This article builds upon the discussions that were held at the UNFSS Academic Advisory Council annual meeting 2023, 12 October 2023, European University Institute (EUI).
Due diligence regulatory initiatives have been proliferating recently around the globe, aiming to advance the sustainability agenda through global value chains governance. Due diligence is an on-going, proactive and reactive process through which companies need to identify and address actual or potential risks in order to prevent or mitigate risks of contributing to adverse impacts associated with their activities or sourcing decisions in particular relating to developing countries’ suppliers. It also requires companies to track the effectiveness of their actions and communicate on these.
“In what developing countries are required to do, we are moving from flexible approaches on labor rights pursued through free trade agreements, to drastic measures such as on deforestation through unilateral due diligence regulations like the EUDR [European Union Deforestation-free products Regulation]. All the attention shifts towards environmental issues and away from labor rights and other issues which are very important for us” – Mercedes Aráoz Fernández, Former Vice President of Peru, Professor at Universidad del Pacifico and Co-Chair of the UNFSS Academic Advisory Council.
While the concept of due diligence has been around for more than a decade, an important proliferation and shift towards mandatory due diligence has been occurring in the past few years. Notable examples of due diligence regulations are the European Union (EU) Deforestation-free products Regulation (EUDR, 2023) and the EU proposal for a Corporate Sustainability Due Diligence Directive (EU CSDDD), which have received a lot of attention, but also the United Kingdom’s Environment Act (2021), the German Supply Chain Due Diligence Act (2021), the French Duty of Vigilance Law (2017), the California Act on Transparency in Supply Chains (2010), and the proposed South Korea Bill on Human Rights and Environmental Protection for Sustainable Business Management.
The proliferation of these regulations are deeply changing the landscape of sustainability governance. These developments have important implications for other sustainable value chain governance instruments such as Voluntary Sustainability Standards (VSS). They will also likely generate dramatic consequences for developing countries, who often stand at the downstream end of global value chains and will have to comply with due diligence requirements.
“There is a shift towards conditioning trade on particular standards – not only standards which have been traditionally the focus such as VSS, but also standards related to national security, economic security, policy autonomy, etc. It boils down to requiring firms to essentially know what is going on inside their supply chains, going from voluntary to mandatory requirements” – Bernard Hoekman, Director, Robert Schuman Centre for Advanced Studies, European University Institute
In this changing context, the UNFSS gathered its Academic Advisory Council (AAC) for its annual meeting on 12 October 2023 in Florence, Italy, to understand due diligence implications for developing countries and delve into the future of sustainable trade. The meeting was co-organized by UNFSS with the European University Institute (EUI), the Leuven Centre for Global Governance Studies (KU Leuven), and the German Institute of Development and Sustainability (IDOS). The UNFSS AAC brings together an international mix of academics (members of the AAC), practitioners (members from the UNFSS National Platforms) and policy experts from various disciplines and backgrounds to consolidate the knowledge on VSS and their contribution to sustainable development.
This year’s discussions centered around the theme “Building a Sustainable Future for Trade: A Multi-Dimensional Assessment of VSS in Global Sustainability Governance and Due Diligence for Developing Countries”. Specifically, the AAC explored the role VSS can play in due diligence regulations, and the implications for developing countries.
As a main point emerging from the discussions, although it is clear that VSS will not – and should not – be a “green lane” that waives certified companies from their due diligence obligations, VSS do have infrastructures in place, expertise and experience to support companies in the implementation of due diligence obligations.
“There is no need to reinvent the wheel” – Joseph Wozniak, International Trade Centre (ITC)
For example, many VSS have in place data collection and traceability systems, monitoring and auditing procedures, and complaints and grievances mechanisms that can play a role in helping companies meet their due diligence requirements.
However, there are also lessons that can be learned from two decades of VSS implementation and research to inform the careful implementation of due diligence and the role VSS can play in this.
In particular, the emergence of due diligence regulations will create a new market space for auditing firms, who will assist companies in proving their compliance with due diligence requirements. This raises concerns in light of the repeated criticisms towards the audit system, including issues of conflicts of interests and poor performance.
“With due diligence regulations, more than ever, there will be the good ones and the bad ones in the field of auditing” – Archna Negi, Jawarhalal Nehru University
Hence, there is a need for cautious consideration of how the audit market for due diligence can be regulated in order to avoid typical shortcomings and ensure performance. But this is not an easy task.
“We are standardizing the process of auditing against standards, and it’s pretty difficult to do because auditors are human beings” – Graeme Auld, Carleton University
In addition, research on VSS has highlighted shortcomings in complaints and grievance mechanisms. When these exist at all, they often lack transparency, and their performance in terms of providing effective and adequate remedy to victims raises important concerns. Efforts will hence need to be stepped up for due diligence initiatives to reach their ambitious goals.
Lastly, the AAC discussed the implications of due diligence regulations for developing countries. They are on the frontline of due diligence implementation, yet they also lack capacities to do so and will be deeply affected by ensuing changes in value chain structures. For example, buyers importing products to due diligence regulated markets will likely shift their sourcing to less risky suppliers, hence leaving many vulnerable farmers and producers behind. Many developing countries also question the fact that due diligence regulations are being developed unilaterally without sufficiently including them in the discussions.
“In the letter signed by 17 developing countries against the EUDR, concerns are raised about the one-size-fits-all approach of EUDR because it does not take local conditions into account. And one very specific concern is about smallholders, because they might be excluded from global value chains, and this will have important impacts in terms of poverty reduction, in terms of reaching the SDGs” – José Valencia, Permanent Representative of Ecuador to the WTO and Chair of the WTO’s Committee on Trade and Environment
The AAC meeting called for urgently creating spaces for discussion to enhance the understanding of due diligence requirements, to adjust them to local contexts and value chain specificities, and to improve capabilities to effectively implement them.
These calls have been echoed by the UNFSS AAC co-chairs and UNFSS Steering Committee members at the World Trade Forum (WTF) discussions, organized back-to-back with the UNFSS AAC in Florence on 13-14 October 2023, which focused this year on “Non-economic objectives and international trade”.
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Find out more about the UNFSS Academic Advisory Council: Academic Advisory Council – UNFSS
For this year’s AAC agenda, consult Academic Advisory Council Meeting 2023 – UNFSS
