Due diligence in supply chains

Malpractice in global supply chains

Repeatedly, suppliers in global value chains tolerate human rights violations and environmentally unfriendly practices.

On 24 April 2013, this kind of problem gained worldwide attention when the Rana Plaza factory in Bangladesh collapsed. In the breakdown and fire of the multi-store, illegally constructed building 1,138 people lost their lives and more than 2,000 were injured.[1] It is still the biggest disaster in the global textile industry and revealed blatant violations of building and safety regulations and inhumane working conditions. Various rights violations were documented, ranging from physical assaults, verbal attacks to forced overtime, refusal of maternity leave, unpaid wages and overtime pay, and reprisals against trade unions. Twenty-eight, world-leading companies in the clothing industry had sourced products from the five factories in the destroyed building. These multinational corporations had neglected their duty of care and were thus partly responsible for the disaster.[2]

Corporative and legislative responses

In October 2014, as an immediate reaction to the factory collapse, the German Development Minister, Gerd Müller, launched the Partnership for Sustainable Textiles (in short: Textile Partnership).[3]

The Textile Partnership aims to improve social and ecological conditions in global textile supply networks. In doing so, the Textile Partnership follows the ILO Conventions and the UN Guiding Principles on Business and Human Rights [4] and the OECD Guidelines for Multinational Enterprises [5].

Partnership for sustainable textiles

Today, the Multi-Stakeholder Initiative (MSI) brings together one hundred and thirty members from industry, NGOs, trade unions, the German government and sustainable standard-setting organizations.

On 9 September 2019, the Federal Ministry for Economic Cooperation and Development (BMZ), with the help of the Gesellschaft für Internationale Zusammenarbeit (GIZ), launched the “Green Button” textile label. To obtain the voluntary state label, companies must prove that they comply with forty-six social and environmental criteria. However, the seal does not yet cover the entire supply chain. To start with, it checks the production stages “cutting and sewing” and “bleaching and dyeing”. The social and ecological challenges are particularly significant here. As part of further development, it is planned to extend it to other supply chain stages (material and fibre use, spinning and weaving).

But still, the German Development Minister Müller does not consider this voluntary initiative to be sufficient, as it covers not even 50% of the German textile industry’s total turnover. Therefore, Minister Müller jointly with the Federal Minister of Labour, Hubertus Heil, are campaigning for a Due Diligence Act (in German “Lieferkettengesetz”) . The law envisages:

  1. to help prevent forced and child labour as well as discrimination in the production of goods and services, especially in the now globally ramified production chains,
  2. to increase the due diligence and reduce risk of human rights and environmental violations across the entire supply chain,
  3. to establish human rights grievance mechanisms to complement preventative measures,
  4. to increase the incentives to reduce the risk of human rights and environmental issues that are based in the producing countries including suppliers and sub-contractors
  5. to ensure occupational safety and to prevent damage to health and the environment and 
  6. to sanction violations of the freedom of association [6]

In addition to reputational damage and substantial fines, companies that violate the planned law could be excluded from public tenders.

Due to the business community’s resistance, the German Due Diligence Act has not passed parliament during the year 2020. In contrast, countries such as the United Kingdom (UK Modern Slavery Act), France, the Netherlands and the US state of California already have enacted corresponding laws. On the other hand, in Switzerland, the Corporate Responsibility Initiative failed in a referendum on 30 November 2020; nevertheless, the Swiss Government wants to oblige companies to report on human rights in their supply chains. The European Union is currently debating a corresponding regulation.

Standardization and conformity assessment

Whether it is a matter of voluntary commitments by a business or a legal regulation, one essential question is, how standards for humane working conditions and ecologically responsible production are set and verified along the supply chain.

According to the Federation of Technical Inspection Associations in Germany (VDTUEV), the creation of mandatory requirements alone is not sufficient.[7] To ensure consistent compliance with social and ecological standards throughout the entire supply chain, guidelines and standards are of central importance, in addition to increased standardization and the associated specification of requirements to be met. Through their testing, inspection and certification activities, testing companies can reliably contribute to documenting the transformation stages of products or material from raw material production to the shop counter. Thereby, service providers of the quality infrastructure create the necessary trust in the performance of individual links of the supply chains through certificates and attestations.[7]

In this context, it is essential to remember that only a few months before the collapse of the Rana Plaza factory, TÜV Rheinland India Pvt. Ltd. audited the Phantom Apparel, one of the garment factories in the Rana Plaza Ltd. building complex and certified its compliance with Social Accountability (SA 8000).[8] standard. Although the international certification body could not be held legally responsible for the accident, as the mandate did not relate to the inspection of the structural conditions, [9],[10] fundamental doubts remained about the usefulness of this type of certification. Overall, the existing range of certifications appears fragmented and thus does not meet holistic supply chain monitoring requirements.

One possible step forward could be the ISO Standard 22095 – Chain of Custody published in October 2020.[11] The ISO standard was specifically developed to meet urgent market demand for increased transparency regarding product integrity. The new standard takes the experience of cocoa and timber production traceability and applies it to supply chains more generally. The requirements and models are defined regardless of industries, raw materials, products, and issues addressed, from a food safety or sustainability to product integrity and quality. This ISO standard is a cross-industry, globally applicable framework that existing systems can refer to clarify the differences between their design and the general ISO chain of custody models.

What is the chain of custody?

Developing countries need their institutions

Regardless of the need for supply chain laws, the industrialized importing countries’ efforts in the Global North alone will not suffice to guarantee human rights and rights of nature in the Global South’s producing nations.

Systems which alone hold global corporations accountable in their home countries ultimately weaken quality infrastructure and market surveillance in Southern countries. Another problem is that private sustainability standards are often not embedded into the quality infrastructure of the Global South countries.

Therefore, the South countries are called upon to establish their systems of control and market surveillance to protect the legitimate objectives of their citizens. Here, international development cooperation should be supportive in establishing and developing national quality infrastructure the Global South. In particular, sustainability standards must become an integrative element in the national quality infrastructure, e.g., via national accreditation bodies and mutual recognition agreements.

If the countries of the Global South build up equivalent institutions, the protection of health, safety and the environment will not be limited to the supplier companies involved in global value chains but will have an impact on the economy of their home countries. This would also benefit workers and citizens who are not directly related to specific global supply chains.

References

[1] Kasperkevic, Jana (2016). Rana Plaza collapse: workplace dangers persist three years later, in: The Guardian, 31/05/2016

[2] LeBaron, Genevieve/ Lister, Jane (2016). Ethical Audits and the Supply Chains of Global Corporations, SPERI Global Political Economy Brief No. 1

[3]  Müller, Gerd (2015.): Quality criteria; in: Development and Cooperation, No.2, page 18, 

[4] UN Human Rights, Office of the High Commissioner (2011). Guiding Principles on Business and Human Rights: Implementing the United Nations’ Protect, Respect and Remedy’ Framework”, New York and Geneva

[5] OECD (2011). Guidelines for Multinational Enterprise, Paris

[6] Spears, S./ Olgemoeller, U. H. (2020) Mandatory Human Rights Due Diligence Laws: Germany takes another step towards global value chain regulation; October 20th, Allen & Overy, London

[7] Petrich, Juliane (2020). Lieferketten nachvollziehbar gestalten (Making supply chains traceable), Position paper, Berlin

[8] Aruna Kashyap (2018). Germany Paved the Way for Revamping “Social Audits; in: The European

[9] BMWi (2018). Final Statement of the German National Contact Point for the OECD Guidelines for Multinational Enterprises in response to a complaint filed by European Center for Constitutional and Human Rights (and others) against Rheinland AG und TÜV Rheinland India Pvt. Ltd., Berlin 

[10] TÜV Rheinland (2018). Bangladesh: TÜV Rheinland Exonerated in Connection with 2013 Tragedy, Press Release, Cologne,

[11] ISO (2020). ISO 22095:2020, chain of custody — General terminology and models, Geneva

3 thoughts on “Due diligence in supply chains

  1. Dear Dr Ulrich,
    Thanks a lot for sharing.
    May I also take this opportunity to wish you a happy and prosperous new year, 2021.
    Regards,
    Sammy Milgo

    Liked by 1 person

  2. This is an important issue. A cross-agency grouping of international bodies in Geneva could usefully learn and build on the German experience and develop the ideas raised in this article. How might this be taken forward…? Pam Tarif

    Liked by 1 person

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