accountable for the impacts of their operations. Liability must be introduced for cases where companies fail to respect their due diligence obligations, without prejudice to joint and several liability frameworks.
And they should include all companies and sectors, private and public. It is vital this also applies to EU companies and non-EU companies with operations or sales of products and services inside the EU. Responsible businesses have said they expect substantial benefits if the new EU regulation creates more equal standards for EU and non-EU suppliers.
It is vital this also applies to EU companies and non-EU companies with operations or sales of products and services inside the EU.
The next year is an enormous opportunity to put human rights and a just transition to a low-carbon economy at the heart of responsible business conduct. The recovery plans for the pandemic must embrace the challenge of public health and preparedness, but also tackle inequality and reverse climate breakdown. Commissioner Reynders’s announcement is a decisive step in the right direction – towards a new social contract and a more just and sustainable world. Now other governments must follow suit.
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