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In February 2022, the European Commission published its proposal for a “Corporate Sustainability Due Diligence” Directive, which aims to ensure that companies in the single market contribute to sustainable development by preventing and addressing adverse human rights and environmental impacts in their operations and value chains. There is now a critical opportunity to strengthen the human rights content of the draft Directive to help ensure it results in better outcomes for people, including smallholder farmers and local communities within the cocoa value chain.
Well-crafted due diligence laws can have significant benefits. They can help scale quality due diligence processes focused on the most severe impacts and encourage the creative use of leverage and partnerships by companies and others to tackle them. They can drive buyers’ attention to how their own practices may contribute to impacts at supplier level. And, with effective enforcement, they can expand pathways to remedy for those harmed.
However, to maximize these opportunities, the EU Directive needs to more closely align with the international due diligence standards – the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. We suggest three key ways in which the new EU Directive can do this.
The draft Directive tries to make due diligence more manageable for business by limiting it to a certain set of ‘established business relationships’ – a new and poorly defined concept. But this risks creating perverse incentives.
First, it encourages companies to focus on relationships that are important to the business or where it has leverage, but which are not the source of the greatest risks to people. Second, it can encourage companies to spend time and resources avoiding business relationships coming into scope, instead of actually tackling risks.
The good news is that the international standards already make due diligence manageable by allowing companies to prioritize attention to the most severe risks, regardless of where in the value chain they occur, and expecting companies to take reasonable steps to use and build leverage to address them. The Directive needs to use severity of risk to people as the organizing logic for due diligence, not what is closest or easiest for business to address.
The draft Directive proposes assessing corporate compliance with a new due diligence duty by focusing on the use of ‘cascading’ contractual clauses and audits in value chain relationships. But this risks relying on what is easiest to measure rather than on what is meaningful in practice.
We know these kinds of ‘command and control’ approaches to managing human rights risks have limited impact and generate significant costs. A clause in a contract can be an essential foundation for changing practice – but it is only a foundation.
Instead, the Directive should require buyers to look at their own potential contributions to generating risks to people, particularly their purchasing practices. And it should expect companies to use a full range of leverage approaches to address the most severe risks, from commercial incentives to capacity-building with partners, and from collaboration with expert organizations to wider multistakeholder initiatives also involving producer country governments. The Directive should incentivize companies to address the root causes of the most severe harms and to work with smallholders and other stakeholders to address them.
The draft Directive limits the extent to which companies are expected to hear directly from the people who are most vulnerable to impacts. But meaningful engagement with affected stakeholders is essential to human rights due diligence. Without talking to smallholders or local community members, how will cocoa companies know if their efforts are effective in practice?
To solve this, the Directive should include a requirement for engagement with affected stakeholders at key moments, particularly during identification and prioritization of impacts and in tracking the effectiveness of a company’s efforts.
In conclusion, at Shift we believe that we need an EU Directive on corporate due diligence, but we also need to get it right. Input from stakeholders in producer countries, including smallholders, will be essential in making sure that the legislation is designed to drive better human rights outcomes on the ground, where it matters most.