In this comment piece, GoodCorporation’s Michael Pollitt says amendments to the UK Environment Bill will fill in the gaps in implementation left by the Modern Slavery Act

With the passage of the UK’s Environment Bill on hold due to the coronavirus, we have a chance to look closer at the many amendments tabled by MPs, with the support of NGOs and conservation groups, some of which could have significant implications for large international businesses.

A new clause tabled for addition to the Environment Bill would force the government to publish legislation within six months imposing a duty on corporations to identify and address all environmental and human rights risks associated with their operations.

The amendment, put forward by MPs Kerry McCarthy and Alex Sobel, would apply to specified entities in the commercial, financial and public sectors. Affected organisations would be required to prevent any adverse risks, or mitigate them where prevention is not possible, so that any environmental and human rights impacts become “negligible”.

Research on the effectiveness of the 2015 Modern Slavery Act, suggests that almost 5,000 UK companies required to report on their supply chains have not done so

The obligation would apply to risks and impacts “wherever they arise” in “the entire supply chain and investment chain” of the entity. For organisations failing to comply fully and promptly, the legislation would include “proportionate, effective and deterrent sanctions”.

The amendment’s ultimate aim is to ensure all goods on the UK market are sustainable, traceable and do not cause adverse environmental and human rights impacts.

Like previous efforts to force businesses into assessing their supply chains for human rights abuse, the new legislation would include a duty for companies to report publicly on their overall strategy and resulting actions taken.

However, the specification that the new law should include effective and deterrent sanctions for those businesses who fail to comply, suggests there is an intention to ensure this law succeeds where precursor human rights legislation has failed.

Research cited recently on the effectiveness of the 2015 Modern Slavery Act, for example, suggests that almost 5,000 UK companies required by the Act to report on their supply chains have still not done so. Of the reports received, only 23% appear to meet the law’s minimum requirements.

This lacklustre take-up of the Modern Slavery Act’s supply chain reporting requirements prompted calls last year from civil society organisations, such as Oxfam, Global Witness and Fairtrade, for new mandatory human rights and environmental due diligence laws.

We can expect significant pressure on the government to ensure the new law is robust, and equal pressure on businesses to ensure they comply

The amendment tabled to the Environment Bill was our first glimpse of how such a law might look. And with the expectation for the new legislation to be everything the Modern Slavery Act was not, we can expect significant pressure on the government to ensure it is robust, and equal pressure on businesses to ensure they comply.

The stage is being set for the new law in a context of increasing regulatory demand from governments worldwide.

In 2015, the UK’s modern slavery legislation was often billed as something of a headline act, but it has since played second fiddle to a number of equivalent laws in other countries, all of which have aimed to impose similar duties on multinational companies to assess their supply chains for human rights and environmental impacts.

The Devoir de Vigilance enacted by the French Government in 2017 imposes a duty on large companies to publish and implement a “vigilance plan”, identifying risks and preventing human rights abuses in their operations and partnerships. Companies failing to comply can be called on by any interested party to do so within three months, after which penalties apply.

The Corporate Social Responsibility (CSR) Directive Implementation Act introduced by Germany in 2017 requires specified publicly traded companies to report on the impact of their business practices with regard to society and the environment, including human rights. Non-compliant companies can receive fines of up to €10m, 5% of annual turnover or twice the profits gained from the breach.

The Child Labour Due Diligence Law adopted by the Netherlands Senate in 2019 will require companies serving the Dutch market to assess their supply chains for child labour risks and produce a statement to declare that supply chain due diligence has been undertaken. Penalties for non-compliance will include fines and imprisonment for repeat offenders.

We are moving from the 'soft law' of the UK’s Modern Slavery Act towards hard sanctions

If these developments tell us anything, it is that we are moving from the “soft law” of the UK’s Modern Slavery Act towards hard sanctions and a concerted effort to ensure that the best intentions of legislators and civil society do not remain just that. 

The call for the UK’s new due diligence legislation to include proportionate, effective and deterrent sanctions has to be read in this context of increasing regulatory pressure, and UK companies can reasonably expect tough new supply chain requirements when Parliament returns to full capacity after the coronavirus.

They will be doing so, however, at a time of unprecedented downturn resulting from the pandemic, with huge economic impacts not only increasing the cost pressure on their supply chains but also cutting the budgets available to assess them for ethical risk, through robust due diligence programmes.

In this scenario, a back-to-basics approach is perhaps the best place to start for companies hoping to stay ahead of the game.

Initial risk-mapping exercises can be undertaken to identify the salient human rights and environmental issues affecting the sectors and locations in which the business and its suppliers operate. This will allow large companies to focus on the areas in which their potential negative impacts are most severe.

Communications can be targeted at the more remote subsidiaries and suppliers, referring to internal company policies if available. These should be designed not only to remind them of the organisation’s expectations with regard to human rights and the environment, but also to invite frank, confidential discussion of any concerns this raises in practice.

Contracts with suppliers and service providers can be reviewed, to ensure any obligations with regard to human rights and the environment are among the conditions for continuation of the partnership. Relevant contracts should also encourage suppliers to apply the same principles down their own supply chains.

The challenge will be to ensure that the inevitable economic pressures we face in a post-coronavirus world are not pushed blindly down our supply chains

A programme of monitoring can be implemented for suppliers or business units in higher risk situations identified by the risk assessment. Checking at this stage that audit rights, covering human rights and environmental controls, are included in the contracts of relevant suppliers will also help with the swift implementation of any new due diligence requirements.

Ultimately, companies able to do so will benefit most from robust on-the-ground assessments of their higher risk suppliers and business units. However, with so much uncertainty in the meantime, there are basic steps companies can take to ensure they stay ahead of this new wave of regulation, which has gathered pace across Europe in the last five years and looks set to return to the UK very soon.

The challenge will then be to ensure that the inevitable economic pressures we face in a post-coronavirus world are not pushed blindly down our supply chains, causing longer-lasting damage to our planet and its more vulnerable communities.

Michael Pollitt is a former House of Commons adviser and senior business ethics consultant at GoodCorporation, a leading consultancy firm in the fields of business ethics, compliance and human rights.

 

modern slavery act  Human rights  Environment Bill  supply chains  devoir de vigilance  Child labour