Nachrichten & Pressemeldungen - 20 January 2023 Business loopholes: MSI and Certifications Bonn. On 1 January 2023, the Supply Chain Due Diligence Act (LkSG) entered into force in Germany. From the point of view of NGOs, it is a good start, but we are not yet at the finish line. At EU level, the Commission’s proposal for an EU due diligence law has been in place since February 2022 and at the beginning of December 2022, EU Member States agreed on their provisional position in the Council. The Committee on Legal Affairs is currently preparing the position of the European Parliament. Time and again, the question arises as to whether multi-stakeholder initiatives (MSIs) and certifications should play a role as proof of compliance with companies' human rights and environmental due diligence obligations, and if so, which ones? For some, membership in an MSI or submission of a certification should already be proof that the company complies with its due diligence obligations. Others hope that by joining MSI or using recognized certifications, companies can no longer be held liable for slight negligence. All these discussed roles for MSI and certifications consider the NGOs signing here to be dangerous loopholes to the detriment of people and the environment, which must be prevented. This short paper puts together the main arguments against these loopholes (safe harbour). Multistakeholder initiatives The comprehensive work carried out in 2020 investigation [i] of 40 Multistakeholder Initiatives (MSIs) MSI Integrity from various sectors concluded that MSI was not an effective tool to hold companies accountable for maladministration, protect rights holders from human rights violations, or provide survivors and victims with access to redress. While MSI could be important and necessary forums for learning, dialogue and building trust between businesses and other stakeholders, they should not be used to protect human rights. This conclusion is based on two findings: MSI does not focus on rights holders, instead their approach is top-down. The initiative and the decisions are taken by business or politics, the parties concerned usually have no say and certainly no right to participate. MSI does not change the power imbalances that lead to abuse. The main mechanisms, such as complaint systems to detect or remedy maladministration, are structurally weak. However, MSI can achieve positive results if MSI members seriously commit to change. But if this goodwill does not exist or collapses – which is often the case – MSI can do little to protect human rights and the environment. No MSI can replace the comprehensive, continuous and context-specific due diligence obligations that companies have under UN and OECD standards. The authors of the MSI Integrity study therefore conclude that voluntary MSI must be supplemented by state regulation to protect human rights in an entrepreneurial context. With the Supply Chain Due Diligence Act (LkSG), this is now the case in Germany. However, this does not explicitly mean that companies can use their membership in an MSI as evidence of their due diligence obligations. MSI is more of a learning platform, but it has not been proven to lead to human and labour rights compliance in any of the 40 MSIs studied by MSI Integrity. In addition to the reasons given above, the following arguments argue against it: MSI usually have weak enforcement mechanisms due to their voluntary nature. There is a lack of effective monitoring and transparency about the compliance of the individual member companies with the standards. Although companies are members of an MSI, they often do not meet their own standards. Often there are no entry requirements that have to be met before becoming a member (e.g. in the Textile Alliance or the Forum for Sustainable Cocoa). Moreover, effective enforcement mechanisms are lacking and sanctions are rarely imposed. In most cases, there are no exclusion criteria at all or there is a risk of exclusion from the MSI, which is delayed if at all, without this having any consequences for the company. In addition to the lack of sanction possibilities and the lack of involvement of rights holders, there is often a low claim level (PDF) at the MSI. "The Alliance for Sustainable Textiles has shown that the level of ambition of the requirements is negatively correlated with the participation rate of companies: The higher the level of ambition of a multi-stakeholder initiative, the lower the participation of the industry. In other MSIs, such as the Sustainable Cocoa Forum, the level of ambition is based on the lowest common denominator and what the majority of company members already implement anyway (e.g. purchase of certified raw materials). This MSI therefore does not lead the way by strengthening ambitious and innovative due diligence approaches.”[ii] The objectives of most of the MSIs active in Germany do not meet the requirements of the UN Guiding Principles on Business and Human Rights as well as the sector-specific guidelines of the OECD and the LkSG. Certification through audits Most companies, as well as standard-setting MSIs, rely on audits if they want to demonstrate their due diligence/standard, their approach and effectiveness in terms of improving working and environmental conditions. It has often been questioned (PDF) [iii]. Visiting auditors provides a snapshot at best – before and after it can be very different in the factory or on the plantation. In addition: Affected workers or their trade unions do not get an insight into the audit report and can therefore not point out errors. Farmers, agricultural workers and their communities, on the other hand, do not benefit from certification unless the deeper causes of human rights violations, usually very low incomes due to the low price of the products grown, are addressed. The same is true of the price and time pressure exerted by many European companies in the textile sector and elsewhere on their supply chains, which, however, is usually outside the radar of audits and related initiatives. Above all, however, the factories often commission their own inspectors. In order to receive an order, they must be able to present the audit certificate. One hand washes the other, because the examiners also want a follow-up order. This and the lack of transparency of audit reports were also criticised by the National Contact Point at the Federal Ministry of Economics in its Final Statement (PDF) [iv] in 2018 regarding the OECD complaint against TÜV Rheinland. The case was then submitted by the NGOs FEMNET and ECCHR and has shown that without accountability of audit firms and more transparency or involvement of those affected, audits only serve as a fig leaf of the industry. This will be done in Blog post entitled ‘How to control inspectors?’[v] set out in detail. Another example of the inadequacy of audits is the 2013 Rana Plaza disaster in Bangladesh. Shortly before, TÜV Rheinland had carried out an audit on behalf of BSCI/Amfori at one of the factories in the Rana Plaza building and found no complaints regarding various working conditions (freedom of assembly, overtime, etc.). This was documented in the book Todschick with a copy of the otherwise secret BSCI audit[vi]. The Ali Enterprises factory in Pakistan also had a social audit and even SA8000 certification. Shortly thereafter, the factory burned down, the missing emergency exits had not been recognized. Sufficient bribery, such as in China [vii] Is it practiced a lot? Farms, in turn, are certified, for example in the cocoa and coffee sectors, according to the criteria of standard-setting organisations such as Fairtrade and Rainforest Alliance, or according to standards designed by companies, but living income and wages are not part of the criteria catalogues, which can only be verified to a limited extent by audits anyway (see above). Therefore, all stakeholders in the sector know that in periods of low raw material prices, systems without sufficient minimum prices lead to human rights violations, including child labour. Nevertheless, the products are traded labelled and human rights compliance is suggested. *** The arguments listed clearly show that MSI and certifications can lead to problematic greenwashing if they alone are to serve as proof of a company's due diligence. This would also not change improvements along fitness criteria for MSI and certifications, because the Limits of these instruments They are fundamental, systemic in nature.[viii] You are not allowed to establish a safe harbour. Otherwise, the potential of a future liability mechanism for redress and as an engine of diverse and effective due diligence beyond tick box solutions would be undermined. A statement various MSI, including major initiatives such as Amfori, FWF, ETI and SAC, states: Due diligence does not shift responsibility onto others such as MSI[ix]. Or as it Standard setting organisations as Fairtrade, Demeter, etc. formulate themselves: ‘Although ambitioned and trustworthy standard and certification schemes can thus make an important contribution to the fulfilment of corporate due diligence and should be included as an element in the implementation, they cannot, in principle or on a blanket basis, relieve companies of their responsibility to implement full due diligence or fulfil it on their behalf.’[x] Similarly, the meta-governance system for sustainability initiatives ISEAL, which includes Fairtrade and the Rainforest Alliance: “The responsibility and liability should not be shifted to third-party verifiers or sustainability schemes that facilitate due diligence processes, nor should the use of such initiatives create a ‘safe harbour’ to protect companies.”[xi] This paper was created by in cooperation with Download Business loopholes: MSI and Certifications (PDF) sources [i] MSI Integrity (2020): Not fit for purpose. The Grand Experiment of Multi-Stakeholder Initiatives in Corporate Accountability, Human Rights and Global Governance [ii] CorA Corporate Responsibility Network (2020:8): Requirements for effective multi-stakeholder initiatives to strengthen corporate due diligence (PDF) [iii] Clean Clothes Campaign (2019): Factsheet Social audits (PDF) [iv] BMWi (2018): Final statement by the German National Contact Point [...] on the occasion of a [...] complaint against TÜV Rheinland (PDF) [v] ECCHR & FEMNET (2019): Social audits in the textile industry. How to control inspectors? [vi] Burckhardt, G. (2014:120ff): Todschick – Noble labels, cheap fashion – inhumanely produced. Edited by Wilhelm Heyne Verlag, Munich [vii] China Macro Economy (2021): Bribes, fake factories and forged documents: the buccaneering consultants pervading China’s factory audits [viii] SOMO (2022): A piece, not a proxy [ix] Joint recommendations from an alliance of garment industry representatives for the EU Corporate Sustainability Due Diligence Directive (2022:3): Due diligence: Taking responsibility in value chains (PDF) [x] Statement (2022): The contribution of standard-setting and certifying organisations to due diligence (PDF) [xi] ISEAL Alliance (2022): Verification and multi-stakeholder initiatives that use credible practices are essential for Corporate Sustainability Due Diligence, but they do not replace corporate accountability (PDF)
