Human Rights Due Diligence: Making it mandatory – and effective
2021 marks the 10th anniversary of the UN Guiding Principles on Business and Human Rights, and the UN is launching a new effort to implement the principles more widely. This effort aligns with momentum in Europe to pass national and EU-wide mandatory human rights due diligence laws based on the guiding principles – as well as COVID-related challenges to existing voluntary due diligence.
The guiding principles call on companies to conduct ‘human rights due diligence’ to identify, prevent, mitigate and account for how they address their impacts on human rights. (Sec. 15) This includes risks created through their own activities or as a result of their business relationships (Sec.18) – e.g. including suppliers they outsource to.
The responsibility for human rights
Responsibility for human rights generally lies with the employment contract, so many lead firms in supply chains – like clothing brands – claimed they were not the employers of outsourced workers, and so had no responsibility for them. The guiding principles basically said ‘Lead firms may not have employment contract liability for the people who make their products – but they do have a choice in the suppliers they do business with – and they can be held accountable for those choices.’ This approach didn’t create the global regulatory framework that many in civil society wished for, and implementation has been limited. Even so, the principles still hold promise if some key questions – like who should decide what ‘good’ due diligence looks like – can be addressed.
Does human rights due diligence work?
While ‘human rights due diligence’ was formally conceptualised in 2011, companies have used tools like factory audits, codes of conduct and contractual language to conduct voluntary due diligence for 20 years in several industries, including the garment industry.
Weaknesses in these voluntary efforts have long been reported anecdotally by stakeholders, and now research also demonstrates that commonly used due diligence tools are not very effective at improving respect for rights. Earlier work by Locke; Barrientos & Smith; and Lindholm, Egels-Zandén & Rudén among others is being followed up by a second generation of rigorous analysis of larger data sets, much of it affiliated with Sarosh Kuruvilla and the Cornell ILR School New Conversations Project.
Due diligence in practice: The COVID example in the garment industry
COVID has created a crisis that illustrates issues with due diligence. Clothing brands have cancelled billions of euros of orders following COVID-related sales slumps – putting millions of jobs and thousands of factories at risk. Much of this production comes from countries with weak social safety nets. In shifting their financial risks onto suppliers, brands are creating a situation where violations of ILO conventions on employment relationships and minimum wage standards become likely. The threat of mass unemployment makes workers vulnerable to abuse including sexual harassment, in order to access what jobs exist. Without a safety net, workers risk poverty, starvation and losing access to health care, all violations of the International Bill of Human Rights upon which the guiding principles are built.
One could argue that brands conducting genuine ‘good’ due diligence would have: 1) Identified weak social safety nets as a human rights risk; 2) Acknowledged their role in creating the risk – in that their pressure for low production costs has dissuaded many governments from implementing adequate social safety nets; and 3) Set aside financial support to workers in case of a crisis that would lead to mass cancellations.
However, there is no mechanism defining ‘good’ due diligence. And without such a mechanism, mandatory due diligence laws risk simply codifying ineffective voluntary measures.
Should business be designing due diligence?
The guiding principles place the onus for risk identification and mitigation on lead firms in supply chains. And one of the striking features of the due diligence policy debate over the past 10 years has been the extent to which civil society has gone along with the idea that business should take the lead.
The willingness of trade unions and NGOs to cede that power to industry seems to emerge from a number of factors: a deep wish for businesses to better incorporate ethics into their organizational DNA; a labour instinct to maintain clear distinctions between trade union and management roles; a labour movement that is still figuring out how to negotiate with the decentralized transnational networks that have replaced traditional companies; and concepts like Braithwaite’s ‘enforced self-regulation.’ However, as the published research and COVID response illustrated, allowing companies to define ‘good’ due diligence has proved deeply problematic.
Much civil society thinking assumes that companies know how to respect rights in their supply chains, but choose not to, focusing instead on profit. The profit vs. rights conflict is undeniable, but as supply chains have globalized, another issue – competence – needs to be considered. In the 1990s, the idea that companies have ‘core competences’ – specific activities each knows how to do well, rather than being generically ‘good at business ’ – was developed by Prahalad & Hamel as management theory. This concept is also useful in the due diligence debate.
I have argued elsewhere that much due diligence thinking seems designed for concentrated and vertically integrated industries, where there are a few large firms, they control their suppliers, and have competences at many levels in the supply chain. But many industries – garments being a prime example – are extremely fragmented. There are thousands of lead firms, and each controls and understands just a few supply chain stages. The stages (cotton farming, garment assembly, retail, etc.) are separate, ‘sub-industries.’ Each requires different competences, presents different risks and are composed of independent companies – who often supply dozens of different lead firms.
This fragmented structure creates serious questions about lead firm competence to assess supply chain risks. It is one thing to ask a company to assess risks internally, or at a subsidiary. It is quite something else to ask companies to assess and mitigate risks at other independent companies, that require very different competencies, in other regulatory and cultural settings – and expect them to be effective.
Most clothing brands, for example, are marketing- and finance-led organisations, with limited manufacturing expertise. Large numbers are also SMEs. Even with the aid of consultants – who mostly look back to the industry for ‘best practices’ – it is hard to see due diligence working when led by clothing brands. Can civil society really expect good outcomes for garment workers by asking e.g. European marketing organisations to find technical solutions to human rights risks in Cambodian or Ethiopian garment manufacturing units?
Given the complexity involved in regulating transnational supply chains, there has also been little appetite to ask governments to define due diligence. Some stakeholders urge reliance on legal liability to motivate companies. While this should certainly be an option, the logistics of suing an industry like garments into compliance are overwhelming. With many thousands of lead firms, few will ever be at risk.
A central role for labour and civil society
The guiding principles, and nearly all proposals derived from them, mention roles for labour and civil society. I would argue those roles should be far more central in any EU mandatory due diligence law: the definition of ‘good’ human rights due diligence should be negotiated through an EU-wide, transnational, sectoral collective bargaining process.
Building a formal role for labour into due diligence legislation would dramatically strengthen its effectiveness. Dozens of questions would need to be answered for such a system to work, on everything from relations to existing trade unions to roles of governments. A trade union entity to negotiate due diligence requirements with European brands on behalf of e.g. Asian and African garment workers would have to be created, as would entities to represent brands and factories. However, models already exist, in the sectoral social dialogue systems of several European and Asian countries; in 20th century Jobbers Agreements and in aspects of initiatives like the Bangladesh Accord and ACT.
The trade union entity must also be supported with resources and the full range of skills and expertise needed to govern something as complex as the garment industry. To define effective due diligence rules, the ‘rights-based’ approach advocated by many in labour will need to be matched with a high degree of technical expertise across multiple supply chain stages. Factory floor experience will need to be paired with knowledge of everything from to product costing to brand management to investor dynamics. Much useful expertise resides in NGOs and academia, so some historic tensions between trade unions and other civil society actors will need to be resolved.
Such an initiative will not fix all human rights problems; however it could give due diligence much needed rigor; it would create a model for negotiating with economic networks, and provide an opportunity for a new, governance-focused transnational solidarity that is essential to counterbalance transnational supply chains.
Anne Lally of Katalyst Initiative contributed to this piece.