2019 was the year #HumanRights due diligence came of age

| December 22, 2019

“The market economy and human rights are the shared values of the European Union” said Timo Harakka, Finland’s Minister of Employment, at the Finnish EU Presidency’s Conference on 2nd December 2019.

Yet Business as usual has led us to the impasse we are now in: where climate change and chauvinist nationalisms, helped by collapse of public trust in global markets, are not just ‘unsustainable’ but present an existential threat to our planet and our most dearly-held values. The urgent challenge now is the reform of Europe’s market economy to deliver human rights at home and throughout our global supply chains, and in the face of one of the greatest threats to human rights – rapid climate breakdown 

 –   writes Phil Bloomer, Executive Director, Business & Human Rights Centre, and Dr Bärbel Kofler, German Federal Government Commissioner for Human Rights Policy and Humanitarian Assistance

As ever, there are no ‘silver bullets’ to make these existential problems vanish. But governments, enlightened business and investors, as well as civil society are seeking acupuncture points that, together, can send irrefutable market signals that end corporate abuse and drive a fast and fair transition to zero carbon economies. Just last week, Sir Christopher Hohn, the head of hedge fund, TCI, stated he would punish the executives of companies, by voting against them, unless they disclose their carbon emissions, and have science-based carbon-reduction targets challenging others, such as the world’s largest asset manager, BlackRock, to follow suit.

From transparency to due diligence

Over the last five years, genuine efforts have been made to use mandatory transparency and disclosure as the ‘nudge’ that shifts business behaviour. The jury on this approach is now in: it is a necessary but insufficient condition for urgent systemic reform of market behaviour.  Analysis of the EU’s Non-Financial Reporting Directive shows that 50% of companies provide clear information on concrete issues, targets and principal risks for environmental matters and only 40% for social and anti-corruption matters. Similarly, out of 10,400 company statements filed under the UK Modern Slavery Act, only 23% have reached the minimum reporting requirements after four years of the act’s adoption.

Evidence shows that current transparency and voluntary regimes are not yielding strong human rights due diligence by companies. The Corporate Human Rights Benchmark has, for three years, measured the policy, practice and performance of the largest 100 to 200 companies in the highest-risk sectors: apparel, agriculture, extractives, and (since 2019) ICT manufacture. The November 2019 Benchmark’s average score was 17%, with fully half of all the companies scoring zero on every indicator of human rights due diligence. The application of the CHRB’s world-leading methodology to three EU member states has provided very similar results. For instance, 90% (18/20) of the largest German companies assessed failed to fully disclose how they manage their human rights risks sufficiently (due diligence).

This glacial progress by companies is perhaps why Professor Ruggie, the author of the UN Guiding Principles on Business and Human Rights, is still calling on governments to implement a ‘Smart Mix’ of measures emphasising the need to rebalance voluntary action by companies with mandatory measures and laws. At the Finnish EU Presidency’s recent conference on business and human rights he called on these to be clear in their scope and liability, adding currently ‘there is no consequence from non-compliance’. Similarly, German Minister of Labour, Hubert Heil, said “if people are put at risk through exploitation of their life and limb, and others profit from it economically, we can do something about it with clear liability rules” (own translation).  Mandatory human rights due diligence laws without liability provisions risk yielding similarly weak results as transparency legislation. Tiina Astola, Director-General, Justice and Consumers (DG JUST), European Commission reinforces this: “Front-runner companies recognise the benefits of such rules which provide a level playing field, legal certainty and facilitate leverage with third parties by setting non-negotiable standards”.

European leadership in 2020

European governments, civil society, with enlightened companies, and investors are beginning to drive decisive action. The big prize in 2020, for those seeking markets that deliver shared prosperity and security, will be mandatory human rights and environmental due diligence laws, at the national and European levels.

Support has ballooned in 2019. Thirty-two European businesses with an annual turnover of more than €1 billion have public statements or endorsements  in support. In Germany alone, 42 companies have recently called for mandatory human rights and environmental due diligence legislation. Over 100 investors have called for mandatory due diligence, such as the 23 global institutional investors, managing assets over €361bn, that support Swiss legislation on this issue. And over 100 civil society organizations and trade unions have called for mandatory human rights and environmental due diligence legislation at an EU level.

These voices support vital legislative initiatives in the governments and parliaments of Germany, Netherlands, Finland, Switzerland, and Norway, which follow the French lead with their Loi de Vigilance.

Of course, bold government action to ensure markets work for shared prosperity has always been opposed by vested interests that benefit directly from pollution and the toleration of abuse. Now is no exception. A number of business associations – European and international – are issuing warnings of the costs of action. Fortunately, it now seems that the majority recognise the far greater risks of inaction on climate and human rights. Amfori, with 2,300 members worldwide, has stated “the EU is best placed to work towards adopting an EU-wide human right due diligence framework which would create a robust, coherent and predictable system for businesses operating in the EU. Conducting human rights due diligence should therefore become the licence to operate in the EU market.” Equally, two major Swiss associations, the Groupement des Entreprises Multinationales (GEM), representing 90 multinational companies, and the Swiss Trading & Shipping Association (STSA), representing 170 commodity trading companies and related services, support mandatory human rights due diligence in Switzerland.

But why is Europe’s leadership so vital? The EU often acts as the global trend-setter on regulation of companies, even in sectors where it does not dominate, like ICT. When the EU sets minimum legal standards, global business increasingly adopts them internationally.

For the sake of the planet, and human prosperity, Europe’s leadership in the next year on human rights and environmental due diligence legislation has never been more needed. The diverse movement of governments, parliamentarians, responsible companies and investors, and civil society will press ahead rapidly with this vital initiative in 2020. Smart and effective due diligence legislation will be a major step forward in the reform of markets to regain public trust, and secure shared prosperity and a living planet.

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