From 2023, legislation will rule how BASF must meet its own human rights due diligence obligations. Would the Supply Chain Act have helped BASF respond more seriously to the apparent abuses at its then largest platinum supplier, Lonmin, after the Marikana massacre nine years ago? The answer to this question exposes the advantages, but also the shortcomings, of the bill currently being debated in German parliament.
By Tilman Massa, Ethical Shareholders Germany
German companies have had long enough to prove that they voluntarily comply with UN standards on respecting human rights in their supply chains. After it finally became clear last year that over 80 percent were not even close to doing so, the German government drew the consequences and cleared the way for a legal regulation. BASF also failed to meet international standards for a long time and is thus itself responsible for the fact that its own propagated principle of voluntary corporate responsibility has failed miserably.
The German government’s draft law is currently the subject of controversial debate in parliament. Even within the conservative CDU/CSU parliamentary group, which should actually be behind the compromise reached by its ministers, there is open dissent over whether the law should still be toned down. On the other hand, civil society organizations and now even 50 progressive companies are calling for significant improvements to ensure that the mandatory due diligence law can have the desired effect at all.
Here we want to explore the hypothetical question: How should BASF have reacted at the latest after the Marikana massacre towards its own platinum supplier Lonmin in order to meet the requirements of the current draft of the Supply Chain Act?
A glance back: BASF and the Marikana massacre
Nine years ago, miners in South Africa went on strike for better working and living conditions at Lonmin, BASF’s largest platinum supplier at the time. On August 16, 2012, 34 striking miners were shot dead by police, many of them fleeing, including in the back. The Marikana massacre, its background and consequences continue to preoccupy South Africa to this day. It has still not been possible to clarify all the circumstances surrounding the massacre. What is certain, however, is that not only the police and political actors, but also those responsible at Lonmin bear guilt and responsibility for what happened: from the miserable conditions at the workplace, the poor wages and living conditions, and thus also for the strike, and not least for the dead, wounded and unjustly imprisoned.
Even after this result of the official commission of inquiry of the South African government, BASF did not feel compelled to take action. With the campaign “Plough Back The Fruits”, we first made the close business relationship between Lonmin and BASF public. We then put clear demands on BASF to live up to its claimed supply chain responsibility. In concrete terms, this meant helping to clarify the massacre and insisting on compensation for the bereaved families. In the medium term, BASF was to actively work to improve the miserable working and living conditions in the South African platinum mining industry.
But nothing happened – at least nothing substantial that would have met our demands. BASF made a public statement that it would initiate external audits and reserve the right to terminate business relationships. Although both Lonmin and BASF announced that at least the legal requirements for building shelters would be met, the measures were not pursued consistently, results of the audits were not published, and those affected were insufficiently involved. For years, the survivors of those shot were left without compensation, and the police officers involved in the massacre faced no criminal consequences.
While BASF continued to purchase platinum worth around 600 million euros annually from Lonmin, many of the approximately 30,000 miners and their families had to live in informal settlements around the mine, to this day without access to electricity, running water or sanitary facilities.
Would the Supply Chain Act, as the mandatory due diligence law is called in Germany, have elicited a different response from BASF, had it been in place since 2012? For this, a look at the draft law must first clarify what the legislator is now actually demanding of companies.
This is what the Supply Chain Act is all about
The “Act on Corporate Due Diligence to Prevent Human Rights Violations in Supply Chains (Due Diligence Act)”, as the Supply Chain Act is to be officially called, obliges larger companies in Germany to do just one thing in the first place: they must introduce and implement a risk management to identify human rights risks in their own supply chains and take preventive action.
The draft law clearly defines which potential human rights violations a corporation must examine and what must be done in the event of indications of such violations. To this end, the German government refers to the internationally recognized UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises. The human rights to be examined are thus not limited to the fundamental right to life, health and freedom from forced or child labor, but also to the ILO core labor standards, which set out the rights to adequate remuneration, breaks from work and limits on working hours.
Companies should now transparently outline how they analyze the human rights risks of their supply chains. However, if violations are found at suppliers, it is enough to show an “effort” to remedy the situation. The law does call for “proportionate and appropriate measures,” but these must be clarified in the respective context and, in case of doubt, by the new state monitoring authority, which is to be established for this purpose, and probably ultimately by courts.
In addition, only direct suppliers must be automatically recorded, i.e. the first stage of the supply or value chain. Even at the second stage, the risk analysis, including possible follow-up measures, only has to be carried out when the company obtains “substantiated knowledge” from outside or itself about grievances in deeper parts of the supply chain. This is one of the main points of criticism, even from those companies that already analyze their entire supply chains in greater detail. They now understandably criticize competitive disadvantages compared to those companies, that do not live up to their responsibility along the entire supply chain. However, in the case of Lonmin, which has since been taken over by its former competitor Sibanye-Stillwater, this is irrelevant. Lonmin was and Sibanye-Stillwater is a direct supplier to BASF.
BASF should have taken action even before the Marikana massacre
If the Supply Chain Act had already been applicable law in 2012, BASF would not only have had to register the miserable working and living conditions at Lonmin on its own, but also actively take its own measures to urge Lonmin to comply with South African law and international standards.
Moreover, the massive problems were anything but a secret. Media reports on the situation on the ground unfortunately showed at first glance that Lonmin had not complied with the legal and contractual obligations of the mining license that had been in force since 2006, for example with regard to the construction of plant settlements. And, of course, it doesn’t take a tragedy like the Marikana massacre to recognize the need for better conditions in South African mining – for too long now, Lonmin had ignored the vocal criticism and demands of trade unions.
But what would now have been a supply chain law-compliant, “reasonable and proportionate remedy” that BASF could have used to demonstrate its own “effort” to remedy the situation? In Section 7(2), the draft Supply Chain Act provides a rough answer:
“If the violation of a protected legal position or an environment-related duty at a direct supplier is such that the company cannot end it in the foreseeable future, it must immediately draw up and implement a concept to minimize it. The concept must include a concrete timetable. When drawing up and implementing the concept, the following measures in particular must be considered:
- the joint development and implementation of a plan to remedy the grievance with the company by which the violation is caused,
- joining forces with other companies within the framework of industry initiatives and industry standards in order to increase the possibility of exerting influence on the violator,
- a temporary suspension of the business relationship during mitigation efforts.”
The effectiveness of the remediation approach is then to be reviewed annually and on an as-needed basis. So, this is by no means about ending the business relationship immediately – this has never been a demand of the unions or our campaign.
It is about seriously, transparently and effectively ensuring an end to the grievances and also asserting our own economic influence to this end. As Lonmin’s main customer, BASF has had this influence on Lonmin at all times, because the long-term purchase agreements were instrumental in ensuring the economic survival of the platinum group. It is therefore not far-fetched to assume that Lonmin would have fulfilled its contractual obligations for adequate working and living conditions sooner rather than later, if BASF had signaled early on that it would make the purchase of platinum dependent on this.
What to do when the direct supplier is involved in mass murder?
At the latest, however, BASF should have taken action after the massacre in Marikana – there could hardly have been a worse occasion, even in the recent history of global raw material extraction, which is already marked by human rights violations.
Incidentally, BASF should also have taken action, regardless of whether or not the Supply Chain Act had already applied in Germany at the time. The UN Guiding Principles on Business and Human Rights were adopted by the UN Human Rights Council in 2011, and BASF had already voluntarily declared in 2000 as part of the Global Compact, that it would respect internationally valid human, labor and environmental rights in its own economic activities. The second principle of the Global Compact already makes it clear: companies should ensure that they are not complicit in human rights violations.
In 2012, BASF had to face the situation that the crucial platinum supplier for its own catalysts was directly responsible for the most severe human rights violations – and did nothing. Thus, BASF is not directly complicit in the Marikana massacre – BASF at times tried to pin this accusation on our campaign. Another question, however, is to what extent BASF’s years of ignoring the abuses at Lonmin also indirectly contributed to the situation escalating to such an extent.
However, BASF is responsible for not having done anything about Lonmin’s fatal inaction in dealing with the massacre and compensation payments in the aftermath of the Marikana massacre. Instead, BASF accepted this without comment and thus also contributed to the fact that Lonmin did not have to face its own guilt and responsibility for so long. There was also a lack of clear words from the most important business partner.
If the Supply Chain Act had applied at the time, BASF should have worked with Lonmin to draw up a plan to ensure that Lonmin met its own obligations to the victims and survivors of the Marikana massacre. This is a matter of clear legal claims governed by South African and international law. These measures should also have been made public to the (planned) monitoring authority and interested civil society.
These appear to be sufficiently appropriate and proportionate measures – given a historic crime that killed 44 people in one week.
Failure to act may lead to severe fines
Since this did not happen, BASF should therefore have acted irregularly and should have expected a complaint to the control authority and a subsequent investigation of the matter. If BASF had still not taken action in accordance with the requirements of the Supply Chain Act, then BASF would have had to face fines, possible legal action and exclusion from public procurement. These are provided for as disciplinary measures in the draft Supply Chain Act.
In the worst-case scenario for BASF, failure to act would have resulted in fines of up to two percent of the company’s annual global sales. In view of these financial risks, it is not only BASF that should now take a more serious look at the abuses in its own supply chains.
