Editor's note: Mercedes
is a recent graduate of the LL.B. dual-degree programme English and
German Law,
which is taught jointly by University College London (UCL) and the
University
of Cologne. She will sit the German state exam in early 2022. Alongside
her
studies, she is working as student research assistant at the Institute
for International
and Foreign Private Law in Cologne. Since September 2020, she joined the
Asser Institute as a research intern for the Doing Business Right project.
On the
international stage, Germany presents itself as a champion for human rights and
the environment. However, as this blog will show, when it comes to holding its
own corporations accountable for human rights violations and environmental
damage occurring within their global supply chains, it shows quite a different
face.
In
recent years, German companies were linked to various human rights scandals.
The German public debate on corporate accountability kickstarted in earnest in September
2012, when a factory in Karachi, Pakistan, burned down killing almost 300
people. The factory had supplied KiK,
Germany’s largest discount textile retailer with cheap garments. Then, over a
year and a half ago, a dam broke in Brazil, killing 257 people. The dam had
previously been certified to be safe by TÜV
Süd Brazil, a subsidiary of TÜV Süd, a German company offering
auditing and certification services. There are many more examples of incidents
in which German companies were involved in human rights violations occurring
within their supply chains, yet eight years after the factory in Pakistan
burned down, and nine years after the unanimous endorsement of the UN Guiding
Principles on Business and Human Rights by the UN Human Rights Council, there
is still no binding German legislation imposing some type of liability onto
companies that knowingly, or at least negligently, fail to uphold human and
labor rights in their supply chain.
This
is despite the fact that Germany, the third-largest
importer worldwide, with its economic power and negotiation strength on
the international stage, could have a dramatic impact on business practices if
it were to embrace a stronger approach to business and human rights.
In the
coming two blogs I am to take a critical look at Germany’s recent policies
related to corporate accountability and discuss the current developments (and
roadblocks) linked to the potential adoption of a Lieferkettengesetz
(Supply Chain Law). In this first post, I focus on the effects of the National
Action Plan 2016-2020, building on recently released interim reports. In my
second blog, I will then turn to the various proposals and political
discussions for mandatory due diligence regulation (Lieferkettengesetz).
National
Action Plan 2016-2020
In
2011, the European Commission in its communication
paper “A renewed EU strategy 2011-2014 for Corporate Social
Responsibility” called on all EU Member States to develop their own national
action plans for the implementation of the UN Guiding Principles.
The
German Government followed the Commission’s call. In 2013, the following statement
was included in the coalition
agreement between the CDU (Christian Democratic Union) and the
SPD (Social Democratic Party):
“We are working towards the
consistent implementation of the National Action Plan for Human Rights and the
Economy (NAP), which also includes public procurement. If an effective and
comprehensive review of the NAP in 2020 finds that companies’ voluntary commitment
is insufficient, we will introduce appropriate legislation at the national
level and advocate an EU-wide regulation.”
After
a two-year consultation and drafting process, the Cabinet adopted the National
Action Plan implementing the UN Guidelines on Business and Human
Rights on 21 December 2016.
The
National Action plan rests on four pillars: (1) Germany’s obligation to protect
human rights; (2) the Government’s expectations vis à vis the private sector;
(3) access to remedies and redress; (4) a monitoring process.
The
fourth pillar, the monitoring process, is distinct from the companies’
reporting obligation and goes further than any other European
NAPs did. ‘Monitoring’ entails a process in which, from
2018, a third party will review the effectiveness of the NAP by conducting
three surveys. It was to provide an objective benchmark and timeframe, that is
to serve as basis for the government to decide if it will take further steps
towards mandatory regulation.
Nevertheless,
NGOs have
accused the Government of lacking true commitment. The main
criticism of the NAP centers around the hope (or wishful thinking) that
companies would implement human rights due diligence regulation voluntarily:
the NAP does not include any possibility to impose fines or other sanctions.
This is reflected in the NAP’s wording: It merely formulates certain expectations
towards businesses. Corporate social responsibility, as envisaged by the NAP,
relies on businesses to implement the following voluntary measures: (1)
a declaration to respect human rights; (2) a procedure for identifying real and
potential negative effects of corporate activity and human rights risks in
supply chains; (3) measures to be taken to prevent negative effects and monitoring
thereof; (4) reporting; (5) a complaints
mechanism. NGOs
did welcome the clear language the Government used to formulate
its expectations towards enterprises. However, on certain crucial points the
actual content of the companies’ duties is left to their imagination. Examples
include that companies should apply an “appropriate standard of care” when
respecting human rights; the extent of duties depends on “size and position in
supply and value chain” – with no
further details on what this means in practice for multinational groups or
medium-sized companies.
The
policy statement is intended to make companies reflect on human rights issues
their businesses face with reference to particular human rights frameworks. In
the policy statement they should also include the internal processes they
utilize to realize human rights due diligence. In order to fulfil this due
diligence requirement itself, businesses need to identify risks generated
directly by the enterprise itself, or any direct and indirect contractual
relationship (e.g. in the case of numerous intermediary dealers). Once this
analysis is completed, businesses ought to optimize their processes; proposed measures
comprise specialist training, changes in supply chain and participation in
sectoral initiatives. These are, however, limited to preventive measures only –
identification, prevention and mitigation. There is no mention of any remediation
or compensation for those affected. The NAP also includes some important
caveats: Businesses must not suffer from a disproportionate bureaucratic
burden; financial services between banks or insurance companies are out of its scope
of application.
Furthermore,
companies are not required to submit reports on their progress to the
Government. They are merely required to keep information “at their disposal”.
This is regrettable because gathering information could help to identify
difficulties companies face when implementing due diligence into their global
value and supply chains. Companies are advised to issue reports to
demonstrate that they are aware of their human rights impact; and only
companies that operate in particular high-risk sectors are advised to
issue public reports.
Lastly,
there is little to no guidance when it comes to the grievance mechanism
companies should set up. The guidelines state that companies must have their
own grievance procedures or participate in external (sectoral) procedures. The
grievance mechanism should be fair, balanced, and predictable – but apart from
the elimination of linguistic or technical barriers, there is no explanation of
what such a system might look like.
The
German Institute for Human Rights criticizes that
the Government’s NAP fails to capture the realities of global supply and value chains, and even ignores
the hurdles individuals face when they try to enforce their rights before
German courts. According
to the Government, individuals affected enjoy access to the judicial
system, remedies and redress. It only deemed necessary to issue a multilingual
leaflet containing information on the German court system in
order to help potential claimants to navigate the system.
Monitoring
process and interim reports
The
monitoring process comprises three surveys, followed by three reports. In the first one,
stakeholders were consulted to agree on a methodology and assessment criteria
for the next two (substantive) surveys.
Just like the National Action Plan, the monitoring process turned out to
be a disappointment. From the very beginning of the consultations, lobby groups
tried to tailor the monitoring process according to their needs and it seems
they succeeded in doing so. In an official
letter, obtained by Initiative Lieferkettengesetz in
the course of a freedom of information request, Peter Altmaier (Minister for
Economic Affairs and Energy, CDU) thanked the International Chamber of Commerce
for their input regarding the monitoring process, which, as explicitly stated
in the letter, led to the questions and requirements being amended. Companies,
which had failed to fill out the form or had left the survey incomplete, were
taken out of the statistic. EY, the auditing firm that had been instructed to
conduct the survey, first intended to categorize these companies as
“non-compliant” with the due diligence standards set out by the NAP. The
Ministry for Economic Affairs and Energy assured lobby groups (particularly the
Federation of German Industries) that the changes to the monitoring process
they had demanded were included, and praised the compromise reached.
The
methodology and assessment criteria can therefore be described as
business-friendly, to say the least. NGOs were very outspoken against the
survey methodology adopted by EY. In particular, they criticized the fact that
companies that have not yet implemented the guidelines as set out in the NAP are
still considered “companies with implementation plan” and even “companies on
the right track”. The survey did not consider “non-responders”.
The
first quantitative survey was completed on 31 October 2019. In February 2020,
its findings were published in the second
interim report. Only 465 of 7,285 companies with over 500 employees
took part in the survey and only 17-19% of responders had implemented the NAP
requirements. Companies performed the worst in assessing potential or existing
risks to human rights in their supply chain and in adopting measures to prevent
those. When looking at these numbers, it must be borne in mind that business
lobby groups were actively involved in drawing up the framework of the survey. Because
non-responders were excluded, it is even more disappointing that the numbers
stem from companies that arguably are already receptive to the benefits of
human rights due diligence.
After
the damning report had been published, business associations suddenly showed
strong sentiment against the surveys that previously had been labelled a good
“compromise”. They criticized, with
the support of government officials from the Ministry of Economic Affairs, the
very monitoring process that they had been closely involved in setting up. And pointed
out that even though the “comply-or-explain-mechanism” allowed companies to
deviate from the requirements set out in the NAP, it still counted them as
“compliant” only if they were able to prove the implementation of an equivalent
measure. This meant, according to business associations, that there was no
margin of error for companies that were not yet fully compliant with the NAP
but had taken substantive steps to align their business practices with the
government’s guidelines, which were not considered of equivalent nature.
On 2
March 2020, the second and final phase of the quantitative survey began. The final
report was presented to the public on 5 October 2020. Even fewer
companies responded and roughly 13-17% implemented the NAP requirements. The
coalition agreement envisaged the drafting of the Lieferkettengesetz to
begin after the final report had been published. The fact that companies are so
far below the 50% threshold set out in the coalition agreement shows that human
rights due diligence is not in itself a priority for German companies; binding
legislation seems needed for them to take it seriously.
Business
lobby groups are now playing
for time. They first argued that the whole survey period until
the end of 2020 must be exhausted; as a precise picture of the situation can
only be drawn if companies that plan to implement human rights due diligence
towards the end of the year are included. However, in light of the fact that
not even 20% of the respondents to the survey have so far implemented the NAP
guidelines, it is highly doubtful that we would reach the 50% threshold by the
end of the year. The Corona pandemic provided lobby groups with another excuse
as businesses pleaded with
politicians not to burden them with additional costly regulatory obligations.
Actually, it is likely that businesses would oppose any form of binding
regulation, irrespective of the outcome of the monitoring process. From the
beginning they spoke out strongly against any type of Lieferkettengesetz.
Conclusion
In
December 2015, Michael Addo, member of the UN Working Group on Business and
Human Rights, when participating in the last NAP plenary session at the Federal
Ministry for Development and International Cooperation, emphasized that
the international spotlight was on Germany and its NAP. Its European and
international partners were scrutinizing the drafting and implementation
process – and rightly so. Germany could have taken the lead with an ambitious
NAP, providing mandatory measures to impose human rights due diligence to its
companies, but it did not. Germany’s NAP joins the ranks of other European NAPs
that have been proven
to be of limited impact. As of now, 23 countries have
adopted a National Action Plan. All of them rely primarily on voluntary
commitments. The companies’ responsibilities are not formulated as
“obligations” but as mere moral responsibilities, derived from social
expectations. None
of them include specific guidelines, concrete enforcement
measures or objective parameters to monitor corporate activity. Even Germany’s independent monitoring process
was not able to drive German businesses to implement human rights due diligence
throughout their operations and supply chains.
It
seems that absent some form of binding legislation, there is no way for
effective progress in the realm of business and human rights. That is why civil
society (76% of
the German public) is putting pressure on Germany’s political class to
stop waiting (like Godot) for companies to voluntarily comply with the UN
Guiding Principles. Even some companies and investors signed a
collective statement in support of binding due diligence legislation. Hence,
some form of Lieferkettengesetz will have to be adopted – the only
remaining (crucial) questions (for my next blog) are when will it occur and what
will it look like.