Posted by Stuart Bell

Key trends and issues for 2018

This special update contains our thoughts on issues, trends, developments and significant events in the human rights and business space for 2018 (in no particular order). We would be very interested in your feedback.
Legislation on human rights due diligence and reporting

More legislative developments on non-financial reporting are expected in 2018 in various European countries, starting with the publication of the first ‘vigilance plans’ by French companies under the 2017 Duty of Vigilance Law. Given the extent of the due diligence required by the law and the potential penalties in case of non-compliance, it will be interesting to see how much companies will decide to publish about the risks they have uncovered, and what they intend to do about it. If companies follow the intent of the law, these could be among the most detailed due diligence reports we’ve seen so far anywhere in the world. We should also watch out for civil society’s reaction to the first plans. More benchmarking is likely. Read Anne-Marie Levesque’s Q&A on the law here in English and in French.

The first company reports under the EU Non-Financial Reporting Directive will also start to appear during 2018. Large companies based in the EU – defined as companies with more than 500 employees (or 250 in Sweden, Bulgaria, Hungary and the Netherlands) – must report information relating to environmental, employee, social, human rights, anti-corruption, and anti-bribery matters. These disclosures should cover policies, risks, actions to address risks, and performance indicators. The scope of these reporting requirements should not be underestimated, and we will be producing a briefing on them in early 2018.

Dutch companies will also want to start thinking about their reports under the new child labour due diligence law. Although the first reports are not legally required until 2020, some companies could decide to deliver them voluntarily from 2018. It is also possible that the Swiss Responsible Business Initiative, which contains similar requirements as the French Duty of Care Law, will be submitted to the popular vote in 2018. In Germany, the National Action Plan commits the government to monitor whether the largest German companies are reporting on their human rights due diligence efforts. We expect this official monitoring to get underway during 2018.

Australia will almost certainly be introducing its own draft Modern Slavery Act in early 2018. While no draft has been circulated yet, the outcomes from the public consultations and parliamentary inquiry suggest a similar approach to that of the UK (i.e. reporting requirement for large corporations), but with the addition of a central repository of statements and stronger compliance drivers, such as financial penalties. Meanwhile in the UK, 2018 will see the second year of Modern Slavery Statements, enabling an assessment of how these disclosures are progressing. There are already some good examples and we are being consulted by many companies on content and trends. The UK government has issued updated guidance on what these statements should contain. We will be updating our regular analysis of Statements early in 2018.

In North America, company reporting is not the legislative focus, beyond California. In the US, there is still a lot of uncertainty around the practical application of the Trade Facilitation and Trade Enforcement Act of 2015 which prohibits the importation of goods made with forced and indentured labour. In Canada, the current conversation on business and human rights primarily revolves around access to remedy. Civil society’s efforts are focused on encouraging Canadian courts to hear cases brought by foreign citizens whose rights have been violated by Canadian companies abroad, with a particular focus on the actions of mining companies.

Take a deep dive into human rights due diligence
Start 2018 by signing up to specialist human rights due diligence training. This three-day professional-development programme is spread over two months, and includes focused extension activities. This course has been developed and delivered by the Ethical Trading initiative, along with Ergon’s Steve Gibbons and Laura Curtze, and is aimed at people with strategic and operational roles in sustainability, ethical trade, social impact and human rights at companies in all sectors. The next dates are 8 February, 1 March and 20 March, all at ETI’s central London training venue. You can register here. A 15% discount is available if you use the code ERGON.

Benchmarking to multiply but moves towards harmonisation

The trend towards benchmarking company disclosures and performance on ESG issues shows no sign of abating. Know the Chain has announced a second set of forced labour benchmarks using an updated methodology covering the ICT, Food & Beverage and Apparel & Footwear sectors. The Corporate Human Rights Benchmark is consulting on its methodology before embarking on a follow-up to its first results published in 2017. New benchmarks / indices in the making include the Workforce Disclosure Initiative from investor lobby group ShareAction which looks at responsible people management, and the Responsible Mining Index.

As noted above, legislative drivers will put increasing volumes of information in the public domain enabling civil society to produce the sort of rankings that investor groups have conducted for many years based on private questionnaires. But with a multiplicity of league tables and methodologies, it will be harder for benchmarks to gain traction, and there is the prospect of benchmarking fatigue. One response is the World Benchmarking Allianceformed in September 2017, aiming to “leverage and harmonise the incoming wave of SDG-related monitoring initiatives that are currently being developed”.

Full steam ahead on ethical recruitment

Initiatives to prevent workers having to pay fees to secure a job are set to gather pace and will be one of the stand-out issues for 2018. This is being spurred by the Leadership Group on Responsible Recruitment, which continues to gain new members, and reflected in the range of companies now signed up to the Employer Pays Principle.

Two platforms aimed at certifying recruitment agencies for migrants are being set up and will come on stream in 2018. The International Recruitment Integrity System (IRIS) is being developed as a multi-stakeholder initiative under the auspices of the International Organisation for Migration (IOM). Clearview is business-led, and co-ordinated by the UK Association of Labour Providers.

Various resources on migrant recruitment are also now available. A Toolkit on Eliminating Recruitment and Employment Fees was issued for consultation in September by a coalition led by the Association of Labour Providers, and is due to be published in 2018. Earlier in 2017, the ICCR, the activist investor group, launched its Best Practice Guidance on Ethical Recruitment of Migrant Workers. Challenges for companies in the year ahead will include identifying instances of unethical fee payment and developing adequate measures to remedy these. Ergon has already advised a number of clients on developing more effective policies and due diligence practices on outsourced labour recruitment.

New directions in human rights due diligence
Ergon is holding a free expert briefing in London on February 27th 2018 to explore new trends in human rights due diligence and discuss practical examples of how labour and human rights risks can be assessed and addressed in a range of business areas such as procurement, logistics, retail stores, contractors, and construction. The briefing will include case studies, emerging practice and plenty of time for Q&A. There are more details and a registration form here.
Mind the (gender pay) gap

As well as increasing broad-based reporting requirements on human rights, there are examples of more specific disclosure requirements such as the UK’s Gender Pay reporting legislation, which requires employers with 250 or more employees to publish statutory calculations every year showing how large the pay gap is between their male and female employees. Many companies have already reported and the final deadline is 4 April 2018. The government helpfully provides a web portal to gather these calculations and also publishes the submissions (unlike Modern Slavery reports) so it is easy for employees and other interested parties to scrutinise the data. It remains to be seen whether this form of transparency will drive actions to close the gaps that are being revealed.


Countering sexual harassment

The recent high-profile exposure of sexual harassment and assault in politics and the entertainment industry has created a renewed focus on the problem more widely. The June 2018 ILO Conference will discuss the development of international labour standards on violence against women and men at work, and unions are calling for a strong international convention to be adopted.

While several brands and multi-stakeholder initiatives such as ETI have had programmes designed to raise awareness and combat harassment and discrimination for several years, there will be far more focus on the issue, particularly in industries where women are in subordinate positions. Ergon is involved in delivering a number of research projects and in-company assignments designed to improve equal opportunities in the workplace.

Remedy: promoting the ‘forgotten pillar’

The recent 2017 UN Forum on Business and Human Rights focussed on remedy, the so-called ‘forgotten pillar’ of the UN Guiding Principles on Business and Human Rights. For businesses, remedy isn’t about due diligence to identify and prevent potential harm, instead, it relates to fixing things that are known to have gone wrong even if there is no finger being pointed. At the UN Forum, 2000 people participated in numerous sessions exploring remedy-related issues – all working around a relatively limited pool of real-life case studies.

2018 will inevitably see more focus on these issues, and quite right too. If the business and human rights framework can’t be shown to deliver in relation to real harm, then establishment of high level policy and frameworks for due diligence will seem like abstract exercises. There is a raft of initiatives likely to bear fruit, including from the ETI in the UK, focussed on exploring what amounts to remedy, what appropriate grievance mechanisms look like, and how to determine business’s role when it is ‘linked’ to a harm but did not cause or contribute to the harm. Also look out for more discussion on cooperation between private remedy frameworks and state mechanisms.

Wind of change in the Gulf?

One of the most exciting (and perhaps unexpected) developments in the latter part of 2017 was the announcement of major labour reforms in Qatar and a three year co-operation agreement with the ILO. Under the agreement, Qatar committed itself to improve employment conditions and recruitment practices for migrant workers including further reform of the so-called kafala system. The agreement resulted in the ILO dropping its ongoing investigation into forced labour and was also welcomed by the ITUC, which implicitly will stop campaigning against the Qatar World Cup. In a further sign of change, the Building and Wood Workers’ International (BWI)  signed an agreement with QDVC (the joint venture partner of French-based multinational construction company VINCI). The agreement covers human rights at work, accommodation, and issues related to fair recruitment and employment rights of workers. QDVC also agreed to apply the agreement to workers employed by sub-contractors.

Qatar’s move followed kafala-related reforms in 2016 and improved rights for domestic workers enacted in 2017 in the UAE.  These developments indicate that the existing kafala-based employment structures are under pressure. Other Gulf States may see the way the wind is blowing – though they may be reluctant to use Qatar as a model given the ongoing bitter dispute with Saudi Arabia. The focus for the next period will be on how Qatar’s commitments are played out in practice.

Human rights and ‘mega sporting events’

After several years of civil society campaigning and international dialogue events between civil society, business and international sporting bodies, many organised by the Mega Sporting Events Platform, a number of international sporting bodies have now adopted defined human rights commitments. FIFA followed up the publication of a human rights policy in May 2017 with new bidding guidelines for the 2026 World Cup, issued in November. Amongst other things, these require bidders to prepare ‘a human rights strategy on how to identify and address the risks of adverse impacts on human rights and labour standards’, as well as guarantees of compliance with international human rights and labour standards from the government and host cities. Bids prepared under these conditions will be submitted during 2018. The International Olympic Committee (IOC) also introduced stronger human rights clauses in its host city contract, effective from 2024.

2018 will see the submission of a number of bids under these new rules, but also may see various human rights questions raised around the hosting of the FIFA World Cup in Russiaand continued development of stadiums and infrastructure in Qatar. In 2018, the Tokyo Organising Committee for the Olympic Games 2020 will roll out a range of human rights commitments, including supply chain and stadium labour conditions and a grievance mechanism. Building on the momentum of the MSE platform and Sporting Chance Forum’s work, an independent Centre for Sport and Human Rights will be established in 2018 as a multi-stakeholder centre of excellence for sharing and developing good practice.

Review of the Equator Principles #4

The Equator Principles (EPs), the main risk management framework for managing environmental and social risks in financial transactions, will be updated in 2018 to produce a fourth iteration of the standard which was first developed in 2003. Currently there are 92 Equator Principle Financial Institutions (EPFIs) in 37 countries. The key issues for the review will be the scope of applicability, human rights (inclusive of the rights of Indigenous Peoples), and climate change, amongst others.

The EPFIs note that this update will be the first time that a review has not been attached to an update of the International Finance Corporation’s (IFC) Performance Standards (PS), on which the current version of the EPs are based. It is therefore probable that the EPs will start to diverge from the IFC standards.

Gig economy: debates continue

The gig economy will continue to create new ways of working and new arguments about gig workers’ rights. In developed countries, the debate is largely around how to define and identify whether gig economy workers (drivers, delivery personnel etc) are truly self-employed or are, in reality, subject to the direction and control of the app owner, as well as ways to protect existing skilled workers from unregulated competition. In the UK, several court cases have either been heard or are pending. If such workers are not self-employed, not only would they be covered by certain employment rights (sick pay, minimum wage etc), but the government could also start collecting income taxes and social security payments directly. In July, the government-sponsored Taylor enquiry recommended a new legal category of ‘dependent contractor’, but expected legislation to clarify the situation appears to have been delayed while Brexit occupies government bandwidth.

In emerging economies, since labour markets are often informal and unregulated anyway, gig economy developments relate less to changes in worker status and more to the way work is found and organised through apps rather than by word-of-mouth. Gig economy platforms can offer greater opportunities to find work and less of a threat to traditional work patterns, though such work may still be uncertain and fragmented.


Labour clauses in trade deals

The inclusion of labour clauses in trade agreements has re-emerged as a key issue in 2017, and debates are likely to rumble on well into 2018. With the renegotiation of NAFTA, US and Canadian negotiators have pushed for tougher enforcement – in line with labour chapters in post-NAFTA agreements – which would make labour rights violations subject to trade sanctions. Meanwhile, while TPP negotiations appear to have recently revived, it remains to be seen whether and in what form labour clauses will be included in the final text, given that the US was always their most enthusiastic proponent.

Other developments this year have called into question what the inclusion of labour clauses in trade agreements means in practice. For example, the resolution to the complaint brought by US trade unions under the CAFTA-DR agreement, which concluded that Guatemala’s alleged failure to enforce domestic labour legislation was not done “in a manner affecting trade”, has raised questions over how the links between trade and labour are assessed, and, by extension, the extent to which existing FTA enforcement and implementation mechanisms are an effective tool for improving the application of labour rights.


Living income: the ‘elephant in the field’

2017 has seen major developments in living income initiatives. The Living Income Community of Practice led by ISEAL (in partnership with the Sustainable Food Lab and GIZ) is driving work to a) define, calculate and use living income benchmarks [in agricultural commodities] and b) to consider real action to improve smallholder incomes. Business Fights Poverty and Sustainable Food Lab have explored available levers to improve incomes (agricultural and financial services, basic service provision, market access, women’s participation) with some excellent insights on considerations in practice as well as case studies. And Mars has established a collaborative ‘think-do-tank’, the Farmer Income Lab, aiming to develop supply chains that work for farmers and business, starting with their own supply chain. However, 2018 presages increased attention to the proverbial ‘elephant in the field’ – improving farm-gate prices – especially in commodities with highly volatile/structurally low prices and where increased productivity can simply mean oversupply, worsening farmers’ position. Expect some interesting conversations, including from certifiers as they grapple with the question.


Blockchain: is 2018 the year for take-off?

While the technology – and hype – has been around for a few years already, it will be interesting to see if 2018 will be the year when blockchain technology and other digital solutions will become fully utilised as part of responsible supply chain management. The potential for innovation and disruption is purported to be vast, starting with the possibility of significant enhancements to transparency and visibility down supply chains – the first step in any effective ethical monitoring or due diligence. Blockchain also offers better access to reliable information on everything from origin and prices to workers’ wages, recruitment fees or pesticide use at various points in the supply chain. The financial applications of the technology (including through bitcoin and other crypto-currencies) could also enable more financing opportunities for smallholder producers, especially in countries where access to credit is limited.

There is a whole range of initiatives to provide greater transparency – including those such as bluenumber which seeks to identify not only places and products in supply chains, but also people, in order to remediate negative impacts, and increase positive impacts. Other tech companies are seeking to gain more specific identification of workers and communities and use technology to gain more information on human rights issues from rightsholders themselves.

Bangladesh: Accord continues but Alliance winds down

We expect continuing, if at times slow, progress on improving labour conditions in Bangladesh, the world’s second largest apparel producer. Pressure from the EU, linked to GSP trade preferences and a potential graduation to GSP plus, has led the Bangladesh government to announce reforms covering trade union rights in export processing zones. However, it should be noted that such promises have previously taken a long time to be enacted.

The Accord on Fire and Building Safety has been extended for a further three years as part of a phased handover to a local enforcement agency ‘as all parties recognize, substantial additional capacity-building is necessary before responsibility to protect workers in factories producing for Accord signatory brands can be responsibly handed over to a national regulatory body’. However, the business-only Alliance for Bangladesh Worker Safety will wind down in 2018, and is considering models of what a legacy monitoring organisation will look like that is credible, independent and sustainable.

Human rights implications of automation

The automation of work in traditionally labour-intensive jobs looms ever larger. Recently reported examples include Adidas and Nike looking to automate work in footwear factories, Tesla developing semi-automated trucks, and Amazon replacing workers with robots in their distribution warehouses. Even traditionally “skilled” jobs are under threat, with office workers at an insurance firm in Japan being replaced by artificial intelligence.  Of course, in some sectors automation is being introduced to cover labour shortages or skills gaps, and in terms of net employment. the negative effects of automation in some sectors may be offset by demographic and political factors that create labour shortages in others. The ILOhas already begun exploring the impacts and potential solutions with the aim of managing potential risks, but it will be important for companies to engage in the debate to ensure that any downsizing is managed responsibly.