How Change Can End Corporate Abuse

Hats off to the European Union (EU). Europe has made a landmark agreement to oblige big business to reduce human rights abuses and environmental harms—or face legal action. This is potentially transformative news for workers and communities worldwide, caught in abusive value chains; from fast fashion seamstresses in Bangladesh or Myanmar, to Indigenous Peoples dispossessed of their land for new energy projects, to human rights and environmental defenders in Central America, whose protest is silenced by violence. It is also good news for responsible business who supported the directive to gain a “level playing field” and stop reckless, abusive companies from undercutting them.

The groundbreaking nature of the shift may be obscured by its byzantine official title, “Corporate Sustainability Due Diligence Directive.” But groundbreaking it appears to be.

This seismic shift comes after 40 years of failed reliance on “voluntary” human rights and environmental action by companies. Globally, this is the first attempt to enshrine the international standards set by the United Nations and the OECD in laws across a major economic bloc, and with legal liability and administrative penalties for companies that do not comply. It enshrines the “risk-based” approach—companies within scope must use their brains to identify and address more severe and likely human rights and environmental risks.

This directive also signals a desire for democratic renewal. As the world is assailed by authoritarian populists feeding on the public’s fear, and loss of faith in leaders’ willingness to tackle unsustainable inequality of power and wealth in economies, alongside climate breakdown, this directive demonstrates governments and parliamentarians of good faith can act decisively for the common good.

It recognizes the now intimate relationship between respect for human rights and environmental regeneration. Companies’ new obligation to deliver a Climate Transition Plan is momentous and essential for our times (although enforcement will be key and climate impacts should also be a civil liability risk—our planet deserves no less).

Civil liability is underpinned by imperfect, but strengthened, access to justice for victims. The agreement gives victims greater opportunities to demand evidence from opaque companies, and more reasonable time limits to make a claim. Together with administrative enforcement, these advances should fundamentally change the calculus of risk in boardrooms—especially those of irresponsible companies, accustomed to tolerating abuse and pollution. As one senior fast fashion executive said to us, “Regulation drives board attention.”

The directive is not perfect and contains flaws with serious consequences. The effective exclusion of financial institutions, at the behest of vested interests in key EU member states, is a missed opportunity. Investor’s due diligence plays a central role in defining their investee companies’ behavior. If they continue to demand companies singularly maximize short-term returns to shareholders, most company executives will act accordingly—passing costs and risks down to vulnerable workers and communities, and at the expense of building long-term value. There is real danger this will undermine Europe’s leadership in responsible investment, and ESG markets. But these and other loopholes do not detract from the pioneering advance of this directive.

Finally, nothing could be written without recognizing the extraordinary efforts of actors in Europe and around the world to support this change. Justice Commissioner Didier Reynders and his cabinet were visionary leaders who drove it through the tangle of European law-making. Many parliamentarians, and especially Lara Wolters, and Heidi Hautala made huge efforts, alongside many member states. Responsible companies and investors spoke out for what they knew to be an essential advance in corporate responsibility.

But it was civil society, across Europe and beyond, which drove this innovation from its beginnings almost a decade ago. Together, those seeking corporate accountability assembled the tragic evidence of failed reliance on voluntarism and its all too real human and ecological cost for vulnerable workers and communities. We demonstrated the empty promises of reporting-only obligations—like the UK Modern Slavery Act that has failed those caught in modern slavery. Trade unions, environmental, human rights, and women’s organizations, across Europe and globally, keep exposing the abuse and environmental harm being created by the absence of this directive. And, together, we keep proposing changes necessary to transform market signals and business models to deliver greater shared prosperity, dignity, and freedom to the majority. This will continue while all technical details are finalized and formal adoption occurs, followed by effective implementation and targeted strategic litigation to achieve victims’ rights to remedy when things go wrong.

As with every major advance, it is the complementarity, and collaboration of all these diverse forces, for our shared goals, which makes this advance possible. It has taken a decade of struggle to now, and we still have further critical steps in coming years—including seeing this type of regulatory initiative replicated in other jurisdictions around the world.

Mary Robinson is the former president of Ireland, former U.N. High Commissioner for Human Rights, and chair of the Elders.

Phil Bloomer is the executive director of the Business & Human Rights Resource Centre.

The views expressed in this article are the writers’ own.