Making globalisation fair

Enterprises must address—and government more actively demand of them—their observance of human rights.

Should enterprises be legally required to observe human rights, within their businesses and along their value chains? The German federal government has been searching for an answer to this question for months.

From an ethical point of view, the obligation has always existed: human rights are universal, inalienable and indivisible; they must be observed and protected. The problem is how to translate this moral obligation into concrete corporate action.

This question is also not new. Twenty-one years ago, the then secretary-general of the United Nations, Kofi Annan, used the World Economic Forum in Davos to emphasise to the business elite that the economic possibilities of markets across the globe were intertwined with corporate responsibility to support social and ecological development in the countries concerned.

In 2011, the UN adopted Guiding Principles on Business and Human Rights. These describe in detail corporate responsibility to observe human rights along global value chains.

Voluntary commitment

Over three years ago, the German government issued the National Action Plan (NAP) on implementation of the principles. This was preceded by an intense two-year process, in which businesses, trade unions and civil society were given the opportunity to contribute their views. Yet the government could only bring itself to formulate one expectation for enterprises as to due diligence on human rights—it amounted to a voluntary commitment.

Even at the time, trade unions doubted whether this would really lead to greater care in observing human rights. These doubts have been clearly confirmed through the monitoring of the NAP: in a representative sample of approximately 400 businesses surveyed, each with more than 500 employees, the government discovered that not even 20 per cent exercised human-rights due diligence.

The grand-coalition agreement describes what should come next: the federal government intends to take legislative action before the end of the current legislative period. In addition, it plans to back an EU-wide regulation if the voluntary commitment of enterprises proves insufficient.

Instead of making a quick start on drafting legislation, however, the government is getting bogged down in a pedantic debate about the method and contents of the survey and is arguing about the expediency of statutory regulations. Political actors at the Ministry for Economic Affairs and Energy, in particular, still cling to their faith in voluntary commitments.

Statutory regulation

Two federal ministers, from the Christian-democrat and social-democrat parties respectively, however oppose them by taking the coalition agreement seriously. These are the minister for economic co-operation and development, Gerd Müller, and the minister of labour and social affairs, Hubertus Heil. Both are pushing for a statutory regulation—they have good reasons to do so.

To put it plainly, voluntary commitments have failed. If even filling out a survey is too much for enterprises to manage, this begs the question whether those responsible are even aware of the scope of their responsibility. And if corporate responsibility to observe human rights has been on the agenda of socially and ecologically responsible business leadership for 21 years, we should ask why business has not done more in this time.

Two decades are enough to integrate this responsibility into enterprises’ risk management. Those who assert that global value chains are unmanageable should remember that they were created by the enterprises themselves. It can be assumed that, with regard to product quality, all possible risks in supply chains will be examined. Shouldn’t the same apply to the quality of life and working conditions of the people working in them?

Well-publicised disasters

Well-publicised disasters have shown this is not always the case. In 2013, 1,135 people were killed and 2,438 were injured, some of them severely, in the collapse of the Rana Plaza factory building in Bangladesh—the fashion brands whose products were manufactured there should have been well aware of the textile workers’ poor conditions.

Chocolate production is also an industry where many producers violate human rights every day. In west Africa alone, according to the International Labour Organization, approximately two million children harvest cocoa for large chocolate manufacturers under exploitative conditions.

Dam breaches, factory fires and collapses become public knowledge in Germany. But many more human-rights violations go under the radar.

Competitive disadvantage

Though such carelessness is the opposite of diligence, we cannot accuse business on the whole of a careless approach to human rights. While there are still occasional comments from some companies doubting their responsibility, numerous enterprises have been minimising risks of human-rights violations in value chains for a long time.

This approach entails greater effort and thus may be somewhat less profitable. Unfortunately, such enterprises are then at a clear competitive disadvantage, as long as their competitors can commit too few or no resources to protecting human rights effectively.

Müller has attempted, through several initiatives in various sectors, to incentivise enterprises to change course in industries where human rights are particularly at risk. These initiatives, the most prominent being the Textile Partnership, have certainly had respectable results. But most enterprises are still not participating. Only a statutory obligation can ensure that sensible and effective initiatives and partnerships gain momentum and compliant firms need not continue at a competitive disadvantage.

A further reason why many enterprises endorse a supply-chain law is the current climate of legal uncertainty. Businesses which do not know how to observe the rights at issue may currently be safe from punishment but not from other damages. The courts are already an option for claimants to bring civil action against enterprises for their negligence of human rights. The damage to reputation incurred here is usually higher than the financial penalties.

Not binding

To any doubters in the German government, I would recommend reading the report of the advisory consortium responsible for monitoring the NAP. In 2018, this said the NAP was unknown even in large enterprises and it played a secondary role in business practice, because it was not binding. There could be no clearer statement of the need for statutory regulations.

The government should take the calls of reputable enterprises for a due-diligence law seriously and not dismiss them as a public-relations stunt. Of course, businesses will want to advertise using the concept of sustainability in future. And if these promises are backed by sustainable action, there is nothing wrong with such adverts—quite the contrary.

Supported by the chancellor, Angela Merkel, the government provided important new ideas for ensuring fair globalisation as part of the group of the seven most industrialised countries (G7) in 2015 and at the G20 in 2017. This commitment enjoyed broad international approval and was supported actively by trade unions. It should be continued under the pending German EU presidency.

Germany could make an important contribution by enforcing binding rules—judiciously combined with initiatives by non-governmental organisations—in particular as these affect employees along global value chains. That contribution would in itself be an example of fair globalisation.