Ten years ago, the UN declared that every country would take steps to ensure that its companies respect various human rights, environmental, and social principles in their activities. Every company is involved in activities, works together with suppliers, and signs contracts. The idea is to consider all of that from a point of view of diligence, that is a duty of care to monitor whether human rights are being respected.
This is the concept behind the supply chain law. Charles Muller, financial expert and President of the Finance and Human Rights Association, explained this during an interview on RTL Radio on Tuesday morning.
For instance, in 2013 the Rana Plaza garment factory Rana in Bangladesh collapsed, leading to the deaths of over 1,000 people. It was well-known that the factory building was seriously run-down, but workers were nevertheless forced to manufacture clothes for big western brands inside it.
Following the incident, the question was raised to what extent western brands could be held accountable for what happened.
The UN Principles are now ten years old. Some countries have made good on their pledges, but Luxembourg is not one of them, so far. Since the EU noticed that a lot of countries did not seem overly eager to do something themselves, the Commission decided to pass a European supply chain law. The Commission is expected to present its project before the end of 2021.
According to Muller, Luxembourg now has a choice to make: Either the Grand Duchy decides to pass its own law first because it considers it an important topic and has pledged to take action within the UN (in this context, Luxembourg's candidacy for a seat in the United Nations Human Rights Council is relevant), or it waits until it is forced to do something by the EU.
The financial expert stated that he is reminded of Luxembourg's handling of bank secrecy. For years, people feared that the abolition of bank secrecy would lead to the collapse of the financial centre and the sudden loss of thousands of jobs. Muller explained that this was firstly "rubbish" and secondly "very bad messaging" as statements like these basically implied that the banking sector would go bankrupt if it had to rely on honest clients only. The negative consequences for the country's reputation can still be felt today, Muller argued.
The current situation is very similar, with certain people basically saying that if human rights were to be enforced, Luxembourg's companies would suddenly have to declare bankruptcy or leave the country. Muller stressed that once again, this was "rubbish and is sending the wrong message".
The Union of Luxembourg Enterprises (UEL) is against a supply chain law due to fears of increased bureaucracy and sanctions. When asked whether Luxembourg's companies would become less competitive due to a supply chain law, Muller replied "certainly not", pointing out that German, French, and British companies already had to deal with the same situation because their countries already introduced such a law. The financial expert explained that the more countries pass such a law, the more people could rely on the fact that suppliers have already done the same work.
The Director of the Federation of Luxembourgish Industrials (FEDIL), René Winkin, recently criticised a supply chain law by asking why small- and medium-sized enterprises from Luxembourg would have to be required to "do research on the coal from Asia, contained in their Belgian supplier's German screws that are manufactured in Slovakia".
Muller countered Winkin's point and explained that in the case of German screws, a company would know that Germany already has a supply chain law in place and in that case, all they had to do was make sure that the German company is complying with it. The more countries participate, the simpler the system gets, Muller stressed.
Nevertheless, Muller also stated that it is important to be honest and acknowledge that there would indeed be additional work required in the beginning, but "this issue must be worth it to us", Muller stressed.
The first goal of the law is to make it clear right out of the gate that human rights should not be disrespected. This is already being put into practice – in cooperation with the financial centre, for instance. Companies often require on funding, for example through a bank loan, and pressure at that point could "help a lot". But of course, sanctions would be needed.
The Surveillance Commission of the Financial Sector (CSSF) already has a number of sanctions already in use for other scenarios and they could be extended to a potential supply chain law. However, one of the main remaining issues is the question to what extent a potential victim could sue a company in violation of the law.
The big advantage of a law remains the fact that the course of action would be clear for every company. This is also the reason why some companies are in favour of a law because it would define when a business is complying with it and when not.
Muller stressed that the first goal was not to impose changes on the individual consumer, but to bring about meaningful change for people who are suffering. Nevertheless, a positive side effect would be that people would have better knowledge of the origin of their products.
Muller explained that the financial sector has already moved on from the question of whether or not to implement a law, as European laws are already on their way and in some cases already being implemented.
In Luxembourg, financial institutions are often branch offices of big international groups such as Deutsche Bank or JP Morgan. The parent company is often located abroad, where similar laws are already in place, meaning that they already apply to the whole group. In the case of BNP Paribas, the whole group, including its branch offices in Luxembourg, already have to comply with France's supply chain law.
