“The time for ‘We didn’t know’ for companies is over”

December 10th marks another Human Rights day in the calendar. If a year ago we were optimistic about seeing corporate human rights law moving up the European agenda, 2021 ends with the Commission postponing the discussion – once again. We spoke with Dutch Member of Parliament Lara Wolters, rapporteur for the Due Diligence initiative report, to understand what is behind this delay. Are we in danger of going back to zero? “The time for ‘We didn’t know’ for companies is over”, she ensures.

In 1948, the Universal Declaration of Human Rights was drafted with the primary goal of assuring the right to live in freedom, with dignity and equal treatment, regardless of one’s origin and beliefs. Six decades later, the devastating effects of Covid-19 shows that equality is still far from reality, and that our capital-driven economy is failing workers in producing countries. The food sector, for instance, saw price volatility, suspended demands and low wages driving farmers into poverty and food insecurity, rendering many value chains unable to operate with dignity. And yet, the law dedicated to making brands and retailers operating in the single market liable for environmental and human rights abuses in their supply chains was once again postponed by the European Commission.

Read more: What improved Due Diligence laws mean in practice?

Since the Commissioner of Justice announced in April 2020 that a proposal to introduce mandatory human rights and environmental due diligence was on the way, there has been increased political and social support for this legislation. The connection between poverty and much of the risks and abuses in global value chains is increasingly recognised, together with the importance of a living income – not just as a human right that must prevail, but as the key to a sustainable transition. Delaying the Sustainable Corporate Governance initiative set to be introduced this month, therefore, perpetuates a dynamic that allows companies to profit at the expense of workers made invisible in global supply chains. So what’s holding us back from making responsible business the new norm? 

“Part of the problem is that we still don’t know, and this lack of transparency is concerning”, explains Lara Wolters on delayed legislation, rapporteur of the Due Diligence initiative that was adopted by the Parliament last March. What is known is that the Regulatory Scrutiny Board (RSB), an independent body responsible for quality control and impact assessment of legislation, gave a red light to the proposal for the second time without giving in a new precise release date. In response, members of the Responsible Business Conduct Working Group are now putting pressure on the Commission not only to keep the commitment high on the agenda; but also to clarify what thinking went on and if the RSB is working neutrally. “At the moment, I’m not convinced of that,” she says.

Are we risking momentum? 

One thing Wolters is convinced, however, is that the topic is not going away. “The Commission knows what is wrong in value chains with detrimental effects to the environment and reports of forced labour, child labour or women abuses. The fact that different member states are taking their own initiative that would conflict with European legislation makes the Commission aware that this bill needs to be proposed”, she says, referring to national efforts to ban human rights abuses announced by member states such as France, Germany and this week, the Netherlands

National-level efforts increase the pressure for greater corporate accountability. But the delay in defining common rules for those intending to do business or provide goods or services in the internal market also weakens the importance of the topic in the international context, in addition, of course, the European leadership. “As the EU, we often talk about our values and our vision globally. For value chains, it starts by making sure that European companies are clean and that they are aware of what they’re doing”, Wolters agrees. “We cannot say that Chinese companies, for example, need to do a whole range of things if we aren’t doing those things yet.” 

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The legislation is meant to make sure that there’s a level playing field that rewards the responsible initiatives investing time and money into getting to know their value chains, and that doesn’t let the ones that are not making the extra effort get away with that”. 
Lara Wolters Rapporteur for the Due Diligence initiative report

Making fairness a competitive edge

On the other hand, Wolters remains optimistic about the support received from different companies so far, and refutes the common sense that most are resistant to liability. “What I hear is that we have a jungle of different standards and rules, and a tonne of industry and certification schemes”, she shares. “Examples like Tony Chocononely demonstrate that as a company, you can make fairness into your business model with a lot of success. The legislation, thus, is meant to make sure that there’s a level playing field that rewards the responsible initiatives investing time and money into getting to know their value chains, and that doesn’t let the ones that are not making the extra effort get away with that”. 

A lack of transparency is exactly what’s behind the current market competitiveness based on cheap products. That is why incentives do not stop at the company level. While the initiatives remain a niche, few consumers can afford sustainable choices or access the needed product information to make those choices. “More and more people want to break up with cheap, but we still must find a way so the onus is not on the consumers. They shouldn’t be made responsible for the things that we’re letting companies get away with.” 

Besides responsibilities, are there benefits from transparency that companies cannot yet envision? “Definitely. What is measured, can be managed. It makes value chains more robust in the face of crises like COVID. In such a connected world, they don’t have excuses not to know what happens in their value chains. If a worker posts a video on social media, a storm with reputational damage immediately comes”. The problem, she states, lies in companies still seeing responsibility as a PR matter, rather than an actual fundamental business one. “There need to be fewer silos within companies, this concerns the CEO and the board, and not the CSR team.” 

What’s to come? 

With pressure mounting, Wolters does not expect more postponements. Transparency is the keyword as she defines how accountability is expected to look like in the European market, starting from the European Commission and the Parliament themselves. “The reason we need legislation like this is that as businesses have internationalized over the years, international laws and trade bodies were created to enable them to do business and profit. And that has been designed much faster than the legal system has been able to catch up with access to justice for victims or fair wages for farmers”. 

Tackling this power asymmetry depends highly on access to justice for victims in third countries if wrong has been done by European companies. “As long as we have board rooms over people in the ground – over both workers in factories, or NGOs trying to stop land grabbing or deforestation -, the amount of money that some of these multinationals have ends up beating the resources smaller players have to push back, and it makes this a Goliath against David sort of situation”. 

Legislation, she ensures, will also leave companies the space to focus their efforts and their money where they think it’s needed most, and a lot of proactiveness is expected. “That’s a compromise, because the more prescriptive we are on what companies need to do, the more we risk sending them in the wrong direction”. Indeed, what might work for the food sector will not necessarily work for the garment sector or the extractive industry. But how much proactiveness are we talking about? “This doesn’t mean we will accept a company to say they focused efforts here or there. Authorities must be prepared to monitor and quickly react to what is happening in practice.” 

The more data… the better?  

As we see a call for more information circulating on value chains, could it lead to new forms of asymmetries? Wolters agrees that transparency brings a new element to the table that will have to be observed closely. “Information is power, and I can see asymmetries in how and by whom data is gathered, and who benefits from that. But as we are starting on this legislation and in the face of the many abuses in value chains, transparency is needed for companies if they want to make serious work of human rights due diligence”.

The MEP believes that once legislation determines new accountability rules, industry solutions for their implementation, regardless of technology and different traceability systems and applications, will follow the new context. Watchdogs, thus, remain essential. “Once this is on their way we would have to look carefully to see if there are asymmetries that need to be addressed, or if this creates new problems”. At Fairfood, every pair of eyes will be closely monitoring how this process unfolds.

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