Last year, the Child Labour Due Diligence Law was adopted in the Netherlands. Read on for key insights on how companies can act in the face of increasing legislation around human rights.
I will never forget the farmer who fired a few pregnant women because they were ‘lazy’, or that young gentleman at the airport of Kuwait who told me that his passport was taken away by a recruitment agency. He wanted to go home, but was trapped in modern slavery. According to the latest global estimates of the International Labour Organization (ILO), 25 million people are in forced labour and 152 million children are the victims of child labour. Many of these and other human rights violations are linked to global supply chains.
The attempts to regulate responsible business conduct have increased over the years. Back in 2014, people made fun of the Dutch Child Labour Due Diligence Law being initiated by a Member of Parliament. In 2016, while working for the ILO, I witnessed the proposal for a convention on decent work in global supply chains being blocked. Key stakeholders did not want it or were simply not ready to face the consequences. They may still not be ready. In 2020, however, the question is no longer if legislation on human rights due diligence will follow, but when. The question is not why implementation of human rights due diligence measures is important, but rather how it should be done.
The train has left the station and there is no turning back. Last year, the Child Labour Due Diligence Law was adopted in the Netherlands. It will require companies to assess whether child labour may be present in their supply chains and, where relevant, to develop a plan of action to combat it.
The new Dutch law is part of a larger trend towards regulating human rights due diligence and builds the momentum for mandatory measures, nationally and internationally. Other relevant legislation includes the Modern Slavery Act in the UK (2015), the Duty of Vigilance Law in France (2017), and the Modern Slavery Act in Australia (2018). For countries such as Switzerland, Germany, Finland, Luxembourg and Norway, introducing hard law is also on the table.
Furthermore, the debate has reached the European and global levels. Since 2014, an intergovernmental working group has been negotiating a UN-sponsored legally binding instrument on business activities and human rights. The latest draft, published in July 2019, aims to strengthen the respect, promotion, protection and fulfilment of human rights in the context of all (transnational) business activities.
Regardless of legislation, the UN Guiding Principles on Business and Human Rights (UNGPs) clarify that all enterprises have an independent responsibility to respect human rights. In order to do so, they are required to ‘identify, prevent, mitigate and account for how they address impacts on human rights’, or in other words, conduct due diligence.
The UNGPs were adopted in 2011, but how well are companies doing? Recently published 2019 results of the Corporate Human Rights Benchmark provide an overview of the human rights performance of two hundred of the largest companies in four high-risk sectors (agricultural products, apparel, extractives and ICT manufacturing). For most companies, human rights due diligence turns out to be a key weakness. Under this particular assessment area companies have an extremely low average score, with an alarming 49% of the total companies scoring zero against every human rights due diligence indicator.
These insights should not only be of concern to those governments that consider human rights due diligence legislation and investors that want to understand the risks in their portfolios, but particularly to those companies that have not boarded the train yet. Failing to take the right action at the right time can risk investor divestment, negative publicity, financial/reputational damage and even legal action. In the case of the Child Labour Due Diligence Law, non-compliance can result in a fine or criminal penalty.
So if human rights due diligence is the norm, what are the options? Companies that have not yet implemented the UNGPs can either wait for legislation to come (the Child Labour Due Diligence Law is expected to enter into force in 2022) or take a proactive approach to ensure they board the train. Human rights due diligence is complex, but the process can be broken down in the following key steps.
There is no ‘one-size-fits-all approach’. Depending on the company size, risk context and nature of operations, the process will vary in complexity. It stands out though that certification and social auditing alone will not be enough. Successful approaches also take into account the following:
My call for action is straightforward — the sooner companies start to implement human rights due diligence, the better. Instead of waiting for legislation to be in force, I strongly recommend businesses to take a proactive approach and board the ‘human rights due diligence train’ as soon as possible. We all know that change does not happen overnight and as the Corporate Human Rights Benchmark shows, companies that currently perform best in the area of human rights due diligence are those that have a history of investing in this area.
The train has left the station. Companies now need to decide if they are on board or want to be left behind.
KPMG has a worldwide network of professionals with specialist human rights experience who provide clients with expert advice on these complex challenges. We can support you at all stages of your business and human rights journey.
© 2020 KPMG N.V., registered with the trade register in the Netherlands under number 34153857, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ('KPMG International'), a Swiss entity. All rights reserved. KPMG International Cooperative ('KPMG International') is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.