As supply chains within the garment and footwear sector are becoming increasingly complex, the need for transparency is more relevant than ever. Consumers, investors and shareholders are pressing for transparent business activities as well as the prevention and mitigation of risks in value chains, making due diligence an imperative. Up until now, due diligence has been mainly based on a voluntary commitment dictated by the UN Guiding Principles on Human Rights and the OECD Guidelines for Multinational Enterprises, or on regulations adopted in a few countries, such as Germany, Norway, the Netherlands and France. Yet, only 37% of EU businesses have implemented environmental and human rights due diligence. Nevertheless, businesses are increasingly recognizing their duty to protect human rights and the environment, and their position to take over responsibility on a global scale, with around 70% agreeing that a harmonized legal framework is needed.
In this context, the European Commission has issued a proposal for a Directive on Corporate Sustainability Due Diligence (EU) 2019/1937, published on 23 February. Under this proposal, large European companies will be held accountable for human rights violations and environmental harm caused throughout their entire supply chains, including in the textiles sector. The proposal seeks to enhance responsible and sustainable behavior among global value chain actors by identifying, mitigating and preventing adverse effects on social and environmental aspects.
UNECE and ITC jointly welcome the new legislative proposal by the European Commission and acknowledge that it is a big step towards transparent and responsible behavior in supply chains. The proposal indeed provides strong measures to lay the foundation to achieve a level playing field for businesses, to address the challenge of conflicting standards and to drive market-based incentives in the right direction, which is key to get to the necessary-scale.
What can we expect under the new EU law?
The new proposed Directive will require the companies within its scope to:
- Embed responsible business conduct in enterprise policy and management systems that commit to due diligence on the enterprise’s most significant risks in the company’s supply chain
- Cease, prevent or mitigate harm in the enterprise’s own operations and in its supply chain and cooperate with stakeholders in remediation
- Track, disclose and communicate publicly on the enterprise’s due diligence process, including how the enterprise has addressed potential and actual harms
The Directive will affect EU firms that generate more than 150 million euros in annual turnover and have more than 500 employees. Stricter rules apply to companies operating in high-impact sectors such as agriculture, minerals and textiles, that generate 40 million in annual sales and have more than 250 employees. According to the European Commission, this will concern approximately 13,000 EU companies and 4,000 companies from third countries.
The planned EU Directive is to be presented to the European Parliament and European Council for approval. Once adopted, Member States will have two years to transpose the Directive into national law.
Most stakeholders acknowledge the right path of the legislation, which is in itself considered as ground-breaking. At the same time some NGOs or human rights advocates would go one step further on companies’ thresholds to ensure full accountability for rights violations in value chains (e.g. Clean Clothes Campaign, European Coalition for Corporate Justice).
The UNECE Sustainability Pledge and ITC initiatives are key for the implementation of the EU Directive and the new EU Strategy for Sustainable and Circular Textiles
The European Commission’s proposal recognizes the need for a range of accompanying measures to facilitate its implementation. In this connection, UNECE and ITC also welcome the acknowledgement by the Commission’s proposal of their joint initiative for Enhancing Transparency and Traceability of Sustainable Value Chains in Garment and Footwear. In parallel, the recently published EU Strategy for Sustainable and Circular Textiles mentions the joint initiative as a crucial framework for efficient and sustainable value chain management to identify and mitigate labor and human rights violations and environmental impacts. The joint UNECE-ITC initiative is said to offer practical tools and solutions for businesses to mainstream risk-based due diligence in corporate strategies, while also providing recommendations for policymaking bodies. In fact, coherence with international standards can ensure coverage of the entire value chain, provide legal certainty, and reduce costs of compliance with similar regulations in other regions. Most importantly, it can help to prevent and mitigate impacts of business operations involvement with harms to people and planet in the first instance and enable access to effective remedy where they occur. In the same vein, the UN/CEFACT standards for information exchange, and the implementation of UNECE Recommendation No. 46 provide guidelines for policymakers to integrate traceability and transparency in government legislations.
The UNECE Sustainability Pledge set forth broadly accepted, global policy recommendations, guidelines and information exchange standards and blockchain system developed through multi-stakeholder consultation, and engaging hundreds of industry actors from around the globe. These aim at supporting reliable and credible ESG practices, which are key to encourage companies to address resources appropriately and prioritize the most severe harms on one end, and to direct banks and investors choices, and to sustain responsible purchases for consumers, on the other end.
At the same time, ITC is intervening in various ways to support sustainability and supply chain due diligence. ITC works directly with the OECD to support alignment of multi-stakeholder initiatives (MSIs) with the OECD Due Diligence Guidance. ITC also collaborates with key industry MSIs to drive convergence, audit-fatigue reduction, and savings for upstream suppliers that can be utilized for the improvement of working conditions. Through these collaborations, ITC leverages its global public goods, such as the Social Labour Convergence Programme (SLCP) Gateway and ITC Sustainability Map to provide the neutral platforms and transparency that are critical to enable due diligence in global value chains. These tools are implemented in coordination with pre-competitive multi-stakeholder initiatives representing roughly fifty percent of the global garment sales, including the SLCP and the Initiative for Compliance and Sustainability.
At the 8th OECD Forum on Due Diligence in the Garment and Footwear Sector, discussions led by the two Organizations under this initiative reflected the current challenges and solutions to rethink business models for responsible supply chains. A common denominator was the understanding that innovation and advanced technologies, such as blockchain, can help to decipher complex and opaque value chains. UNECE’s side session, for instance, “Untapping the potential of blockchain for responsible and inclusive in the garment and footwear sector” focused on opportunities to scale-up impactful solutions, while ensuring market access for small-holders and MSMEs in emerging economies.
Cooperation with and support to partner countries, especially developing countries, will be critical. “Looking ahead, mandatory due diligence, supported by full traceability and transparency of value chains, is a key enabler to create change and drive sustainability forward. The new EU Directive proposal and EU Textile Strategy are important steps in the right direction. Nevertheless, there is still a long way to go, and UNECE stands ready to support industry actors, and particularly vulnerable groups from emerging countries, in this journey to advance the protection of human rights and the environment through due diligence” said Olga Algayerova, Executive Secretary of UNECE.
While ITC Executive Director Pamela Coke Hamilton added: “The capacity of MSMEs to improve working conditions and connect to international markets is critical to our shared progress towards the Global Goals for sustainable development. The EU Directive proposal and EU Textile Strategy are an encouraging step to establish accountability, at the firm level, in sustainable value chains. In concert with governments, lead firms, business support organizations, and other stakeholders, ITC is committed to providing the tools and expertise that will enable these directives to be implemented on the ground.”