No effect without liability

Protest for transparency and respect for human rights in supply chains on the occasion of the BASF AGM 2020

For too long, companies such as BASF have been half-heartedly complying with their human rights due diligence, because they did not have to fear any consequences. Now various initiatives for legal regulation at international, European and national level are entering decisive phases. The question of liability will show whether companies or civil society have been able to enforce their demands.

The German-African Business Association knows exactly which German ministry is best placed to assert its interests. It is not the Federal Ministry for Economic Cooperation and Development (BMZ) or the Ministry of Foreign Affairs (AA) – which might be obvious for a foreign trade association –, but the Federal Ministry of Economics and Energy (BMWi). Outraged, the association, of which BASF is also a member, wrote directly to BMWi in 2019, now available in published documents: “The German-African Business Association calls on the Federal Government to clearly distance itself from the draft available at BMZ for a so-called Value Chain Act”. In its reaction, the BMWi stated it was confident that “a solution would be found that would meet the common human rights concerns as well as the interests of German companies.”

Voluntary action without consequences

Up to now, the “common solution” has provided for mere voluntary measures on how German companies should comply with their human rights due diligence in accordance with United Nations (UN) guidelines. Don’t you dare to make uniform, binding rules for all. So far, the result has been a patchwork of initiatives, sometimes relating to a specific raw material, sometimes to an industrial sector, with which companies try to communicate their commitment to human rights to the public in a rather promotionally effective way, instead of creating more transparency about the conditions in their own supply chains.

With the “Plough Back the Fruits” campaign, we have highlighted this problem by looking at BASF’s platinum supply chain. BASF should work to ensure that the miners working in the Marikana mine in South Africa who extract the platinum for BASF catalysts, the crucial basis for compliance with environmental and health standards for the entire automotive industry, have access to water and wages that will secure their livelihoods and those of their families. In general, the world’s largest chemical company should ensure that social standards and basic human rights to health, work or occupational safety are respected.

So far, BASF has obtained several external audits, but the results are not public. The situation on site, however, has not improved significantly. More and more investigations are coming to the conclusion that audits have not adequately addressed even deficiencies that led to major disasters. Often the dependence of auditors on their clients is a problem, as they award future contracts. It is clear that without running water and sanitation, even basic measures to contain the coronavirus in South Africa’s mining communities are not feasible. If, which and how labor and social standards are examined in BASF audits, and with what results, is anything but transparent. It goes without saying that BASF is not solely responsible for the situation in Marikana. But BASF is clearly responsible for the transparency and impact of the audits carried out so far, because the intolerable conditions have been tolerated for too long and BASF itself does not deny its own influence on suppliers, even beyond the scope of the audits.

Failed even with regard to reporting obligations

However, like all other globally active companies, BASF has a clear reporting obligation in accordance with the 15th UN Guiding Principle on Business and Human Rights, ” to identify, prevent, mitigate and account for how they address their impacts on human rights”.

The fact that German companies such as BASF voluntarily fail to adequately comply with these and other UN requirements for the respect of human rights has been proven several times. The German government, however, wanted to find out for sure and asked companies again whether they would voluntarily comply with human rights standards.

This “monitoring” within the framework of the National Action Plan (NAP) Business and Human Rights called the business lobby again into action, such as the German-African Business Association mentioned at the beginning. Through their contacts with the Ministry of Economics, these lobbyists succeeded in some cases in weakening the criteria for determining when a company would comply with the standards and pass the test. The complete results, which were only recently announced, is nevertheless a confession of failure of voluntary action previously so praised by the companies: only 13 to 17 percent of the companies surveyed fully meet the low requirements of the NAP.

Already in the current coalition agreement, the governing political parties in Germany had agreed that in the event of such low compliance with human rights standards, a legal regulation would follow. The German government would have been satisfied if only half of the companies had met the requirements. In order to prevent a law that is now actually in the works, the business associations should have lobbied their companies, not the ministries.

Liability: sticking point and misunderstanding at the same time

From a democratic, constitutional perspective, a legal regulation makes sense anyway, even if all companies complied with UN standards: According to the UN Guiding Principles, companies must not only report transparently, but must also have procedures in place “to enable the remediation of any adverse human rights impacts they cause or to which they contribute”.

Legal rules are needed to clarify whether, when, for whom and how such reparations are to be implemented in the event of a dispute – this should be a matter of course in a democratically constituted constitutional state. As early as 2018, the UN Social Committee had called on Germany to create a legal regulation so that companies can also be held liable if they fail to comply with their duty of care.

This is the crucial point why the business lobby wants to prevent a supply chain law. The German-African Business Association, for example, fears that companies will be held responsible for the behaviour of third parties, i.e. their business partners. Ingo Kramer, President of the Confederation of German Employers’ Associations (BDA), soon thought he was “in prison with both feet“.

To clear up the misunderstanding right away: Nobody wants to hold companies liable for the behaviour of third parties. What is at issue is civil liability for a company that fails to comply with its own human rights due diligence. Only then could those affected by human rights violations claim damages from the company before German courts.

The business lobby has never made this fact clear in both public and confidential communications, which actually allows only two conclusions: Either they have not paid close attention to the UN Guiding Principles, the demands of civil society or the draft laws at hand. Or they have bet that no one else has done so either, and that the “both feet in prison” argument would nip any serious legislative initiative in the bud.

For years now, processes have been underway at national, but also at European and international level to create legal regulations which, in addition to the question of liability, also concern reporting obligations. As early as 2015, Great Britain created uniform reporting obligations with the Modern Slavery Act on how companies must disclose how they deal with human trafficking and forced labor in their supply chain. France followed suit in 2017 with a law under which a violation of due diligence in the event of damage can lead to liability towards those affected – but only for companies with at least 5,000 employees.

Decisive phase – nationally and internationally

The recently announced key points for a supply chain law in Germany also provide for civil liability. According to this, companies would only have to be liable for damages in the event of demonstrable, unreasonable breaches of due diligence, and then only in the case of foreseeable and avoidable human rights violations. Courts would then have to decide what would be considered appropriate in each individual case. However, the German civil society initiative for a supply chain law rightly fears that it will be difficult for injured parties to prove violations of due diligence. Not the accused company, but the injured parties themselves would have to provide the evidence – and they have no access to internal company processes. Here the burden of proof should lie with the company.

It can be assumed that business associations will now concentrate their efforts on ensuring that such sensible liability regulations are not incorporated into the law. It has long since ceased to be a question of the pros and cons of a legal regulation, but rather of the concrete form of such law so that it can have any effect at all on corporate actions. However, there is also a need to catch up in other areas: For example, no independent environmental due diligence is envisaged, and human rights are reduced to the probability of violations instead of including all internationally recognized human rights. Even the established UN standards are undercut, as neither the involvement of stakeholders nor remediation are mentioned.

On the subject of reporting obligations, on the other hand, the associations, but also an increasing number of corporations, stress the advantages of a European regulation. For example, BASF, along with Bayer or Adidas, is now also in favour of a European supply chain law, because nationally differing reporting obligations are already a thorn in their side.

It is undisputed that an internationally uniform regulation makes sense – this is why civil society is also working across borders to achieve a “Binding Treaty“, an international agreement for business and human rights, which would make the UN guiding principles binding. The fact that the process has been stalled for years is also due to the refusal of the German Federal Government to participate actively in the process. After all, according to the perfidious argumentation, there has not yet been any proof that the voluntary measures of the companies are not effective after all.

This excuse can no longer apply, because German government is now in a self-initiated legislative process. This means that Germany now has a special responsibility at the UN level, which is in no way inferior to that at the EU level as a result of the current EU Council Presidency by Germany. This shows why in recent months, it was strategically necessary for civil society to put all its efforts into a national supply chain law.

In all this, however, political or civil society initiatives must never lose sight of the realities of global supply chains and the needs of the people affected. These should remain the focus, not the lawsuits against companies. Unfortunately, the latter have now proved long enough that it is not possible without binding liability rules. This will probably make lawsuits unavoidable in the future.

By Tilman Massa, Ethical Shareholders Germany
first published in the newsletter August 2020 of the campaign Plough Back The Fruits

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