EU policies on sustainable corporate governance

Sustainable Corporate Governance

BACKGROUND

The behaviour of companies will have a substantial impact on our ability to achieve the UN’s Sustainable Development Goals. Extreme poverty and human rights violations still prevail in many global supply chains and to disrupt this trend, it is essential that companies are held accountable for their conduct. Voluntary approaches, by demonstrating best practices and encouraging companies to improve their own practices, have led to some progress. However, to achieve large scale transformational change towards fair and sustainable supply chains, voluntary approaches must be complemented by mandatory legislation.

While some legislative measures are being adopted at national level, such as the UK Modern Slavery Act and the French Due Diligence Law, a harmonised approach to mandatory regulation at EU level is required.

In 2020, the European Commission launched a Sustainable Corporate Governance initiative, aiming at improving the EU regulatory framework on company law and corporate governance. The objective is to enable companies to focus on long-term sustainable value creation rather than short-term benefits, to better align the interests of companies, their shareholders, managers, stakeholders, and society, as well as to help companies to better manage sustainability-related matters in their own operations and value chains. The initiative covers 2 main parts: the directors’ duty of care and companies’ due diligence duty, as well as other measures, such as executive remuneration, corporate strategy, composition of boards and inclusion of stakeholders.

WHAT ARE THE FTAO’S VIEWS?

The Fair Trade Advocacy Office (FTAO) welcomes European Commission’s commitment to introducing a proposal for Sustainable Corporate Governance initiative which includes Human Rights and Environmental Due Diligence (HREDD).

We support the broad civil society call for an effective and impactful legislation, as articulated in  the civil society letter to Commissioner Reynders on the announcement of EU Sustainable Corporate Governance initiative, which we co-signed.

Given that defending the interests of small farmers and workers in the Global South is at the core of our mission, we, together with Brot für die Welt, commissioned the University of Greenwich (UK) to look at how to ensure human rights due diligence frameworks have a positive impact on small farmers and workers. The report showed that HRDD frameworks and instruments need to be carefully designed and implemented, to avoid being a mere tick-box exercise, or worse, lead to a shift of burden and costs to the most vulnerable parts of value chains (see our blog here).

We believe sustainable corporate governance legislation should address the root causes of human rights violations, lead to a real shift in companies’ practices, and bring about positive change on the ground for small farmers and workers. (see our paper on Why Purchasing Practices Must Be a Part of Upcoming Due Diligence Legislation).

In order to achieve this, we believe that the HREDD component of the Sustainable Corporate Governance initiative should:

  • Cover the entire value chain
  • Address purchasing practices
  • Prevent disengagement from vulnerable suppliers
  • Support long-term sourcing relationships
  • Aim at living wages and living incomes
  • Require rightsholder consultation
  • Encourage the adoption of mission-led business models

For more information on our recommendations, please find our Demands paper here.

FURTHER READING

Fair Trade movement
Civil society
European Union context
National context
Global context