Working together to progress corporate accountability through mandatory due diligence

Ilan Vuddamalay By Ilan Vuddamalay

The average consumer probably assumes that companies they buy from aren't putting people or the environment in danger. Unfortunately, the current rules guiding corporate behaviour in this regard do not create incentives or sanctions for those that are. As new proposals for EU legislation emerge next year, there are opportunities for change.  

Recent studies by the European Commission and the German government have pointed out, voluntary business action to date has not been sufficient to uphold human rights and protect the environment. The German study found that only 22% of 5,500 large German companies had put a system into place to monitor how their foreign-made goods are produced. Lara Wolters, Member of the European Parliament, articulated this so clearly at an Alliance for Corporate Transparency event earlier this year when she said: “A system of voluntary standards is good only for the good guys, we now need a system that is bad for the bad guys". This is particularly true for the apparel sector, which has seen a multitude of voluntary and well-intentioned initiatives, but few transformative changes.

We see that the lack of clear, consistent and binding rules permit some companies within the apparel industry to act as they see fit, so, naturally they act in line with what incentivises them. For some, this means doing as much as possible to protect workers, their communities and nature for longer-term business, social and environmental continuity. Whereas for others, it can mean treating people and the environment as resources to exploit in order to minimise costs and maximise financial returns. The result manifests itself in low paid and dangerous working conditions or continued pollution and excessive carbon emissions. The concentration of power in value chains amongst the end buyers ensures that these problems and inequities persist.

Then, when a major shock like Covid-19 occurs, these practices result in swift and dire consequences.  Furthermore, the effects are not equal. As Anti-Slavery International highlights – those who were already marginalised and discriminated against face even higher chance of exploitation due to Covid-19. 

It was in the midst of this unfolding crisis and systemic failures becoming even more visible, when a small but bright light appeared. The European Commissioner for Justice, Didier Reynders, committed to introducing a proposal for mandatory human rights and environmental due diligence (MHRDD) legislation.

This legislation would mean companies in the EU and selling to the EU would have to put in place appropriate measures to identify, prevent, mitigate and account for addressing risks created by their operations that might lead to adverse human rights and environmental impacts. Ultimately, the legislation should help prevent negative impacts to workers, communities and the environment occurring in the first place. And if it doesn’t, then they should be able to access remedy and companies be held accountable.

Reynders announcement, as with the German government’s announcement in July, did not just appear from nowhere. Pioneering laws, such as the French Duty of Vigilance Law, the Dutch Child Labour Law and regulations in specific sectors, such as Timber and Conflict Minerals have demonstrated the feasibility of such laws.

These have been the product of concerted and long-term efforts by civil society movements advocating to governments, working with industries, supporting business groups in multiple countries (such as the Netherlands and Germany) and informing investors. Laudes Foundation in its work on industry transformation calls for systemic reforms in business practices and has partnered with a number of organisations working on this effort such as Frank Bold, Anti-Slavery International, and the Business and Human Rights Resource Centre who coordinate with many hundreds of other organisations.

There is no silver bullet to changing a system. MHRDD is one important initiative to strengthen corporate accountability in Europe. Connected to this, companies need to provide accurate and reliable information about their specific activities that create risks for people and the planet. The Alliance for Corporate Transparency recently produced the largest ever study of corporate sustainability reporting (1,000 company reports including 110 from the apparel sector) that shows why the EU Directive on non-financial reporting must be strengthened. This Directive, along with mandatory human rights and environmental due diligence, will help investors to fulfil their requirements to disclose the impacts of their investments. Together with the EU’s Green Deal and its recovery plan, there is the opportunity to holistically address these issues and move towards a more coherent system of reinforcing positive dynamics.

It has taken many years to get to this point and there are several more years still ahead to pass ambitious and effective laws and reforms. New rules need to be clear, specific and ambitious. The right set of interlinked policies and initiatives need to be in place and work together to drive in the same direction of change, one which Laudes Foundation intends to continue to support.

About the author

Ilan Vuddamalay

By Ilan Vuddamalay

is a Senior Labour Rights Programme Manager at Laudes Foundation.