Two recent legislative developments on mandatory due diligence point to an exciting, yet somewhat troubling trend in the field of corporate social responsibility. The Netherlands Parliament adopted the Child Labour Due Diligence Act, which will make it mandatory for companies in or exporting to the Netherlands to assess whether child labour has contributed to a product or service, and where appropriate adopt remedial measures. The French legislature adopted the Due Diligence for Parent and Subcontracting Companies Act, which will require large companies in France to adopt due diligence plans to identify and prevent the risk of human rights violations or environmental damage, including by subcontractors or suppliers over which they exercise direct influence.
These initiatives add to a growing number of national laws that impose compulsory obligations on companies to protect human rights in business operations. Other examples are the UK’s Modern Slavery Act and California’s Supply Chain Transparency Act. More laws will emerge that link business responsibility to respect for human rights, impose compulsory reporting and require remedial obligations.
Why is this trend exciting?
Anyone with commitment to human rights should welcome this development. For companies an additional advantage is that it levels the playing field and treats companies more or less equally – at least at the national level.
More exciting is that the trend indicates a growing realization that the current system of voluntary principles has failed to effectively move the business sector as a whole to a stronger role in the protection of human rights and the environment. As more countries adopt laws, chances increase for international standard setting. For example, an UN Open-ended intergovernmental working group in 2014 was mandated to elaborate an international legally binding instrument. While there does not seem as yet to be enough momentum to influence the international normative framework through treaty law, the private sector should observe developments closely and consider whether it should be supportive of an international legal standard.
The current framework
Since 2000, an international framework has emerged to govern the behaviour of companies, consisting of legally non-binding, soft law standards and collaborative knowledge platforms that offer resources to companies to strengthen their business practices. Among the more significant developments are the creation in 2000 of the UN Global Compact, the 2011 UN Guiding Principles on Business and Human Rights, and the 2012 Children’s Rights and Business Principles, developed by UNICEF, the Global Compact and Save the Children. Various other non-binding instruments setting forth principles of corporate behaviour further complement the framework, including the OECD Guidelines for Multinational Enterprises and the ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy. Industry-driven behavioral standards also add to the framework, such as the Code of Conduct for the Protection of Children from Sexual Exploitation in Travel and Tourism.
These developments have yielded important results. More and more companies implement programmes to prevent child labour and forced labour, strengthen workplace safety, and promote women’s empowerment. However, as human rights problems in supply chains endure, the framework of voluntary standards seems insufficient to fully address them. Governments have now begun to fill in the blanks left by the present voluntary system.
The problem of legislative activism
The problem with growing legislative activism to regulate corporate responsibility for human rights is that it creates an uneven playing field for businesses at the international level. Different laws will require different obligations from companies. For example, the UK and Californian examples require the mere filing of a declaration, while the Dutch and French examples seem to additionally require active remedial measures. Second, a plethora of national standards will create a confusing field of obligations, in particular for companies that operate in multiple source countries and consumer markets and may face different reporting obligations and due diligence requirements depending on where they export to and where they are incorporated. Third, some countries may refrain from legislating compulsory due diligence, resulting in free havens where businesses are unfairly advantaged over their competitors in more activist countries.
What does this mean for businesses?
The business sector generally has not been supportive of regulation at the global level in the field of corporate social responsibility. Employers at the 2016 International Labour Conference – during a general discussion on decent work in global supply chains – were quite vocal in opposing further work on standard setting. However, a 2016 Accenture survey of over 1000 CEOs reports that 84% of them see “International agreements on common regulatory frameworks and standards for sustainability” as either “important” or “very important.”
The growing trend of legislative activism on compulsory due diligence and the ensuing risk of a fractured and unequal playing field should be cause for the business sector to consider the advantages of a global legal standard. A clear international standard may be more attractive than a multitude of varying national measures that apply differently to different businesses.
The best options for a global standard that is fair to businesses seems to be the International Labour Organization’s standard setting system, where employers are represented alongside governments and workers. Indeed, a 2016 ILO resolution concerning decent work in global supply chains recommends that a technical tripartite meeting or a meeting of experts should consider “what guidance, programmes, measures, initiatives or standards are needed to promote decent work and/or facilitate reducing decent work deficits in global supply chains.”
Would a global treaty end the growing trend of legislative activism? Probably not entirely. Parliaments may still wish to legislate specific standards that cater to national concerns. However, it is reasonable to assume that the countries that represent the big consumer markets would conform to a global standard. Supplier countries too would likely follow global rules.
Legislative measures that regulate corporate responsibility for human rights are increasingly likely, and may give rise to international standards. A global treaty with strong input from business may help to ensure conformity and predictability and protect international businesses and their suppliers from a fragmented competitive field.
Joost Kooijmans is Senior Advisor on Child Labour at UNICEF. The views expressed in this blog are the author’s own.