EU policies on sustainable corporate governance
Sustainable Corporate Governance
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:
- Be a continuous, preventative, risk-based process based on the standard set by the UN Guiding Principles on Business and Human Rights, and the OECD Due Diligence Guidance for Responsible Business Conduct, where all business enterprises effectively identify, assess, cease, prevent, mitigate, track, monitor, communicate and account for actual and potential adverse impacts.
- Cover the entire supply chain while companies’ due diligence should cover their own activities, activities by companies under their control, and those resulting from other business relationships.
- Be horizontal and apply to all sectors with complementary guidance for specific high-risk sectors and/or specific types of human rights risks.
- Cover all business enterprises either domiciled or based in the EU or placing products on, or providing services in, the internal market, including financial institutions.
- Be proportionate to the undertaking’s actual and potential impacts, while all undertakings should be required to duly exercise their leverage to ensure respect for human rights and environmental standards in their supply chains.
- Cover at least all internationally recognised human rights including labour rights, with clear guidance on how to assess the severity of risks, including underlying risks such as a lack of living wages and living income either as rights themselves or as preconditions for fulfilment of other human rights.
- Explicitly cover purchasing practices, including pricing, as a key factor affecting human rights risks, recognising that poor practices will often present an obstacle for their suppliers to respect human rights and environmental standards and can lead to human rights abuses.
- Good purchasing practices should be recognised as instrumental in enabling compliance with national and international human rights and environmental standards throughout the supply chain.
- Require companies to make sure that the price they pay to their suppliers, and ultimately to producers, enables them to produce with respect for human rights and the environment, pay living wages to workers, and, for small farmers, to earn a living income.
- Recognise the complexity of addressing human rights violations when they are linked to structural economic, social, and cultural contexts, and the need for companies to support their suppliers in respecting human rights, rather than simply disengaging.
- Include the obligation for business enterprises to provide for cooperation in the remediation of adverse impacts in their global value chains and within their operations and business relationships.
- Implementation guidelines should include reference to the importance of maintaining long-term sourcing relationships with suppliers.
- Include at least civil and administrative liability for human rights and environmental adverse impacts in companies’ global value chains and within their operations and business relationships.
- Include access to effective remedy, including judicial remedy for victims.
Fair Trade movement
- Fairtrade International: Vision for Human Rights and Environmental Due Diligence, September 2020
- Fairtrade International: Our Commitment to Human Rights, September 2020
- FTAO Blog: Ensuring Human Rights Due Diligence Legislation Works for Small Farmers and Workers, 8 June 2020
- University of Greenwich research Report: Making Human Rights Due Diligence Frameworks Work for Small Farmer and Workers, 8 June 2020
- Joint civil society letter on the announcement of EU due diligence & directors’ duties legislation, 23 June 2020
- FTAO and CLAC: Why Purchasing Practices Must Be a Part of Upcoming Due Diligence Legislation, November 2020 (article for Business and Human Rights Resource Centre compendium Towards EU Mandatory Due Diligence Legislation)
- European Coalition for Corporate Justice (ECCJ)
- Business & Human Rights Resource Centre
- ECCJ and Anti-Slavery International: What if? Case studies of human rights abuses and environmental harm linked to EU companies, and how EU due diligence laws could help protect people and the planet, 11 September 2020
- Joint statement on key principal elements of an EU due diligence legislation, 1 September 2020, Action Aid, Amnesty International, Anti-Slavery International, Clean Clothes Campaign, CIDSE, European Centre for Constitutional and Human Rights, European Coalition for Corporate Justice, FIDH, Friends of the Earth Europe, Global Witness and Oxfam.
- ECCJ: Map and comparative analysis of mHRDD laws and legislative proposals in Europe, 28 May 2020
- Action Aid: We mean business: protecting women’s rights in global supply chains, 2 March 2020
- ECCJ Legal Brief: EU Model Legislation on Corporate Responsibility to Respect Human Rights and the Environment, 26 February 2020
European Union context
- Study on directors’ duties and sustainable corporate governance, 29 July 2020 (commissioned by European Commission DG Justice and Consumers)
- Civil Society Joint Letter to Commissioner for Justice Didier Reynders on corporate governance, 23 June 2020
- Study on due diligence requirements through the supply chain, 20 February 2020 (commissioned by European Commission DG Justice and Consumers)
- Civil Society Open Letter Finnish Presidency, 5 February 2019
- French Due Diligence Law
- The UK Modern Slavery Act, 2015
- OECD Policy Responses to Coronavirus (COVID-19): COVID-19 and responsible business conduct, 16 April 2020
- OECD Guidelines for Multinational Enterprises
- OECD Due Diligence Guidance for Responsible Business Conduct
- OECD due diligence guidance by sector
- ILO Tripartite declaration of principles concerning multinational enterprises and social policy (MNE Declaration) – 5th Edition, March 2017
- UN Guiding Principles on Business and Human Rights (UNGP)
- UN: Gender Dimensions of the United Nations Guiding Principles on Business and Human Rights
- UN Zero Draft Legally Binding Instrument to Regulate, in International Human Rights Law, the activities of Transnational Corporations and Other Business Enterprises (Zero Draft Treaty) second revised draft 6 August 2020