UK and France have pioneered the space of compulsory due diligence laws in recent years. OECD released in 2018 its guidance to help companies conduct human rights due diligence programs. Germany or Switzerland are working on their own due diligence laws and will likely join the leading pack before 2022. A EU Directive may encourage companies headquartered in Europe to work on human rights due diligence by 2025. Landscape is clearly evolving fast in this space. What to learn from UK’ Modern Slavery Act and France’s Duty of Vigilance indeed?
What’s Expected to Comply with UK Modern Slavery Act or France Duty of Vigilance law? What’s Common? What’s Different?
Companies operating from the UK or France are expected, by the law, to conduct the following human rights related activities:
- The UK Modern Slavery Act states that company must publish an annual statement if it has sales of more than £36 million and if some or all of its business is in the UK. It must confirm the steps taken to ensure slavery and human trafficking are absent from the business and supply chain or they must declare that no steps have been taken.
- Companies subject to France’s Duty of Vigilance law must now establish mechanisms to prevent human rights violations, safety and environmental impacts throughout their chain of production, including for their subsidiaries and companies under their control. These mechanisms must be reported each year as part of a “vigilance plan.
Requirements between French and British laws are similar in the sense that they are both calling for companies to proactively identity relevant risks likely subject to occur across their operations or through their supply chain activities. Requirements are also very different at three levels:
- UK Modern Slavery Act focuses on a targeted set of issues, whereas France Duty of Vigilance opens a very broad scope of issues
- UK Modern Slavery Act is similar to the California Transparency in Supply Chains Act calling companies to report on efforts. France is going much further, asking companies to implement a vigilance plan addressing risks. France’s requirements are closer to UN Guiding Principle on Business and Human Rights expecting companies to demontrate capacity to mitigate risks
- Potential penalties for failure to comply are also very different. Penalties in France Duty of Vigilance is not really strong – with exclusion of targeted investigations led by a judge. A judge may be requested by anyone (workers, NGO, local community, municipality…) to investigate on specific cases. Companies may then be subject to liability if individuals harmed by a company’s failure to establish or implement a plan seek damages for corporate negligence. UK is going further: UK Modern Slavery Act may lead to unlimited fine for any eligible company.
What to Learn from Initial Reports Published under France and UK Due Diligence Laws by Now?
Multiple assessments and benchmark have been conducted by universities, NGOs or business associations to assess initial reports and how they have improved over time. Here are a few learnings I’ve found interesting flipping through many of these reviews
On a positive note, I find important to flag the following:
- Most companies were very critical and nervous with these laws. Many of them had been working for decades on programs improving social and environmental performance of their supply chains. That wasn’t credible to claim to invest resources on programs and refuse to support laws generating more of a level playing field for peer companies to all have to abide by the same rules. Actual risk mapping and plans to mitigate risks are time consuming and complex activities. With first reports, any expert can quickly spot leaders and laggers because anyone with good expertise knows the issues and can assess in a few minutes the level of maturity of companies. Hard to continue to operate in a back seat without taking human rights issues seriously.
- Many human rights violations come with ignorance and absence of awareness of relevant people to identify actual human right abuses in their day to day work. UK Modern Slavery Act more than France’s Duty of Vigilance law has been really an excellent initiative, supported by multiple creative communication programs to raise awareness of everyone about what modern slavery can be, and how modern slavery situations may be witnessed every day, every where in the UK and elsewhere.
- France’s Duty of Vigilance is clearly encouraging companies to invest in expertise and resources to move companies to a next level of standard and map, assess and define solutions to actually mitigate risks. This is to date the most compliant initiative with what’s expected by the UN Guiding on Business and Human Rights calling not just to assess but also demonstrate capacity to mitigate actual risks
On a negative note, the level of disclosure provided by companies to comply with UK Modern Slavery Act and France’s Duty of Vigilance Law is clearly showing the following trends to date:
- Exercise remains overall perceived by companies as a compulsory ethical effort. There is solid evidence to connect the dots between mitigation of human rights – including modern slavery, and environmental risks with safety and broader business performance though. Maturity is just not there yet. So long as the business case is mostly reduced to ethics and reputation, only limited resources can be expected to be invested in these plans. That’s a primary area of concern in my opinion, because respect of human rights can fundamentaly support the way companies can lead with purpose and have a holistic assessment of risks and costs across operations
- Risk mapping remains all too often not supported by robust methodology. For example, disclosures and reporting efforts are showing very poor level of inclusion of right holders – or actual people likely at risk. From a human right standpoint, poor inclusion of the perspective of those who’s rights might be abused and their perspective to mitigate risks remains a strong concern
- Risk and vigilance plans remain overall broad and generic without disclosing specific actions or showing the way they are actually enforced and improving practices at branch or business partner level downstream across supply chains. There can honestly be good reasons in some instances. Topics are sensitive and lives of people may be at risk. Companies may have also much more information in hand that what they may be actually willing to disclose. That said, it is very clear that mitigating risks on these areas is strongly calling for concrete, and practical plan rooted in the real world of workers and contractors. Generic superficial plans showing good attentions might be a start, but by no means a solution to improve practices on the ground.
How Supply Chain Practices Will Develop in the Future With These Laws?
As per my comment in introduction, similar laws are very likely to be enacted across a broader number of countries. By 2025 and approximately 15 years since the UN Guiding Principles on Business and Human Rights will have been published, due diligence laws are likely going to mainstream and become part of basic compliance. Beyond Europe, similar discussions are happening in California for instance, building on the 2012 Human Trafficking laws.
In response, we are entering a fascinating era where companies and relevant stakeholders are going to strengthen methodologies, findings and plans to address questions and align with industry practices. The following dynamics will no doubt shape the way practices will develop in the years to come:
- Disclosure, notably in response to lawsuits or scandals, are going to put some industries or practices under the spotlight. This is going to be a key driver to improve awareness as well as actual practices agreed to be compliant with spirit of due diligence laws
- Supply-chain mappings are going to become increasingly comprehensive. Digital transformations and development of tech based solutions is going to help to map complex supply chains and their pertinent risks more effectively. More precisely, self assessments, big data generating more predictability as well as digital chains of traceability including blockchains will help to accelerate and better profile relevant risks exploring across supplier and sub-supplier chains
- Grievance mechanisms are in place to enable people to flag issues. The more awareness can grow and the more companies are investing in such mechanisms, the more the collection of insight through these mechanisms is going to improve risk mapping as well as effectiveness of risk mitigation plans. Grievance mechanisms are going to play a critical role to shape concrete and effective solutions addressing and mitigating risks
- Expertise in the field is also going to grow. Several codes of conducts or standards are increasingly going to align with these due diligence laws. This is also going to raise the bar and level of practices expected to be audited and assessed across supply chain operations. Smaller companies are going to follow up under pressure of law and that of their buyers.
Welcome to the world where laws are increasingly encouraging companies to respect… the laws…
Author of several books and resources on business, sustainability and responsibility. Working with top decision makers pursuing transformational changes for their organizations, leaders and industries. Working with executives improving resilience and competitiveness of their company and products given their climate and human right business agendas. Connect with Farid Baddache on Twitter at @Fbaddache.