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The Financial Express

Responsible business practices — what companies in Bangladesh need to ensure


A green RMG factory in Bangladesh A green RMG factory in Bangladesh

Today we are past the halfway mark of 2021 and the business landscape yet remains dominated by Covid-19 and the global response to its effects.  Last year all across the globe, corporate culture and values gained significant attention as the pandemic, social and racial unrest, and political dissension compelled companies to take a public stand for the values they claimed to champion. 2020 also demonstrated that companies needed to remain socially aware. Various surveys to date have indicated that consumers will walk away from brands that don't align with their values and, are likely to gravitate towards brands that do. Companies are spending more time and energy than ever on positioning themselves as ethical and sustainable and by demonstrating that company values and human rights policy statements are more than just words.

Increasing awareness of the links between business, human rights and sustainable development is growing, and becoming part of the current human rights discourse. Issues and challenges such as human rights and climate change are featuring ever higher in the public radar. Businesses seen as behaving irresponsibly in these areas are likely to lose trust, customers and value.  Such companies are adopting a human rights lens to their operations and placing emphasis on the most vulnerable groups that maybe adversely impacted.  They are increasingly seeing that the arising reputational risk from rights abuses may not be something a company could bounce back easily from. Progressive businesses today have quite a lot of critical areas to consider meeting expectations in the eyes of the law, their business partners and other stakeholders. They need to cut through the complexity of various legislation, international standards and global goals, including what's actually expected of business when it comes to managing risks to people and responding to climate change; how the legal landscape is changing, and what are the consequences of getting it wrong?  It's important to recognise that the human rights arena is evolving rapidly and the links between business, human rights and sustainable development are growing and becoming increasingly more mainstreamed with business. 

10-YEAR MILESTONE OF THE UN HUMAN RIGHTS STANDARDS FOR BUSINESS: This year marks the 10-year milestone of the UN human rights standards for business, and globally companies are increasingly integrating human rights into their corporate strategies. Although the Guiding Principles (UNGPs) are voluntary, it essentially provides the roadmap for governments and businesses on how to respect people and the planet. It's quite significant to see how the global business landscape has evolved from the standards of the UNGPs to the numerous government and business policies that are now in place globally. Today, a decade on, human rights is regarded as a key performance indicator for most companies all over the world.

Other leading global standards, such as the ILO Declaration on Fundamental Principles and Rights at Work, the OECD Guidelines for Multinational Enterprises, and the OECD Due Diligence Guidance for Responsible Business Conduct, as frameworks can help companies embed human rights into business operations. The UNGPs in particular have helped identify and articulate a global consensus on human rights that both States and business enterprises can integrate into their operations.  The UNGPs have served as the global soft law standard for the past decade and is now being incorporated into European Union hard law - applicable to any business above a certain size operating in the EU's internal market, irrespective of nationality.  This clearly demonstrates the growing acceptance of human rights responsibilities of businesses over the last 10 years.

BUSINESS RESPONSIBILITY MOVING BEYOND CSR: Smart companies are now transitioning from corporate social responsibility (CSR) to Business and Human Rights.  Glossy photos in annual reports and websites of a company donating money or aid to charities or planting a few trees as part of their CSR just doesn't cut it anymore. Progressive companies in Bangladesh have seen the need to go public about the ways they are addressing social and environmental issues. They now know the inherent reputational risk they run if they do not back up their various policy statements and 'ethical' intents with real action. Media and activist bodies will be actively on the case of such companies as being disingenuous and will be accused of 'greenwashing,' and 'white washing.' Running a responsible business means policy commitments, company values, strategy and business decisions should align. At the same time corporate boards should be equipped with expertise to "know and show" their company's human rights risks, as well as the tools to set robust policies and processes to address them. Leadership from the top is critical to understand issues from a human rights perspective. This also means engaging appropriate human rights expertise that can effectively help companies to translate the theory into actionable initiatives and demonstrate transparency.

Companies that confidently disclose their supply chain partners within their supply chain are able to build trust and goodwill with their stakeholders. The OECD, European Union, International Standards Organisation and others have already aligned with the UN principles. Mainstream CSR now needs to recalibrate.

IMPORTANCE OF 'S' IN ESG: Over the last 6 to 8 years investors have become increasingly interested in environmental, social, and governance (ESG) issues. Previously they have traditionally been of secondary concern to investors. But in recent years, institutional investors and pension funds have grown too large to diversify away from systemic risks, forcing them to consider the environmental and social impact of their portfolios.  Going beyond the "E" in "ESG," the Covid-19 pandemic and recent developments involving social justice movements have increased regulatory and investor attention on social and governance issues.

The influence of ESG in the business processes of many companies is becoming increasingly more pronounced. The 'S' in ESG covers human rights, modern slavery, corporate security, diversity, employee relations, supply chain sustainability, and consumer relations among others.

Internationally, most banks have included respect for human rights in their ESG policies and due diligence processes. For example, if an apparel company in the West wants to take out a loan from a bank, that company/person would not stand a chance of securing that loan if there is a whiff of child labour in its supply chain. This includes the supply chain that extends to other sourcing countries such as Bangladesh. The bank may exercise due diligence according to ILO standards and require the company to provide evidence that demonstrates implementing policies towards preventing child labour, conducting risk assessments, as well as reporting and communicating on how child labour has been addressed. Given the heightened scrutiny on financial institutions, banks will not give loans to any business until they have conducted comprehensive assessment as part of their human rights due diligence, which thus has a broader scope than a bank's usual due diligence. Businesses should take a proactive role in embracing every letter of ESG as clearly understanding ESG risks and opportunities is a focus worth investing in for the long haul.

AUDITS ALONE ISN'T PROOF OF RESPONSIBLE BUSINESS CONDUCT: With the adoption of the UNGPs and the subsequent positioning of due diligence as the global standard of practice for companies on human rights, social audits are increasingly being used by companies to comply with their due diligence obligations. However, companies must be clear that social auditing alone is not a substitute for human rights due diligence. Audits only provide a periodic snapshot of a situation in time. Brands that outsource production to low-cost countries such as Bangladesh depend on audit firms to check working conditions at suppliers. In recent times, however, social auditing by private companies has, repeatedly failed to detect and prevent major catastrophes. Numerous reports have found the practice to be ineffective in capturing human rights abuses in global supply chains, and ultimately in its current form to be failing workers. The most recent example was last year when the USA prohibited the import of Top Glove products, saying it had found reasonable evidence indicative of forced labour practices at the company's production facilities across Malaysia. This was despite 28 social audits that had been conducted in 2017-18 by their customers and third-party auditors in agreement with internationally recognized standards. Here in Bangladesh no one will forget the Rana Plaza collapse in 2013 in which over 1,100 workers died and 2,000 were injured, and the Ali Enterprises fire in Pakistan, both of which were audited shortly before the tragedies happened, have drawn attention to the pitfalls of social auditing in the textile and apparel sector.

Bangladeshi companies need to understand that citing social audit results to demonstrate that they are not violating any human rights in their supply chains will not be regarded as a substitute for comprehensive human rights due diligence. It will not suffice. Internationally there is much being done towards regulating the social audit industry and ensuring legal avenues for accountability given the systematic limitations of the model. At the same time, it is important to be fair on the factories in Bangladesh that are continuing to invest considerable financial resources towards ensuring safety and sustainability despite an increase of over 30 per cent in production costs during the last few years.  These companies are also required to conduct multiple audits as per the multiple industry standards for sustainability. Needless to say, without a much-needed unified code of conduct, companies are beset with unnecessary duplication and increasing audit fatigue, coupled with escalating costs and time pressures.  Without the need for multiple audits by different bodies, valuable time and resources could be more productively reassigned to further strengthen labour conditions and increase social dialogue in their facilities that goes beyond tick-box approaches.

EU-WIDE LEGISLATION ON MANDATORY HUMAN RIGHTS AND ENVIRONMENTAL DUE DILIGENCE: Companies in Bangladesh need to ready themselves to meet the expectations of the current and emerging international legislation including the forthcoming EU-wide legislation on mandatory human rights and environment due diligence that will most certainly impact their businesses.

Currently EU companies' supply chain mapping remains limited to mostly tier-1 suppliers (their first level of business partner contacts). Many of these did not extend to countries in the Global South. However, there are strong indications that the proposed law will have a wide scope with the potential to apply to non-EU based companies and contain sanctions for non-compliance. This means that there needs to be thorough scrutiny of a company's business relationships including its subsidiaries, with its suppliers, and contractors that are based overseas.

Therefore, Bangladeshi companies that have rights violations in their supply chains could be impacted in many ways ranging from limited access to European markets, heavy penalties, and damaged reputations that will keep buyers and investors away. Companies should start sooner than later to gear up to face these new requirements within their supply chains to meet internationally accepted social and environmental standards. 

Today, claiming the lack of awareness of human rights violations in supply chains is no longer an excuse. All businesses - including SMEs, need to make respect for human rights part of their corporate strategy. Also, when conducting due diligence, business-related impacts on vulnerable groups such as women, children, migrant workers and even informal workers should be taken into account. 

IMPLICATIONS FOR BANGLADESH'S BUSINESS RELATIONSHIPS: Germany has already introduced its draft Supply Chain Act, which will come into force from January 1, 2023. The national mandatory due diligence imposes substantive fines on companies procuring parts or materials from overseas suppliers who fail to meet minimum human rights and environmental standards.

France launched its supply chain legislation back in 2017 with the "Duty of Vigilance Act". This requires all large French companies - with over 5,000 employees in France or over 10,000 worldwide - to undertake due diligence with regard to the companies they control and all their contractors and suppliers.  The 2019 Netherlands Child Labour Due Diligence Act obliges Dutch companies to investigate whether their goods or services have been produced using child labour and to develop a plan to prevent child labour in their supply chains.

In early June (2021) the Norwegian parliament adopted the Transparency Act, that places onus on large and mid-size companies to conduct human rights and decent work due diligence not only throughout their supply chain, but throughout all business relationships in their value chain.

The move toward mandatory measures inspired by the Guiding Principles continues beyond Europe. Recently the US Secretary of State Tony Blinken announced that the United States would update its National Action Plan (NAP) on Responsible Business Conduct. This also reinforces their commitments to leverage procurement/sourcing power by barring organisations from engaging with companies that are not exercising human rights due diligence and implementing strict enforcement of rules to prevent goods that are manufactured while failing to respect human rights and labour rights are blocked from entering the USA market. Given that the USA one of the largest export destinations for Bangladesh, businesses need to continue to ensure that their supply chains are free from rights violations.

WAY FORWARD: Bangladeshi companies should regard Human Rights Due Diligence as a dynamic process of continuous improvement that is informed by an ongoing risk-assessment and an impact-oriented approach. This is not only to identify risks but also to provide remedy for adverse impacts.  Companies that are already working to meet the expectations set out in the UNGPs should be well positioned to comply with these laws (or business partners' expectations), and companies that are not yet focusing on how to manage human rights risks should start doing so - sooner than later and gain a competitive advantage before laws become more commonplace the world over.  

There are already many pioneering companies that are implementing robust human rights due diligence and actively leading in ethical manufacturing as part of their DNA. Companies such as the DBL Group, Fakir Apparels Ltd, Apex Footwear, Denim Expert, Square Fashion and Picard Bangladesh are only some of the leaders in the sustainability space who are genuinely prioritising their people and the environment -- not just out of a moral responsibility, but also because responsible business practices simply make good business sense. Smart companies in Bangladesh should see the evolving legislative landscape more as an opportunity than a challenge. For them, aligning with the UNGPs will not be completely new or as they are already engaging with international buyers and investors and much of the requirements of the new and emerging legislation are part of the many audit protocols and compliance initiatives that companies are already following. This is the time to start aligning and not delay in the readiness to expand Bangladesh's market access.

Challenges of the Covid-19 pandemic notwithstanding, Bangladesh has indeed come a long way and has a lot to be proud about. Reportedly, it has the highest number of green garment factories in the world with 145 factories certified LEED (Leadership in Energy and Environmental Design) by the US Green Building Council (USGBC) - and over 500 factories are already in the process of achieving LEED certification. The 2021 international Accord also signals an important triumph towards making the textile and garment industry safe and sustainable and could be even classified as an example of what progressive human rights due diligence should look like in Bangladesh and beyond. It enables the country 'build back better' despite the immense pandemic hardships faced to-date and demonstrates how collaboration and partnership can turn things around for the better.

It is very important to be clear that the new and emerging international legislation do not in any way let governments off the hook. Quite the contrary, governments now need to take proactive measures to create a level playing field for businesses and also set very clear expectations of companies and ensure accountability, transparency and their adherence to responsible and ethical business practices.

 

Anisha Rajapakse is a senior global expert with two decades of progressive experience working at the intersection of human rights, business and international development. She is an independent international consultant and trainer - supporting businesses to adopt a human rights lens into their corporate strategies. She was also recently appointed to the international board of the Rainforest Alliance

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