July 30, 2020
Rethinking MSIs: Regulating Responsible Business Conduct
Posted by Manon Wolfkamp, David Ollivier de Leth, and Mariëtte van Huijstee
Between 2014 and 2019, Dutch businesses in garments and textile, banking, forestry, gold, food products, insurance, pension funds, metals, floriculture, and natural stones all entered into government-induced agreements to encourage responsible business practice. Over five years, eleven such agreements were completed. These multi-stakeholder, voluntary, sector level Responsible Business Conduct (RBC) agreements have been cornerstones of the Dutch government’s method to incentivize companies to respect human rights and the environment for years, and can be regarded as government-induced multi-stakeholder initiatives (MSIs). Inviting companies and business associations in high human rights risk sectors to enter into negotiations with civil society organizations (CSOs) and the government, RBC agreements aim to encourage companies to develop their own policies for promoting responsible business conduct. But are they effective?
The present Dutch governments’ coalition agreement agreed to evaluate this policy, which was executed by KIT Institute over the past few months and published in July 2020. The long-awaited evaluation shows that the Dutch policy promoting responsible business conduct by means of RBC agreements is insufficient.
The evaluation draws critical conclusions: only 1.6 percent of the companies active in high-risk sectors participate directly in the agreements. In addition, some sectors, such as the oil and gas sector, refuse to enter into any agreement at all. In other sectors, the share of companies reached is moderate (such as clothing and textiles and natural stone) to low (horticulture, metal). Substantial progress in the implementation of due diligence by participating companies was observed in only two out of 11 evaluated agreements (namely in clothing and textile and banking).
It is also noteworthy that various agreements lack independent monitoring (for example, food and wood), which creates a risk of greenwashing. Furthermore, there is no clear minimum standard that the agreements must meet. Commitments of companies in two RBC agreements are actually not in line with the international normative framework (wood and vegetable proteins). The evaluation also shows that the role of the Dutch government is inadequate. Especially during the negotiation phase, the business sector is in the lead: only the private sector can initiate negotiations, and critical CSOs can be replaced by more cooperative organisations in order to reach an agreement. The government can fix this imbalance by taking on a greater role itself during the negotiations, for example by not financing agreements that do not meet a set minimum standard.
The evaluation is positive about the role of the covenants as a means to connect companies to NGOs and trade unions, to facilitate exchanges and to develop a harmonized approach to due diligence.
When it comes to realizing positive effects or reducing negative impacts on adversely affected rights holders in the targeted sectors, the KIT evaluation concludes: “Across the RBC agreements, progress on due diligence is largely too limited to identify concrete impacts”( p.8) and “Overall, we have not observed a reduction in negative impacts in global value chains as a result of the RBC agreements” (p.9). Furthermore, the research reports unresolved differences in expectations between companies and CSOs on the extent to which RBC agreements should function as platforms to hold companies to account.All in all, the outcomes of the KIT evaluation show great similarity with the outcomes of MSI Integrity’s meta-analysis of MSI’s titled Not Fit-For-Purpose published in July, as is exemplified by this picture taken from the report:
Looking ahead, the KIT evaluation recommends the Dutch government to consider introducing legislation that requires compliance with the Organisation for Economic Co-operation and Development (OECD) guidelines. This would address several issues that emerge from the evaluation: legislation gives companies a much stronger incentive to comply with the international normative framework than is currently the case, and it sets a clear standard that applies to all companies. Legislation also ensures that the “free rider” problem is addressed, so that companies that are committed to compliance with international norms have no competitive disadvantage compared to companies that do not.
Legislation and a renewed MSI policy could reinforce each other in a smart mix of measures to incentivise responsible business conduct. Thanks to such legislation, the RBC agreements might become an attractive instrument for many more companies and sectors who want to implement due diligence obligations. Legislation also provides a clear standard, which might improve the quality of the agreements. The Netherlands can take a leading position in Europe by renewing its RBC policy to complement the introduction of mandatory human rights and environmental due diligence legislation with an improved MSI policy.
The Not Fit-for-Purpose report and the KIT evaluation clearly highlight that a company’s participation in an MSI should not be considered a seal of compliance with the international normative framework. MSIs can help companies learn about their risks and responsibilities in dialogue with CSOs and rights holders, increase their leverage by collaborating in a sector and create synergy and scale effects. However, given the clear limitations of MSIs in protecting human rights, they should not be considered a sufficient means of discharging due diligence obligations.If the purpose is to get all companies to conduct business responsibly, what is needed is the enforceable obligation for companies to conduct human rights and environmental due diligence in line with the normative framework. Such due diligence is not only focussed on identifying risks and preventing them from materializing, but also includes addressing harms that have occurred, including remedying harms companies have caused or contributed to (see step 6 of the OECD due diligence guidance). Enforcement of such an obligation by authorities should happen at the individual company level, making participation in MSIs a potential means but not an ‘ends’ for companies to comply with their obligation to conduct business responsibly.
This entry is part of a joint blog series, Rethinking MSIs, by the International Human Rights Clinic and MSI Integrity. The series will critically examine the role and value of MSIs in business and human rights; it coincides with a new report, “Not Fit-For-Purpose,” which compiles experience and insights over the last decade and explores cross-cutting trends and lessons learned about MSIs, as a field, from a human rights perspective. Read the introduction to the series by Amelia Evans and Tyler Giannini now on our blog; read the second post in the series by Christie Miedema here.