Is Covid-19 a wake-up call for business practice?

The current Covid-19 pandemic has starkly highlighted the fact that the majority of the world’s population is dependent on globalised and integrated value chains for their essential needs and livelihoods.  Whilst all countries are affected, the situation in the global south is particularly critical, with estimates of 450m[1] people working in global value chains from the apparels to the mining industries facing reduced income or job losses because of their response to the pandemic. The International Labour Organisation (ILO) estimates that 25m jobs could be lost worldwide, warning that certain groups, such as migrant workers, would be disproportionately affected.  As an example, the apparels industry value chain, already known for its gross human rights violations[2], has been highlighted for being responsible for cancelling orders, demanding discounts and in some cases not even paying for orders already supplied to retailers[3]. The consequences of these types of actions are inevitable in the poorer countries where many of the value chains begin. 

The Centre for Global Workers’ Rights (CGWR) has published a Research Brief drawn on the responses from an online survey of Bangladeshi garment factory owners administered between the 21st and 25th March 2020[4] (during the beginning of the European lockdowns). The responses record that: 

a) Since the pandemic took hold, more than half of Bangladesh suppliers have had the bulk of their in-process, or already completed, production cancelled, with 5.9% having all of their orders cancelled. In the majority of cases, the buyers refused to pay for raw material or production costs.

b) As a result, 58% of the factories surveyed reported to having to shut-down most or all of their operations.

c) More than one million garment workers were fired or furloughed because of these cancellations. Almost all of the buyers refused to contribute to the statutory compensation, which is half the workers’ salary for the first 45 days of a lay-off and a quarter of the salary thereafter[5].  The situation has led some workers not being paid for two months, and protests demanding wages, despite the lockdown[6]. The Bangladesh Government has had to take out the largest loan in the history of the International Monetary Fund (IMF) in order to provide salaries for garment workers[7].

One of the now well-known features of modern global value chains is the increasing influence of both transnational corporations (TNCs)[8] and business enterprises that use global value chains to gain competitive advantage. This was clearly understood in the UN “Protect, Respect and Remedy” Framework for Business and Human Rights[9], and subsequently incorporated into the UN Guiding Principles on Business and Human Rights (UNGP)[10], as a guide for sustainable business, in its concept of Human Rights Due Diligence (HRDD)[11]. It is worth reiterating in full what the Guiding Principles require a business enterprise to do when it is confronted with serious human rights violations in its value chain: 

“Where a business enterprise causes or may cause an adverse human rights impact, it should take the necessary steps to cease or prevent the impact. Where a business enterprise contributes or may contribute to an adverse human rights impact, it should take the necessary steps to cease or prevent its contribution and use its leverage to mitigate any remaining impact to the greatest extent possible. Leverage is considered to exist where the enterprise has the ability to effect change in the wrongful practices of an entity that causes a harm. Where a business enterprise has not contributed to an adverse human rights impact, but that impact is nevertheless directly linked to its operations, products or services by its business relationship with another entity, the situation is more complex. Among the factors that will enter into the determination of the appropriate action in such situations are the enterprise’s leverage over the entity concerned, how crucial the relationship is to the enterprise, the severity of the abuse, and whether terminating the relationship with the entity itself would have adverse human rights consequences”[12]. 

What does this mean in the current crisis? The answer of course cannot be to use the crisis opportunistically to squeeze down on suppliers, who in turn squeeze down on their workers, and place a further burden on poorer countries already struggling with debt[13]. Certainly, the unilateral cancellation of a contract is explicitly prohibited by the UNGP without “credible assessments of potential adverse human rights impacts of doing so”[14].

Whilst responses will obviously be country and industry specific, UNGP-compliant business practice requires that a business entity carries on conducting HRDD at the present time. Whilst this is a non-exhaustive list, it should be fully aware of the implications of its actions or non-actions, which go beyond compliance with local laws and adherence to fundamental freedoms, but the wider impact on marginalised groups, often requiring expert advice[15]. A business entity should collaborate with suppliers in order to ensure that they continue to comply with government requirements and to use its economic leverage to assist and compel them to do so. It should set up or enhance existing Operational Level Grievance Mechanisms (OLGM) in order to provide on-going HRDD and input into remediation. Lastly, the Bangladesh Accord[16] provides a good example of cooperation between transnational corporations and business entities in providing a national, industry-wide, remedy in the face of a specific crisis. Why could business entities and their investors not contribute to a fund which provides relief to right-holders in the short term, but which strengthens adherence to the UNGP in the medium to long-term?

A number of countries, such as France and Netherlands, had already implemented laws which require mandatory HRDD in global value chains. The present crisis has been linked to unsustainable business conduct, and a failure to properly conduct HRDD, especially in relation to the interaction between agribusiness and the environment[17].  It is further heralding a call, even amongst investor groups, that the adherence to the UNGP and mandatory HRDD is a sine qua non of value chains going forward, if we are to mitigate the risk of even worse crises in the future[18]. The direction of travel is clear and is accelerating. Business entities that do not put in place expert-informed HRDD and remedy are liable to find themselves unable to survive long term in the post-Covid19 world. As the The Investor Case for Mandatory Human Rights Due Diligence stated on the 21.4.20: 

“Proper and comprehensive human rights due diligence by companies, including mandatory and meaningful disclosure, enables us to identify the greatest risks to people in our portfolios and make more informed and responsible investment decisions”[19].   

Krishnendu Mukherjee

[1]https://www.ilo.org/wcmsp5/groups/public/@ed_norm/@ipec/documents/publication/wcms_648801.pdf

[2] https://www.ilo.org/global/topics/geip/WCMS_614394/lang--en/index.htm

[3] https://www.hrw.org/news/2020/04/01/brands-abandon-asia-workers-pandemic

[4] http://www.workersrights.org/wp-content/uploads/2020/03/Abandoned-Penn-State-WRC-Report-March-27-2020.pdf

[5] https://tbsnews.net/thoughts/bangladeshs-labour-law-time-covid-19-pandemic-73174

[6] https://www.aljazeera.com/news/2020/04/bangladesh-garment-workers-return-work-lockdown-200427091544354.html

[7] https://www.thedailystar.net/coronavirus-deadly-new-threat/news/pm-announces-tk-5000cr-stimulus-package-export-oriented-industries-1885813

[8]For instance, in relation to the agrifood industry, see http://www.rosalux-nyc.org/wp-content/files_mf/agrifoodatlas2017.pdf;

[9] https://www.business-humanrights.org/sites/default/files/reports-and-materials/Ruggie-protect-respect-remedy-framework.pdf

[10] https://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf

[11] See Guiding Principles 17-24. 

[12] Commentary, Guiding Principle 19. 

[13] https://thefinancialexpress.com.bd/economy/developing-nations-debt-burden-may-soar-to-34-trillion-says-unctad-1587720869

[14] Commentary, Guiding Principle 19. 

[15] Guiding Principle 18. 

[16] https://bangladeshaccord.org/

[17] https://monthlyreview.org/2020/04/01/covid-19-and-circuits-of-capital/

[18] https://investorsforhumanrights.org/news/investor-case-for-mhrdd

[19] https://investorsforhumanrights.org/news/investor-case-for-mhrdd