Governance, risk and compliance
Family-owned businesses are more likely to get swept up by the EU’s contractual cascades.
avalanche in the other direction. As Ducu puts it, “you can work with this document”. The concern for NGOs is that tomorrow’s contractual cascades might not be too different from today’s UNGP virtue-signalling. “Right now, companies are already doing contractual requirements and audits,” says Rosie Monaghan, researcher and representative for KTC, “but that doesn’t help when they’re not doing anything about the fact that their own planning, pricing and forecasting practices end up creating bad working conditions in their supply chains.” The Commission’s draft directive also has a much narrower focus than the Parliament’s recommendations, applying to a total of just 17,000 ‘large undertakings’ and high-risk SMEs. Moreover, it limits due diligence obligations to what it terms ‘established business relationships’ – a loophole that many NGOs fear could push companies to switch between cheap suppliers on high-pressure short- term contracts. The provision seems to be designed to make compliance easier, but it might not even achieve that. Blankenbach has spoken to numerous companies that think it makes things more confusing.
“They should raise their flag and say: ‘Let’s improve the proposal and make companies lead the way with ethical behaviours and good practices – not to scare them, but to incentivise them’.”
Cristian Ducu Spurring innovation
Companies and trade associations often object to the UNGPs’ use of words like ‘adequate’ and ‘appropriate’ for the same reason. Oddly, though, nearly every company in existence has something to say about its ability to understand needs and craft solutions. It may seem like rote, easy to follow contract-and-audit due diligence processes give EU ‘undertakings’ the space to focus money and attention on improving products and services, but perhaps it’s better to think of due diligence legislation as a way of
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incentivising businesses to bring the same care and creativity to their supply chains and stakeholders. Looking back once more over the trends that have emerged since the UNGPs were published, it’s even possible to argue there’s scope to turn due diligence into a new type of competitive advantage. “Recently, the EU has tried to reflect more on values than any other place in the world,” says Ducu. “And more and more people are inclined to buy goods that are produced in an ethical way than ten years ago. People from Canada, Australia, the US, China, Japan, Indonesia – all countries – really value not only their money, but also how the products that they buy with that money are made.” Already, there are thousands of EU companies ready to make the most of these trends. If only they were part of the legislation. While many SMEs do have severe human rights impacts, Blankenbach notes that “there’s a group that may almost intuitively do certain things right”. By way of example, he points to certain smaller family-owned businesses that focus on maintaining close relationships with a limited number of suppliers and emphasise creating a business model that doesn’t exploit or harm. Under the Commission’s draft directive, however, they’re more likely to get swept into the contractual cascades of less diligent corporations than be rewarded for their own thoroughgoing commitment to doing the right thing. While it’s unlikely that swathes of SMEs will be introduced into the Commission’s proposal when it’s reviewed by the Parliament, Blankenbach and Monaghan are hopeful that the process will align it more with the value focus of the UNGPs. For one thing, Monaghan points out that stricter legislation can directly spur innovation. Many of the arguments she’s heard about product traceability being unworkable seem to have been disproved by the impact of recent US import bans – particularly on cotton. Speaking generally, she says, “we’ve started to see companies talking about new technology that made it possible to trace raw materials in their supply chains.” Monaghan also highlights how public and government attention on abuses of migrant workers in Malaysia have spurred companies to introduce risk-based measures in the region that, once piloted, are relatively simple to apply to the rest of their supply chains. To paraphrase Ducu, it’s possible to work with ideas like that. It’s on companies committed to ecological and rights-respecting business models to take the next step. “Companies here taking their shot at diversity, at durable products, at products made by women who are victims of domestic violence, all these socially desirable actions, they should have their say now,” Ducu stresses. “They should raise their flag and say: ‘Let’s improve the proposal and make companies lead the way with ethical behaviours and good practices – not to scare them, but to incentivise them’.” ●
Finance Director Europe /
www.ns-businesshub.com
Sean K/
Shutterstock.com
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