What the world could look like with improved due diligence laws

A new ambitious EU law can finally guarantee companies are putting their best effort in identifying and addressing impacts on human rights, environment and governance in value-chains, inside or outside Europe. Regulation could disrupt economic patterns as we know them today, and start a new phase for international trade guided by sustainability and good governance.

March brought good news for the ones that, together with Fairfood, see the transformative power of transparent supply chains. The legislative initiative report – approved by 504 votes in favour, 79 against and 112 abstention – called for the urgent adoption of a binding EU law that ensures companies are held accountable and liable when they harm, or contribute to harming, human rights, the environment and good governance, guaranteeing also that victims can access legal remedies. “For consumers, it’s ensuring fair products. For workers, it’s enhancing protection. For victims, it’s improving access to justice. And for the environment, it’s taking a step that is very long overdue”, says Lara Wolters, the Dutch socialist MEP who is the lead author of the Parliament report.

While the legislative proposal is underway (the Commission announced its intention to launch it later this year) we explain why corporate accountability could trigger a revolution in international trade.

Why is this essential?

Doing the right thing does not give businesses a competitive advantage at the moment. A joint EU-wide approach on this matter can level the playing field and lead to an advantage for those companies (mostly SMEs) that are proactive regarding social and environmental matters. Human rights abuses are no longer being silenced, and companies complying with these practices are constantly being exposed. In Myammar, Primark apparel supplier GY Sen garment factory was recently accused of locking in 1,000 workers to prevent participation in pro-democracy protests. Female garment workers and union leaders at the forefront of pro-democracy protests are now calling on international brands to protect workers in their supply chains, and over 200 multinational and local companies have actually signed a statement committing to go in this direction.

From an environmental perspective, the pressure is also ever-increasing. European consumption is responsible for 10% of global deforestation, and although many voluntary schemes are in place to try and tackle this, a report from Greenpeace found that current certification schemes have let products linked to deforestation, land disputes and human rights abuses into the EU market labelled as ‘sustainable’.  This is not due to weak standards, but weak implementation combined with a lack of transparency and product traceability, meaning that even well-intended schemes have major failings.

More than encouraging business, setting a baseline for future legislative frameworks on due diligence is crucial, as this law on corporate due diligence could set the standard for responsible business conduct in Europe and beyond. A comprehensive approach must be applied to all undertakings governed by EU law or established in the EU, including those providing financial services. And yes, they should also apply to publicly listed SMEs and high-risk SMEs, which should receive technical assistance to comply with the requirements.

“Entrepreneurship is a beautiful thing, but it must serve people and nature, here and elsewhere in the world”, said Joël Voordewind, MEP for Dutch policital party ChristenUnie. The Dutch MEP is one of the authors of a new bill that aims to precede the EU legislation by applying sanctions against companies also at country level. The idea of the Responsible and Sustainable International Business act is not discouraging business, but guiding them during a long-awaited transition.

The vision

Mandatory due diligence would require companies to tackle all operations, direct or indirect business relations, and investment chains that could or do negatively impact human rights, the environment, and good governance. Corruption and bribery are harmful gears in this system. To guarantee effective reparations for victims, companies would be held liable for their actions and be fined for causing harm or contributing to it, unless they can prove that they have acted in line with due diligence obligations and have taken measures to prevent such harm. The same counts for products being imported and for companies that want to access the EU internal market, that would have to prove that they comply with the new obligations.

The new setting would protect the rights of victims or stakeholders in low and middle income countries, as they would be able to take companies to court under the EU law. In the food sector, this could mean finally putting the farmer at the centre of a sustainable future. For one, the current trade system still relies very much on chemical-intensive methods, even though alternatives such as regenerative farming and agroforestry are broadly used by farmers world-wide, and pointed out as smart solutions in corporate and academic level.

Empowering farmers and food workers, the ones that can lead us on these alternative paths, could thus help set out on our environmental mission, by reducing the CO2 emissions of the agri-food sector through non-intensive methods that respect the soil and affects the nutritional value of our food. All while working on our human rights goal, as it starts with ensuring living wages and exterminating abuses along the chain such as child labour and modern slavery.

Solutions are already among us

“We refuse to accept that deforestation or forced labour are part of global supply chains. Companies will have to avoid and address harm done to people and planet in their supply chains. The new rules will give victims a legal right to access support and to seek reparations, and will ensure fairness, a level playing field and legal clarity for all businesses, workers and consumers”, said Lara Wolters. Although this alternative path means a disruption for business models that rely on today’s conditions and assumptions, we are not waiting on innovative solutions to pop up and make international trade sustainable.

When executed at scale, with the heft of new technology and innovation, old techniques such as regenerative farming have already demonstrated agriculture’s potential to lead the fight against climate change. In the US, the National Academies of Sciences, Engineering, and Medicine estimates that soil sequestration has the potential to eliminate over 250 million metric tons of CO2 per year, equivalent to 5 per cent of the country’s emissions.

Human rights issues are also a core-value to many SMEs born with sustainable values in Europe. Some of the users of Fairfood’s traceability platform Trace are examples of that. Working towards living wages and incomes by mapping their supply chains from the source to the consumers’ hands, they show that simply committing to transparency can be the beginning of transformation. Transparency, in our front-runners glossaries, is the first step towards targeting and, thus, tackling problems.

Still at the discussion level, the new law could be a significant step towards corporate accountability. The international trade transition depends on systematic efforts in order to put a systemic change in place. That means initiatives to drive demands for finance mechanisms, data analytic tools and more innovation and technologies – not necessarily new ones. And, let’s not forget, political collaboration. Just like the Netherlands aims to do now, countries like the UK, France and Germany already adopted measures against human rights abuses at national level. Fairfood believes that if we are looking to make companies accountable, as well as consumers, it’s only fair that law-makers are also doing their part.

Read also: Why we need lawmakers, and why we need them now

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