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Shaping a new social contract through the pandemic

The actions of governments, business, investors and civil society in response to COVID-19 will shape our futures.

Mary Robinson Phil Bloomer
8 April 2020
Garment workers in Vietnam
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ILO

In the midst of our COVID-19 pandemic, there are rising calls for government and business to form a ‘new social contract’. This would tackle the immediate economic hardship, and more fairly share the burdens and benefits from our economies. This comes from actors as diverse as the International Trade Union Congress and the Financial Times. In contrast, too many business leaders appear willing to abandon their ‘social license to operate’ by passing the costs of this crisis to vulnerable workers in their supply chains. This approach not only exacerbates the immediate humanitarian suffering but also polarises further our unequal societies, creating greater public distrust of markets.

The scale and scope of the COVID-19 pandemic grows each day. This is also true for its impact on business and for the rights of workers and communities that depend on those businesses for their livelihoods. Millions of workers have been laid off in the supply chain factories of Asia and Latin America; the Bangladesh Garment Manufacturers and Exporters Association reports that a quarter of the 4 million garment workers are laid-off or sacked through to mass cancellations of fast fashion orders; ten million workers have registered as unemployed in the United States in two weeks. These are just a few examples of the harm catalogued in our portal on the impact of COVID-19 on business and human rights.

While the virus does not discriminate, our societies’ response does. The various impacts of our response to the pandemic are exaggerating the already extreme inequality that stalks our societies: migrant day-labourers in India are movingen masse, from their slums to their home villages to avoid utter destitution; migrant workers in the Gulf construction industry are having to live in a ‘virtual prison’ after a COVID-19 outbreak; and the UK Institute of Fiscal Studies reports that the low-paid, women, and young workers are seven times more likely to work in UK sectors that have now been shut down.

In these extreme conditions, the relevance of the values and standards of the UN Guiding Principles for Business and Human Rights grows exponentially with the pandemic. These values must inform our search for adequate responses to humanitarian suffering now, and the search for solutions to ‘Build Back Better’, as UN Secretary General Antonio Guterres has put it.

The good news is patchy, but there is some: first, where governments have acted intelligently and decisively on World Health Organisation advice, the economic impact of the virus is less and is declining. Second, some governments have rapidly scaled up their social protection for workers laid-off by the crisis – 75% of wages paid by the Government of Denmark, and 80% in the UK. Equally, a small cluster of companies appear to be acting with some responsibility – H&M and Inditex agreed to honour signed contracts with their suppliers in Bangladesh, Cambodia, and Myanmar, and Primark belatedly issued a similar commitment. Unilever, Patagonia and KiK appear to be adopting similar approaches, and the International Chamber of Commerce’s ‘Save our SMEs’ campaign combines a call for business support with labour rights.

The tragic news is that many international brands appear to be abandoning the ‘social’ part of their Environmental, Social and Corporate Governance (ESG) responsibilities. Companies such as Urban Outfitters are invoking ‘force majeure’ clauses in their contracts to prevent delivery and payment for produced orders. Of course, non-payment to their suppliers will likely mean no wages for the workers who have spent the last weeks working to produce their clothes, often at the very point that women workers are laid off without severance pay. In our polarised world, these corporate actions serve to reinforce the collapse of public trust in global markets that associates them with rootless corporations, hyper-inequality, precarious employment, and climate breakdown.

Companies’ actions in this pandemic will be remembered by their stakeholders and by governments. The advances in business thinking on human rights in the last two decades will not simply be rolled back, but rather reinforced by this crisis. The Financial Times now sees a very different world emerging for business and labour: “Governments […] must see public services as investments rather than liabilities, and look for ways to make labour markets less insecure. Redistribution will again be on the agenda…and wealth taxes will have to be in the mix.”

The primacy of the state is being reinforced by this crisis. This may soon lead to regulation to change the purpose of markets away from the primacy of the shareholder towards wider stakeholders to deliver shared prosperity and shared security - including climate security.

There are now loud voices calling for any major economic stimulus by governments to be redistributive and learn the lessons of the 2008 financial crash. Stimuli should protect the majority, and also act to differentially benefit responsible businesses and investors that are willing to be part of this long-overdue re-purposing of our markets. And the same principle should ensure greater support to companies paying a living wage, respecting workers’ freedom of association and right to collective bargaining, while reducing CO2 emissions.

We live at a time of convergent crises: pandemic, climate breakdown, and unsustainable inequality. Forward-thinking business leaders and investors are already embracing care for human rights and the environment, and have due diligence plans to build resilience in preparation for the disruptive shocks to come.

Strikingly, the convergent crises are making these leaders more vocal in their advocacy for smart government regulation to support urgent market transformations. Responsible European companies and investors currently lead this advocacy, with support for a human rights and environmental due diligence law, the Sustainable Finance Action Plan, and the revision of the Non-Financial Reporting Directive.

Over 100 investors back three investor statements of support for due diligence laws, as do 50 German companies. And three Swiss business associations representing more than 300 companies advocate a national due diligence law. These leading companies should now add a strong component to their advocacy for governments’ new social protection schemes in response to the pandemic: to insist that corporate bailouts using public funds should require companies to deliver time-bound plans to embrace human rights due diligence, respect for workers’ rights, and science-based emission-reductions, at a minimum.

The lessons from both the global economic crisis of 2008 and the COVID-19 pandemic are that our dominant business model is unsustainable and must be transformed. Assertive states are essential in this transition. The UN Guiding Principles and the Paris Agreement, with a new emphasis on corporate due diligence, workers’ rights, and social protection, point the way to a more resilient and inclusive future for global markets.

Our response the pandemic now will shape our futures. With the planned scale of global economic stimulus, governments, business and investors have a unique chance to bring human rights and climate responsibility to the heart of business models and our economies. We should be brave enough to grasp this opportunity.

For more information on the impact of COVID-19 on business and human rights, head to our in-depth area.

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