Ensuring human rights and sustainability in company supply chains

A proposal from the European Commission for a company duty on human rights and environmental due diligence is an important step to build upon.

As the Covid-19 pandemic has hit the world—causing devastating impacts to human rights and laying bare the vulnerability of our economic model and uncontrolled supply chains—the European commissioner for justice has recognised the urgent need for corporate justice.

On April 29th, during a webinar organised by the European Parliament’s Responsible Business Conduct Working Group, the commissioner, Didier Reynders, committed to an early 2021 legislative initiative on mandatory obligations for EU companies on human rights and environmental due diligence. This measure would encompass liability, enforcement and access to remedies for victims of corporate abuse. He said it would form part of the European Green Deal and the European Recovery Plan.

Sanctions imperative

This is good news. Trade unions and civil-society organisations have been asking for this kind of legislation for decades. The European Coalition for Corporate Justice (ECCJ) and the European Trade Union Confederation (ETUC) especially welcome Reynders emphasising that ‘a regulation without sanctions is not a regulation’.

Enforcement and corporate liability are essential to the effectiveness of such legislation. So many years of voluntary initiatives have passed with little practical effect—trying in vain to change companies´ behaviour through disclosure of social and environmental impacts, while leaving progressive companies waiting for a level playing-field to make their efforts to conduct business responsibly worthwhile.

Mandatory rules for companies to respect human rights and the environment are thus long overdue. Reynders’ commitment to work with trade unions to ensure their involvement in the due-diligence process is also critical, if it is to be preventive and proactive—and so make a real difference.

Member states’ role

While Brussels has sent an important signal by taking steps in this area, member states retain the key role in EU decision-making. In Germany, the Netherlands, Finland, Luxemburg and others, legislators are looking seriously into human-rights and environmental due-diligence legislation for their country, as well as at the European level. Currently 12 European countries (including the UK and Switzerland) have active trade-union and civil-society campaigns demanding that their governments legally oblige companies to act responsibly.

Nobody wants to wear jeans manufactured by exploited workers or drink tea or cocoa picked by children. Countless workers in agricultural and garment supply chains haven’t received pay or food for weeks, because the corporations for which they produce haven’t fulfilled their contracts during the coronavirus crisis. Nobody wants to buy products manufactured by companies guilty of union-busting. And nobody wants EU hospital staff to use medical gloves produced in conditions resembling forced labour.

National governments must recognise their responsibility and their power to act. Any EU legislation will have to be implemented at national level, so governments are well advised to listen to their civil society and trade unions and start preparing such a supply-chain law at home. Work at the national and EU levels must go hand in hand if the result is to be a robust legislative framework, which ensures the protection of human rights and the environment throughout the entire supply chain.

Eyeing the details

This is a matter of justice, and that´s why Reynders is the right person to do this. But we need to keep an eye on the details of what he is proposing.

Clearly, we are looking at mandatory requirements for EU companies, and the commissioner has considered civil and criminal liability as well as a network of national supervisory authorities, co-ordinated at EU level. This would be a big step towards proper enforcement, provided those authorities are adequately staffed and equipped and have clear mandates and sanctioning power.

Substantive law reform is required, providing for a corporate duty and the liability of EU companies for harm and human-rights violations in their operations and global value chains. Companies should be accountable for these impacts—directly and indirectly via their suppliers and subcontractors. At the same time, an EU framework should ensure that the existing joint and several liability regime for subcontracting chains is not undermined.

Reynders also mentioned a possible broadening of scope for collective redress in the EU, which is currently being negotiated in terms of consumer law only. In addition, further procedural law reforms will be needed to remove current obstacles to remedy for victims of corporate abuse in global value chains, such as the easing of time limitations and a reversal of the burden of proof.

In particular, victims should be able to gain access to justice in the member state where a company is established or where it conducts business activities. Moreover, we need to guarantee that victims are entitled to claim damages even if public authorities rule out administrative liability.

The commissioner wants to apply this legislation to corporations of all sectors—essential given large corporations operate across sectors and to create a level playing-field. But he wants to ‘alleviate the burden of SMEs’, which must not imply that small and medium enterprises are less responsible for their supply chains.

In line with the United Nations Guiding Principles, SMEs are also obliged to ensure respect for human rights and the environment in their global operations and value chains. The UNGPs and the principle of ‘reasonable care’ provide for SMEs’ requirements to be proportionate to their size, resources and leverage.

Reynders committed to legislation imposing a duty to identify, prevent, mitigate and account for human rights, social and environmental impacts in companies’ activities and in their entire global supply chains. We think that the duty of due diligence should extend to all human rights and environmental risks directly linked to the company’s activities, products or services through a business relationship—any relationship with business partners and entities all along the value chain: suppliers, franchisees, licensees, joint ventures, investors, clients, contractors, customers, consultants and advisers.

Starting point

The commissioner gave the French duty-of-vigilance law as a relevant example, being ‘the most advanced framework in the EU’. While this is a good starting point, it is time to go further and be more courageous concerning questions such as the scope and the rights of victims.

The commissioner’s commitment is an important first step in the right direction. We now need to ensure that an ambitious legislative proposal is presented and that the EU finally introduces the essential legal framework to establish effective mandatory rules on human rights and environmental due diligence. Such legislation would constitute a major step forward, towards ensuring the enforcement of human rights and guaranteeing that companies’ activities are more sustainable.