Global Taxes

Business and human rights: German companies push for mandatory due diligence law

Ruth Green, IBA Multimedia JournalistThursday 5 March 2020

Germany is the latest European country to push for greater corporate accountability for human rights and environmental violations.

At the end of 2019, 42 German businesses issued a joint statement calling on the country’s government to introduce mandatory human rights and environmental due diligence to ensure that ‘no company is allowed to escape its responsibility without consequences or to make profits at the expense of people and nature.’

German coffee chain Tchibo was one of the signatories. Axel Schröder, the company’s sustainability manager for human rights, tells Global Insight that the time had come for the country to introduce regulation in this area. ‘Unfortunately, respect for human rights and environmental protection still represents a financial competitive disadvantage for companies,’ he says. ‘To change this, the same ambitious standards are needed for all market participants.

Europe is one of the strongest economic areas in the world, so joint regulation would have a considerable positive impact in Europe and worldwide

Axel Schröder
Sustainability Manager (Human Rights), Tchibo

Johannes Blankenbach, European Union / Western Europe Researcher & Representative at the Business & Human Rights Resource Centre in Berlin, says the statement sends a clear message from the German business community that voluntary best practices are no longer sufficient. ‘Companies are increasingly aware of what employees, customers, investors and the public expect from them on human rights and the environment,’ he says. ‘German companies supporting binding rules sends a strong signal across Europe due to the size of the German economy and the reach of German businesses.’

There's growing momentum for greater corporate liability for human rights and environmental violations across Europe. In 2017, France became the first country to establish mandatory human rights due diligence through its devoir de vigilance (duty of vigilance) law. Two claims have already been filed against French oil firm Total for the company’s alleged climate inaction under the law.

In May 2019, the Dutch government adopted a Child Labour Due Diligence Act, but the law has not yet been brought into force. Martijn Scheltema, a partner at Pels Rijcken in The Hague and a member of the IBA Business Human Rights Committee Advisory Board, says a broader due diligence law like in France, or even EU-wide legislation, could be a more welcome prospect. ‘The law may create an idea that child labour can be addressed as a standalone issue, but this is not feasible,’ he says. ‘One big advantage of EU regulation would be that it would harmonise different laws in different countries. It would create a better level playing field than if national governments introduce their own laws, but it also depends on the public supervision in individual member states.’

In December, more than 100 civil society organisations and trade unions across the EU called on the European Commission’s new political leadership to introduce EU-wide legislation on human rights and environmental due diligence that would apply to any business, company or financial institution operating or selling services or products across the continent.

Like other signatories to the German statement, Schröder says Tchibo would welcome EU regulation. ‘Europe is one of the strongest economic areas in the world, so joint regulation would have a considerable positive impact in Europe and worldwide,’ he says. However, he warns that ‘without a national solution, German companies also run the risk of being disadvantaged in European and global competition.’

Andrea Carta, an EU legal strategist at Greenpeace, says the moves in Germany or other member states should not be viewed as a substitute for a wider European initiative. ‘Having seen the way that transnational corporations work, eventually it would need to become part of a global trend in order that most supply chains are covered, that most companies are globally accountable and that there are a variety of jurisdictions where due diligence laws can be enacted,’ he says. Carta believes this is the only way to avoid running the risk of companies ‘forum shopping’ or simply moving to jurisdictions where the rules are more lenient. ‘If companies want a level playing field they should really be pushing for, at least an EU or EEA regulation, and later on a globally binding treaty.’

Elise Groulx Diggs is Co-Chair of the IBA Business Human Rights Committee and an Associate Tenant at Doughty Street Chambers. She believes businesses should play an active role in helping governments and civil society shape legislation that imposes obligations on companies in a productive manner and that is in keeping with the three pillars – Protect, Respect and Remedy – put forward by John Ruggie in 2008. ‘It’s immensely important and sustainability will depend on that,’ she says. ‘Governments will also have to be much more engaged in designing legislation. Most states have so far been timid, but Europe seems to be in a position to take the lead and is certainly moving in the right direction.’

However, one-size-fits-all legislation would not resolve the myriad of human rights and environmental challenges facing different industries, she says: ‘I don’t think you can have one global standard. That’s where companies are going to have to be proactive in determining the right standards for their sector.’

Where there’s an absence of legislative action, litigation is still regarded as one of the most effective avenues to bring about environmental change. In Australia, bushfires between June 2019 and January 2020 destroyed more than 7.7 million hectares of land, killed at least 32 people and left thousands homeless. Last month, bushfire victims and Friends of the Earth Australia filed a complaint with Australia’s National Contact Point – the national entity responsible for hearing complaints of corporate wrongdoing under the OECD Guidelines – calling on ANZ Bank to stop financing fossil fuel projects that contribute to the climate crisis.

It’s hoped this action may go even further than a similar complaint brought in The Netherlands in 2017 by Friends of the Earth and two other Dutch non-governmental organisations against ING, which resulted in the bank committing to phasing out its investments in the coal industry by 2025 and steering its lending portfolio towards meeting the Paris Agreement’s ‘well-below’ two degrees celsius goal.