Now more than ever: European businesses and due diligence in times of Corona
Authors
Because of COVID-19, many European companies are understandably focusing on their financial figures and the safety and well-being of their direct employees. Given the gravity of the crisis, the larger supply chain and the human rights and environmental due diligence therein risks falling off their agenda. But do these difficult times absolve companies from their due diligence responsibilities?
Absolutely not. Businesses have the responsibility for mitigating human rights and environmental risks along their supply chains, as defined by the UN Guiding Principles on Business and Human Rights. But beyond that, it is also in companies’ interest that their supply chains don’t fully crumble as a result of COVID-19 and are able to weather the global economic crisis that will threaten the livelihoods of millions of people worldwide, not least in developing countries.
According to the International Monetary Fund, global demand is in a freefall and many global supply chains are fracturing, leaving workers at risk of losing their jobs. Without a job and a proper safety net to rely on, people can fall into crippling poverty with little to support their families.
Even if people don’t lose their jobs, there are increased human rights risks in global supply chains. Companies in developing countries supplying European businesses may lack adequate health and safety measures to support their workers during this time. In case workers fall sick and are required to self-isolate, they may be paid little to nothing, especially people in informal or contractual work.
Governments like South Africa try to put in place mechanisms so companies do not cut corners and workers are not unduly burdened. Still, the added financial strain companies are under doesn’t help, and many are struggling to provide essential protective measures. We should also not forget the greater possibility of environmental risks, as businesses divert most attention to staying afloat.
What can European companies do?
Let’s first consider the immediate health crisis. Some businesses are coming up with innovative solutions to raise awareness on Corona-preventive measures. For example, Cargill is disseminating such information to cacao producers and local communities in Côte d’Ivoire via a mobile device that producers already owned for supply chain traceability. Other companies have made donations to governments in an act of solidarity to fight the virus, like in Ghana and Liberia.
Perhaps even more importantly, companies need to take COVID-19 into account in their purchasing practices. Business association amfori has called on its members to do so, and Better Buying has created guidelines for how to set up better purchasing practices during the coronavirus crisis and recovery period. They recommend companies to proceed with payments and avoid cancelling orders already in production. Cancelling orders leaves suppliers in developing countries in the lurch.
Communication is essential in these trying times. Companies can engage with local producers and trade unions to understand specific challenges related to COVID-19 to explore possible solutions.
How can the EU and its member states help?
We cannot expect companies to be able to fight this battle alone, and there is also a role for the EU and its member states to play. In recent years, the EU and individual member states have introduced various policy measures to promote human rights and environmental due diligence – ranging from voluntary to regulatory, and from sector-specific to economy-wide measures. It is now time to make these tools Corona-proof and to make use of a smart mix of policy measures to promote responsible business conduct.
Some elements to look at include:
Public procurement
Public procurers should apply responsible purchasing practices and require or encourage suppliers to have proper due diligence processes in place.
Due diligence legislation
EU member states should uphold due diligence legislation where it exists, taking into account what it entails in COVID-19 times. A study on supply chain due diligence requirements, conducted by the European Commission’s Directorate-General for Justice and Consumers, shows broad support for EU-level legislation on human rights and environmental due diligence throughout the supply chain. Corona should not prevent the Commission from further exploring this by conducting an impact assessment, as a start of a policy process towards EU due diligence legislation.
Private sector instruments
Both official development assistance (ODA) and commercial instruments can be better used to promote human rights and environmental due diligence, including identification and mitigation of Corona-related risks. This can be done by tailoring the type of support they provide, for example strengthening of business associations in partner countries to provide Corona-related information and services to their members.
Human rights and environmental due diligence can also be reflected more strongly and consistently in the eligibility criteria of private sector instruments, while keeping application procedures simple. These measures should fit within a broader set of measures to respond to the COVID-19 health and economic crisis in Europe and beyond, including business stimulus packages and social protection schemes.
Multi-stakeholder cooperation
The EU and its member states can step up facilitation of and engagement in public-private dialogue and cooperation, and multi-stakeholder initiatives more broadly, at various levels. To cite Paul Polman, former CEO of Unilever: “[T]o solve this pandemic we need to work on a bigger level of partnership [between the public and private sectors]. This is in fact going to be an acid test for [the concept] of stakeholder capitalism.”
In partner countries, there is a role for EU delegations to play, in line with the new EU Action Plan on Human Rights and Democracy 2020-2024. This plan includes support to multi-stakeholder processes and indicates that delegations will step up their engagement on business and human rights.
The time to act is now
Now is not the time to backtrack on the commitment towards sustainable supply chains. If anything, the COVID-19 pandemic should make clear that it is critical to address human rights and environmental risks to make global supply chains more resilient. Due diligence and public support in this area is definitely one piece of the puzzle to strengthen, jointly, our response to the Corona crisis.
The views are those of the authors and not necessarily those of ECDPM.
