Reality Check: Navigating the Pitfalls of Human Rights Due Diligence

Tweet

This blog post was authored by Nazrin Huseinzade. Nazrin Huseinzade is an international human rights lawyer. She currently works as Business and Human Rights Advisor at Enact, a Stockholm-based consulting firm specialised in corporate human rights due diligence. She was a speaker at the Symposium: Colonisation in, of and through Business and Human Rights, held in April 2023 in Tilburg (the Netherlands). The blog post is part of a Blog Series published on Rights as Usual.

Disclaimer: The views and opinions expressed in this post are solely those of the author and do not necessarily reflect the official positions of any entities she represents

***********************************

Human Rights Due Diligence (HRDD) straddles a spectrum of admiration and critique. At one extreme of this debate are those who endorse with blind devotion the bible that is the United Nations Guiding Principles for Business and Human Rights, and all the legislation inspired by it. At the other are those who cast a skeptical eye, viewing HRDD as an extended arm of neoliberalism.

This post is a pragmatic blend of concurrence and dissent with both factions. HRDD is clearly not a cure to a system of international trade and investment where inequality is a structural feature, rather than a bug. However, we should still be able to appreciate it for the symptom relief it offers.

As its significance solidifies extending into both national and EU legislation, the following are some of the common pitfalls that can erode the effectiveness of HRDD, even as a palliative measure.

The myth of equal partnerships

Universality of human rights has long been challenged by TWAIL scholars both on substantive grounds, for neocolonial “efforts to universalise an essentially European corpus of human rights”, and structural grounds, due to the unilateral imposition of European/EU HRDD laws upon trading partners in lieu of an international treaty with equal participation of the Global South states.

Both of these critiques materialise in the day-to-day practices in the corporate world. As a rule, the HRDD originates in the Global North headquarters where Business & Human Rights specialists, including myself, inevitably rely on a European interpretation of international human rights standards. Under scrutiny is usually the subsidiary/supplier based in the Global South.

However, despite the contradictions of promoting a European-/Western-centric take on human rights, inaction would be an even less desirable option. Some within the corporate world still readily resort to arguments such as “our workers in factory X want to work 60 hours a week, we have to accept their work culture” or “if children work from the age of 9 in country Y, who are we to tell them otherwise?” This rhetoric shuts down or circumvents any discussion about the social costs of trade. Moreover, it dangerously conflates tolerance towards exploitation with professed cultural tolerance.

The bigger problem with HRDD legislation is that it allows an economically stronger purchaser to impose rules on a weaker seller, while implicitly also asserting moral superiority over them. In an article dedicated to the ethical compliance audits in South Indian Garment Industry, Geert de Neve (University of Sussex) writes that “at the heart of corporate ethical sourcing policies lies a set of social auditing and monitoring mechanisms through which buyers instigate a regime of control that casts western companies and consumers as knowledgeable, caring and disciplined, and their non-western suppliers as backward, uncaring and lacking self-control”.

This is a sentiment I get even today within my work, and it is supported by a willful misreading of the UNGP’s requirements on leverage and contribution, where the former (“if the business enterprise has leverage to prevent or mitigate the adverse impact, it should exercise it”) is overly stressed and the latter (“if business enterprise contributes or may contribute to an adverse human rights impact, it should take the necessary steps to cease or prevent its contribution”) is largely ignored.

Reluctance to share the costs

Standalone initiatives like Responsible Contracting Project hope to transform the way companies negotiate the terms of their relationships with their suppliers, bringing an element of self-scrutiny on behalf of purchasers and a recognition of shared responsibilities. Similarly, the text of the Corporate Sustainability Due Diligence Directive (CSDDD) contains elements of cost-sharing when doing business with SMEs (Article 7(2)d).

This is, however, far from a universally accepted standard, and the HRDD practices today still pay little heed to how the company’s purchasing practices (i.e., chasing the lowest price, irregular orders, short lead times, no guarantee of continued sourcing, unpredictable and fluctuating orders) can create an environment where upholding basic human and labour requirements is virtually impossible.

Similarly to how companies are looking for the best price-quality ratio in business negotiations, they will have to develop a habit for a good price-sustainability ratio, which will also require taking on some of the costs of compliance.

Efficiency over accuracy  

As a process, HRDD is among the “odd ones out” in the world of mainstream economics. It interferes with the natural appetite for cost-cutting and does not bring any clear financial benefits, certainly not in the short term. Relying on muscle memory from other risk management procedures, companies seek quick fixes, often relying on dubious metrics and checkbox exercises.

In the practice of businesses, the starting point for an HRDD is often a so-called ESG country index/democracy index which will automatically place any company in the Global South in a higher risk category. Such geographic bias does not allow for nuanced information that might be crucial for businesses given their operational context. For example, Sweden and Finland will be ranked “low risk”, and while statistically the majority of companies in these countries might deserve this ranking, the overreliance on country rankings will overlook the systemic challenges prevalent in industries reliant on seasonal migrants, despite investigations revealing instances of forced labor (see also here).

This is just one example of how accuracy is sacrificed for scalability and conveniency of risk management tools. Here, one could hope that the shift of sustainability into the legal compliance domain would make the cost of mistakes higher for businesses and thus push for better quality services in the ESG ratings market.

Arbitrary cut-and-run

When it comes to confirmed cases of serious human rights impacts, many companies are too ready to switch suppliers. The focus is usually shifted from rightsholders to the company’s own reputational and legal risks.

In its negotiating position on CSDDD, the Council of the EU calls for a more nuanced approach to ending business relationships, and warns against worse human rights outcomes:  “severe adverse impact could occur if workers are deprived of living wage by the termination of the business relationship with their employer in order to bring to an end an adverse impact consisting of breaching the right to collective bargaining”.

Yet, there are conflicting opinions among the unions, NGOs and businesses alike on the ethical considerations surrounding the exit decisions. For example, while the global union IndustriALL pushed the brands to withdraw from Myanmar following the military coup in February 2021, the Myanmar Centre for Responsible Business regretted the withdrawals by major businesses drawing attention to the negative impacts it would have on thousands of women workers in the country. In other contexts, such as child labour in cobalt mining (DRC), the exclusion of artisanal miners from supply chains is said to help large companies clean up the supply chains on paper and protect their reputations, while pushing those risking their lives in unregulated mines, away from the sight, further down the supply chain.

The concept of a “responsible exit” stands out as the most vulnerable aspect within the existing HRDD frameworks, given the degree of discretion the companies enjoy in interpreting it. With the UNGP’s HRDD concept gradually moving towards hard law, it seems that businesses might face greater accountability for failure to disengage rather than ever be held responsible for the negative consequences of their disengagement.

Conclusion

In summary, the take of this blog post is that HRDD, often regarded as the pinnacle of CSR, belongs within the confines of the existing neoliberal economic order rather than harbours hopes of revolutionising it.

However, as long as the current trade and investment frameworks persist, HRDD remains a valuable tool, and its effectiveness in alleviating the excesses of these frameworks depends on the collective efforts of various stakeholders, including lawmakers, strategic advocates, NGOs, and in-house sustainability experts.

A critical aspect of these collective efforts involves companies transitioning from a policing approach towards their business partners to truly engaging with them on equal grounds, assuming the cost of their own purchasing practices, abandoning oversimplified scoring exercises and enlisting expertise and time required for nuanced human rights analysis, as well as reevaluating the effects of their disengagement. Without these transformative shifts, HRDD runs the risk of devolving into mere virtue signaling aimed at appeasing domestic consumers and regulators.