The tragic dam collapse in Brumadinho, Brazil, on 25 January, which saw at least 150 lives lost and thousands of livelihoods destroyed, highlights the human cost of weak regulations on business operating in the global south. Yet despite these dangers, most European companies’ approach to human and labour rights remains superficial, putting lives at risk and fuelling distrust of government and business, write Phil Bloomer and Sharan Burrow.
The Finnish EU Presidency this year presents an opportunity to change this. A group of civil society and trade union leaders issued an open letter this week calling on the Finnish government to step up the EU’s ambition in addressing the impact of business on human rights. The letter calls for a serious drive to require human rights due diligence from companies at an EU level – a cause gaining ground due to the weak implementation of transparency requirements on business.
Today 50 of the world’s largest companies rely on a hidden workforce. These workers make up 94% of the companies’ total labour force, yet have no direct relationship with the multinational itself, whose CEOs take no responsibility for the welfare of the people who generate wealth for their shareholders. This exposes the scale of the crisis of human and labour rights in global supply chains.
Last year the EU’s Non-Financial Reporting Directive came into force, requiring companies to include statements on their environmental impact and respect for human rights in their annual reports. The first analysis of how this is being implemented across all the criteria finds companies are demonstrating superficial engagement at best.
Out of 100 companies analyzed by the Alliance of Corporate Transparency, over 90% reported a commitment to respect human rights. But only 36% describe their human rights due diligence system, while 26% provide a clear statement of salient human rights issues, and just ten percent describe examples or indicators to demonstrate effective management of these high risk issues.
Under the UN Guiding Principles on Business and Human Rights, all companies have a responsibility to engage in human rights due diligence in order to identify, prevent and mitigate human rights impacts. This responsibility is echoed in the OECD Due Diligence framework, which has been used in other EU regulations to address conflict minerals.
Yet the Alliance for Corporate Transparency’s report finds that the lack of clarity in the EU Non-Financial Reporting Directive has resulted in companies opting for bare minimum compliance instead of deeper engagement in line with these international standards.
This lacklustre response by companies reflects the experience in other jurisdictions with mandatory transparency requirements, such as the UK’s Modern Slavery Act which has not delivered the transformational change many hoped for. The latest analysis found that 70% of FTSE 100 companies are not reporting sufficient measures to tackle slavery under the Act. An independent review is currently being carried out and an interim report recently recommended strengthening on the Act by introducing sanctions. Similarly, 28% of British companies assessed under the EU directive do not even mention modern slavery in their annual reports.
As noted by European Parliament Vice-President Heidi Hautala: “It is difficult to require sustainable decisions from investors if they have no visibility on sustainability of company’s actions.” Investors including the Investor Alliance for Human Rights, the UN Principles for Responsible Investment, and even the world’s largest asset manager BlackRock, are increasingly calling for companies to step up their engagement on social and environmental issues.
Some leading companies are heeding to this call, but they remain in the minority. Companies such as Finnish multinational Nokia and more than 70 other Finnish companies are also increasingly recognizing the business case for regulation in order to level the playing field.
There are signs that the call for human rights due diligence regulations is growing stronger across Europe. Under its National Action Plan on business and human rights, the German government has opened the possibility of legislative action if less than 50 percent of German companies implement human rights due diligence by 2020. A draft law is now under discussion reportedly requiring German companies with over 250 employees and more than €40 million in annual turnover to undertake human rights due diligence in their supply chains. Other governments including Switzerland, Luxembourg, the Netherlands and Austria are considering legislative proposals to examine the introduction of such legislation as well. All eyes are now on France, the first country to adopt such a requirement under its Duty of Vigilance law. While these national-level initiatives are important and welcome, they could lead to only piecemeal solutions.
To avoid this, the EU could play an important role in unifying and harmonizing these initiatives, and Finland is well-placed to take on this challenge during its EU Presidency. Finland is one of the first countries to issue a National Action Plan on business and human rights and has a strong movement of civil society groups, trade unions and companies calling for mandatory human rights due diligence legislation.
While more and more CEOs are recognizing the scandals of exploitation and even slavery in their supply chains, the pressure to act as responsible employers across their entire operations requires mandated due diligence. There can be no more excuses for business. They will be held for responsible for their failure to take action to prevent the risk of human and labour rights through their supply chains.
Stronger and more harmonized human rights due diligence requirements would go a long way in providing investors and civil society with better information to assess whether companies are doing enough to fulfil their human rights responsibilities and for companies to make more informed investment and purchasing decisions.
More importantly, if done right, they could save lives and livelihoods. To win back the confidence of workers and voters it will take the rule of law, and the guarantee of a secure and just future.
Sharan Burrow is secretary general of the International Trade Union Confederation. Phil Bloomer is executive director of the Business & Human Rights Resource Centre.