A recent analysis carried out by the Konrad-Adenauer-Stiftung (KAS) deals with the issue of a legal regulation on corporate due diligence in global supply chains. In a Basi interview, Veronika Ertl, Development Policy Advisor at the KAS, talks about the options for regulating companies to comply with human rights and environmental protection regulations and why a corresponding law would be a possible option from a Christian Democratic perspective. She also shows understanding for justified objections from the business sector.
You co-wrote an analysis on sustainability in global supply chains. What was the aim of this analysis?
Ertl: The issue of sustainability in global supply chains is polarising and isn’t always discussed objectively. We at the Konrad-Adenauer-Stiftung have observed this and our analysis is a way to provide both pros and cons for a meaningful debate. I can actually see a trend towards talking about how a possible law could be made meaningful in terms of content. What is important in this discussion is what we as a foundation also emphasise again and again in the context of sustainability—social, ecological and economic aspects of sustainability must be taken into consideration.
Why does a legal obligation to comply with human rights and environmental standards in global supply chains even need to be discussed?
Ertl: In principle, a global distribution of labour in supply chains should be viewed positively – also for developing countries. In this way they participate in the global economy and jobs are created locally. However, a lack of transparency quickly develops in supply chains and, especially in developing countries, environmental and labour protection standards are often not observed or monitored, as we do here in Germany. We are talking here about the basic conditions; for example, the core standards of the ILO. It is therefore important that countries develop further in this respect. But this also applies to companies, which are held accountable under the UN Guidelines on Business and Human Rights and the corresponding National Action Plan of the German government. The question is only whether they implement these recommendations. This will be revealed by the second round of surveys as part of the German government’s monitoring. In the first round, it was found that only about 17 to 19 percent of companies have fulfilled their due diligence obligations. If we do not reach 50 percent in the second round, the action plan and the coalition agreement provide for the promotion of legal regulation
To what extent has the current pandemic changed the perception of supply chains and related issues?
Ertl: The pandemic has again clearly demonstrated how intricate, complex and non-transparent many supply chains are. Suddenly, things that we had previously taken for granted, such as masks, were no longer available. We realised how precarious the situation is. The more transparent and sustainable supply chains are, the more secure they are, and the better prepared you are for a possible crisis because you know who the suppliers are and where the suppliers are located. That’s why it’s important to make existing supply chains more robust and resilient.
What are the arguments in favour of and against a new law?
Ertl: I believe we have a Christian Democratic responsibility to protect human dignity and the environment—for current and future generations. Industry is also responsible for the common good and this obligation does not stop at national borders. That’s one of the arguments for legislation, and the social market economy can provide a framework for this. On the other hand, there is a potential competitive disadvantage for companies, because they would have to invest in more in-depth risk analysis, corrective measures and a complaints mechanism. However, these additional costs are already being incurred by other companies that have already set out on the road to greater sustainability.
It would appear that a German law represents a step towards EU regulation. This is a great opportunity for Germany to drive this forward during its Council Presidency and to formulate legislation that guarantees the protection of human rights and at the same time is feasible for companies. At national level, the German government is under a certain amount of time pressure, as parliamentary elections are taking place in autumn 2021. At EU level, the Justice Commissioner has announced there will be a draft law by November 2021 at the latest.
How can a law help to ensure safe and healthy working conditions in production countries such as Bangladesh or Cambodia over the long term? What do you consider to be the key essential conditions?
Ertl: I’d like to start by saying that a law is not a miracle cure. However, the more companies put in place appropriate standards and also monitor compliance with them—for example, by creating greater transparency and better working conditions—the more likely it is that these standards will be consistently followed and not just sporadically, as is the case for some companies. Legislation is a means of exerting pressure and the combined market power of the companies affected by this legislation can provide a tool for implementation. Ensuring that the standards are enforced locally is not only the responsibility of companies, but also the various countries and, of course, the consumers who buy responsibly.
Is it possible to improve working conditions even without legal regulation?
Ertl: In principle, yes—and the Alliance for Sustainable Textiles is a prominent example of this. But there are also companies that do not take their responsibility seriously or push the issue to one side because it’s not a priority for them. Some companies simply don’t know how they can improve working conditions. This is where a law with specific requirements can create a clear framework. In order to avoid creating new legal uncertainties in the process, the requirements for companies must be clearly and unambiguously defined.
Doesn’t regulation have to be international to prevent German companies being at a competitive disadvantage?
Ertl: The ultimate objective is international regulation to prevent these types of competitive disadvantages. However, a German law can act as a role model and show how suitable regulation could be achieved. But this also means not laying down regulations that apply equally to all companies. After all, they all have different risk factors and options for exerting influence—and these should be reflected accordingly in the requirements for their duty of care. We must also not forget that other countries such as France, the Netherlands and the United Kingdom already have due diligence laws. So, this isn’t just Germany going it alone. French businesses are already more strongly regulated within supply chains than in Germany.
Can a German law even be enforced internationally?
Ertl: Naturally, you have to be aware of any potential stumbling blocks and clarify legal details. However, expert opinion shows that this is fundamentally possible.
How can initiatives already implemented by companies (for example, companies in the Alliance for Sustainable Textiles) be included in a legal regulation?
Ertl: It’s very important to include these business initiatives and companies’ experiences. They are familiar with the standards and can help with the drafting of a law. The progress that companies have already made through these initiatives must be recognised accordingly. And they are important sources of information for other companies to help them with the practical implementation of due diligence.
What do you think about initiatives such as the Supply Chain Act Initiative?
Ertl: Fortunately, we have a lot of civil society involvement in Germany, as can be seen from such initiatives and the number of signatories for petitions. This often prompts politicians to take action. And the Supply Chain Act Initiative also provides arguments in terms of content—for example, it has commissioned a legal opinion.
How can consumers support efforts to achieve good working conditions in supply chains?
Ertl: Consumers’ purchasing decisions can influence decisions made by companies on their production methods. But consumers need transparency for such informed purchasing decisions. The flow of information still needs to be improved. For example, there is an overabundance of approval seals for textiles, and it’s difficult to decide which of them are trustworthy. And not everyone will read through the publicly available reports that could result from statutory regulation on duty of care.
How can working conditions in production countries be monitored and sanctions imposed when regulations are violated? Are there any innovations that can help with this?
Ertl: This is one of the most difficult aspects of all. There are often not enough people on the ground in the production countries, and there is often corruption. That’s why I think you have to take a multi-track approach. You have to set up or expand capacities together with other countries. And to consistently demand that suppliers implement the standards. There probably won’t be a 100 percent ideal supply chain, but we can go a long way to achieving this. One helpful innovation is block chain technology. For example, initial trials have shown that this technology can be used to trace the source of rare minerals used in the manufacture of mobile phones. If it can be shown that they are supplied from a mine where there is child labour, this procedure can be boycotted in the interest of human rights.