The issue of supply chain sustainability is receiving increased worldwide attention. The 2013 Rana Plaza tragedy, which left more than 1,130 garment workers dead and another 2,500 injured in Dhaka, Bangladesh, marked a turning point in corporate social responsibility. In the aftermath of the disaster, big corporations faced mounting pressure to comply with labour safety programmes and pay greater attention to human rights in their supply chains. In Europe, two countries have already adopted binding supply chain legislation. Germany is expected to follow suit this year. Your Public Value’s Victoire de Marans reviews Europe’s existing supply chain laws and compares the different obligations they impose on companies.
UNGPs and National Action Plans
The 31 principles that make up the 2011 United Nations Guiding Principles on Business and Human Rights (UNGPs) were the first global standard for preventing and addressing the risk of negative human rights impacts arising from business activity. However, these principles are voluntary and contain no legal incentives for companies to improve their practices. As of today, only 24 states have produced National Action Plans for Business and Human Rights (NAPs) as part of their responsibility to disseminate and implement the UNGPs. Moreover, even in countries that have adopted NAPs, the private sector is slow to implement them. In Germany, for example, an estimated 13 to 17 percent of large companies comply with the requirements of the Nationaler Aktionsplan Wirtschaft und Menschenrechte. These sobering figures have prompted a handful of European countries to adopt legally binding national legislation on supply chains to ensure compliance with the UNGPs.
UK: One Step Ahead
The United Kingdom led the way with the Modern Slavery Act (MSA) of 2015. The MSA requires private companies with a total turnover in excess of £36 million to issue a public statement detailing the due diligence measures they have taken to reduce modern slavery in their operations or supply chains. To accompany this piece of legislation, the government later on issued a Practical Guide to promote good practice and assist companies in producing their report. By encouraging the monitoring of companies, the MSA has led to better control of large supply chains while increasing media and public awareness.
There is no doubt that the enactment of binding legislation has fostered greater transparency and paved the way for more extensive due diligence legislation at the state level. However, questions remain as to the actual scope of these reports and their impact on business. Following public consultations that took place in 2019, the government proposed the creation of a unified enforcement agency to oversee compliance with the MSA. However, it stopped short of recommending penalties for companies that flout the law. Currently, the only sanctions under the MSA for failure to report are the risk of being publicly ‘named and shamed’ by the Home Office and possible exclusion from bidding on government contracts. In addition, the law does not cover the public sector.
France: One Step Further
Following in the footsteps of the UK, France in 2017 passed the Duty of Vigilance Law (Loi relative au devoir de vigilance des sociétés mères et des entreprises donneuses d’ordre). This law establishes “a legally binding obligation for parent companies to identify and prevent negative human rights and environmental impacts resulting from their own activities, the activities of companies they control, and the activities of their subcontractors and suppliers, with whom they have an established business relationship”.
The Duty of Vigilance Law recognises the influence of parent companies, their impact on business partners and the need to prevent and remedy violations. It addresses harmful impacts, both on human rights and environment, and sets out binding legal obligations for companies. Victims can use it as a legal recourse mechanism to order a company to comply with the law, and, if a company does not comply and is proven to cause damage to a third party, they can seek compensation. This mechanism is of great benefit to victims and empowers affected individuals and communities.
Not only does this law propose identification measures, but it also aims at proper and effective implementation, as well as a public vigilance plan through stakeholder review. France’s Duty of Vigilance Law takes the Modern Slavery Act one step further by including sanctions and mechanisms as well as a means for negatively affected stakeholders to seek redress. As with the MSA, it would be interesting to study how this legislation is implemented. Over the past three years, lawsuits have been filed against two large French corporations (Total and Électricité de France) for allegedly failing to comply with the Duty of Vigilance Law. All three cases are still under review.
Germany: Two Steps Forward, One Step Back
After the UK and France, Germany is in turn taking action to impose binding legislation on human rights due diligence in the supply chain. After months of heated debates, Economics Minister Peter Altmeier, Development Minister Gerd Müller and Labour Minister Hubertus Heil recently announced that they have reached a compromise on a draft Supply Chain Act (Lieferkettengesetz), which could be introduced to parliament by next fall.
The provisions of the bill remain rather vague and are still under discussion. The proposed law officially aims to curb child labour, ensure that workers in the supply chain receive decent wages and oblige German companies to meet minimum social and environmental standards. Companies that fail in their duty of due diligence would be fined up to ten percent of their turnover. In the event of a repeat breach, offenders would be banned from participating in public tenders for up to three years.
If approved as it stands, the law will apply to companies with more than 3,000 employees from 1 January 2023 and to companies with more than 1,000 employees from 1 January 2024. Critics regret that, unlike the original draft, the compromise version does not provide for supply chain liability. Consumer organisations and NGOs in turn are calling for a more ambitious text including, for example, measures on gender equality.
EU: A Small Step In The Right Direction
Measures have been put in place at EU level to encourage companies to implement best practice in supply chain management. The EU Non-Financial Reporting Directive (NFRD), which came into force in all Members States in 2018, requires large companies to report regularly on the social and environmental impacts of their activities. It applies to approximately 6,000 large companies and groups across the EU, including listed companies, banks, and insurance companies.
Under the NFRD, companies with more than 500 employees must publish reports on the policies they implement on human rights, environmental protection, anti-corruption and bribery, social responsibility, and board diversity. The Council of the European Union also calls on EU Member States to promote human rights and decent work in corporate supply chains.
However, these measures are only a step in the right direction and fail to strengthen legal standards to effectively engage the responsibility of EU companies beyond efforts to increase transparency. Due diligence, good practice and consistent monitoring should be encouraged, and the rights of stakeholders, including workers and the environment, should be protected. Binding legislation at EU level would be an effective way to ensure high standards across Europe.
But until such a measure is developed and adopted by the EU institutions, it is up to the Member States to create incentives for their companies to strengthen due diligence and transparency practices throughout their supply chains. This could even have potential benefits for the companies themselves by improving transparency and enhancing their reputation.