Mandatory Due Diligence – Threat or Opportunity?
Proposals on mandatory due diligence – part 8: written by Eva Lammers and Harmen Goudappel
In order to work together on sustainable business practices, multi-stakeholder initiatives (MSIs) entail interactive processes involving corporations, civil society organizations, and other interest groups. MSIs are organizations with a membership-based structure (for example the Fear Wear Foundation), project facilitators, roundtable talks (for example the Dutch Coal Dialogue), and accredited bodies, among others, that perform diverse tasks. In spite of their differences, all MSIs strive to promote sustainability in company operations through stakeholder collaboration.
In the Netherlands, the Social and Economic Council (SER) is a key player in the development of multi-stakeholder initiatives / sector-agreements known as the SER IRBC-agreements. These agreements aim to implement the United Nations Guiding Principles (UNGPs) and the OECD guidelines, focusing on responsible business conduct. Instead of legislation, the Dutch government opted for these sector agreements, supported by the SER, to implement the UNGPs and OECD guidelines. The motivation behind these agreements stemmed from an external study conducted by the Minister of Foreign Affairs in 2013, which identified thirteen high-risk sectors requiring such agreements.
The SER wanted to finish the first ten IRBC-agreements by 2016. It was agreed that legislation would be used in their place if all high-risk industries were not covered by agreements by 2017 or if the agreements turned out to be inadequately successful. Numerous agreements have been founded since their start in 2013, including ones in the banking, food, and textiles industries.
By March 2023, eleven agreements had been established, and work is still being done to formalize the rest. The agreements outline commitments related to responsible business practices throughout the entire production and trade chain, from resource extraction to consumer sales. Companies joining an agreement agree to uphold standards regarding working conditions, the environment, human rights, and transparency. The main goal is to promote stakeholder cooperation in efforts to sustain and strengthen the sector as a whole. The agreements normally last three to five years, during which time the involved parties work to significantly better their situation. Notably, some conventions do not include enforcement safeguards.
However, the question remains: are the IRBC-agreements sufficiently successful in stimulating Dutch companies to implement Corporate Social Responsibility (CSR) in their policy and operations? The answer to this question is two-sided. On the one hand, some good progress has been made in certain sectors. For example, in the textile sector, already 40% of the market was bound by the agreements in 2018. Also, in every IRBC-agreement, the cooperation has had positive effects, according to a progress report of the SER. On the other hand, in 2019 only 1,6 % of the Dutch medium-sized and large companies in the thirteen high risk sectors had joined an IRBC-agreement. Furthermore, an evaluation of the Ministry of Foreign Affairs indicates that the set goals related to the number of created IRBC-agreements have not been achieved. These disappointing results are mainly due to the voluntary nature characterizing the agreements.
Do these disappointing results mean that the IRBC-agreements have failed and should be abolished? This is certainly not the case. The agreements do not seem capable to achieve the desired results entirely on their own, but they can play an important role when they are combined with legislation (so-called ‘smart mix’). For example, the draft of the European Directive and the French Vigilance Law leave space to comply with its due diligence obligation by cooperating in MSIs. Besides that, the MSIs have the potential to be used to identify best practices, that can act as a standard for a supervisory mechanism in the enforcement of the due diligence obligation. All in all, the common approach characterizing MSIs, creates a strong foundation of collaboration, adding a valuable dimension to the compliance to mandatory due diligence legislation.