Shaping a Responsible Future: The Push for Human Rights and Environmental Responsibility in Business
Q&A with Markus Löning (Part 2)
Since April 2024, the European Union adopted the Corporate Sustainability Due Diligence Directive (CSDDD), which requires large companies to identify, prevent, and mitigate human rights and environmental impacts within their own operations and throughout their value chains. The directive aims to ensure that companies engage in responsible and sustainable practices and take accountability for their influence on workers, communities, and ecosystems. It covers areas such as forced labor, child labor, worker health and safety, and environmental degradation. Companies are expected to integrate due diligence into their corporate strategies, implement effective grievance mechanisms, and regularly report on their efforts and progress.
Before its adoption, a controversy arose over the scope and obligations of the directive. Some EU Member States felt the initial proposal was too far-reaching, covering too many companies and imposing strict liability. This led to a procedural deadlock; the Council of the European Union failed to attain the necessary majority to endorse the provisional agreement with the European Parliament. The debate centered around balancing the Directive's ambition to enforce mandatory ESG (Environmental, Social, and Governance) and due diligence with concerns about their potential impact on businesses. A compromise was found regarding the size of the companies that would fall under the Directive and when implementation would be mandatory. On May 24, 2024, the Council of the EU adopted the Directive. It will be incorporated into domestic laws within two years by all European Union Member States.
On April 9, 2024, the Social Impact Review interviewed Caroline Rees, founder of the Shift Project, who was part of John Ruggie’s team when the UN Guiding Principles were developed. The Social Impact Review was also interested in speaking with a representative of a government that had transformed those UN Guiding Principles into legislation.
Markus Löning is the Founder of Löning Human Rights & Responsible Business GmbH, an international management consultancy specializing in human rights. Established in 2014, Löning is helping companies identify risks to human rights they are potentially causing or contributing to and then assist them to manage and mitigate those risks. Löning was a member of the German Parliament from 2002 to 2009. From 2010 to 2013, he was the Human Rights Commissioner of the Federal German Government.
Matthias Bosch: How did you become Human Rights Commissioner of the Federal German Government?
Markus Löning: That happened in 2010 when I lost my seat in Parliament. My party leader Guido Westerwelle became Foreign Minister. He asked me, “Would you like to take that role and be busy with human rights?” I had been involved in development policy, foreign relations, and European affairs – which are not exactly human rights but have a lot of intersection with human rights. I agreed; I was of course happy that he asked me. It was the time briefly before the UN Guiding Principles for Business and Human Rights were discussed and adopted in 2011. In 2012, a couple of company representatives came up to my office at the Foreign Affairs Office in Berlin and told me, they were supporting the idea of business responsibility. They were all in favor of human rights, but we didn’t really know how to deal with the topic as a business. They neither understood the scope of their responsibility under the UN Guiding Principles, nor what impact they were actually having or how to manage it. And that was the conversation that led me to found a management consultancy for business and human rights. I wanted to help companies understand their responsibilities and help them build management systems for identifying and mitigating risks.
Bosch: Was there support in the German government or the German society and Parliament for that topic? When the UN Guiding Principles were developed, the topic of Human Rights and Business was not very well developed in Germany or in Europe. Did you have to break new ground? Or was it something that the government and the corporations were interested in?
Löning: Let's say the first couple of years were quite tough because companies were not so interested except when they had reputational issues. Usually, their budgets for human rights due diligence weren't huge. The level of knowledge and level of training in companies was not very good yet. But looking back, I think it was a fairly quick process between the adoption of the UN Guiding Principles by the Human Rights Council in 2011 and the adoption of the mandatory laws that we have in place now. It is actually pretty fast to move from a non-binding UN document to many binding laws within approximately a decade. There are laws in the US, Canada, the UK, Australia, Switzerland, Norway, France, Germany, and National Action Plans in around thirty countries with another thirty-four currently in the making. And now with the EU Corporate Sustainability Due Diligence Directive and Corporate Sustainability Reporting Directive, the EU Forced Labor Ban, and additional instruments like the EU taxonomy for sustainable financial products, to name just the most important ones, EU legislation is kicking in. It usually takes a long, long time to implement international covenants into national laws. There has been big support in the German general public, after the Rana Plaza disaster in 2013, when the topic became very visible. The media started concentrating on what was happening in supply chains. There has been quite a lot of reporting ever since. It became a public issue. If you're looking at polls in the aftermath of what happened in Rana Plaza, you would see that around two-thirds of the German population felt that companies should take more responsibility for their supply chains. And then, of course, once there is a popular topic, politicians will go along with the popular topic and say, okay, let's turn this into a law.
Bosch: Can you elaborate a little bit on what happened at Rana Plaza?
Löning: The Rana Plaza incident happened in Dhaka, Bangladesh in 2013. A factory building collapsed and more than 1,100 people lost their lives. Escape routes had been blocked so people couldn’t escape the collapsing building. Although some companies stopped their workers from entering the building because they saw that it was unstable, other companies coerced their workers into going to work inside the building. Many of them died. It became a big issue in Western media that the collapsing building had killed so many people who were producing products for German brands at miserable pay and unsafe conditions. The reports drew the attention of the general public and the media to the horrific working conditions under which goods we were buying in Europe were made. This terrible incident was the spark that started several initiatives to turn the UN’s Guiding Principles into law.
Bosch: In our German supply chain law, in effect since January 2023, enterprises with more than 3,000 employees had to implement the law right away. And now, in 2024, the threshold has been lowered to 1,000 employees. Do we see already the impact of this new law on businesses? Or is it simply too early to say? European law (CSDDD) has different thresholds and different timelines.
Löning: I must say I don't really believe in national laws inside the EU. The EU single market will make all the difference. Trade issues are dealt with at the EU level to have a real impact. It takes EU legislation and the power of around half a billion consumers to achieve this impact. A strong economy makes a difference at the global level.
Does the German law make in fact a difference for people in factories? It certainly does in some factories. Two years into the law taking effect, I can see how companies are taking due diligence obligations more seriously. They have been implementing management systems, and internal resources and relations with suppliers are evolving. But it is still early days. I have anecdotal evidence from our own work but am not aware of any large-scale research.
There is evidence though, that the Bangladesh Accord, has made a difference. As an answer to the Rana Plaza collapse, it looked at fire and building safety, bringing together the producers, European brands, the Government, and also the Textile Union of Bangladesh to improve the safety situation. They are covering around 1,600 factories, improving the safety of 2,000,000 workers. So that initiative had an effect, although it was not due to the German due diligence law. It is actually a good example of companies taking responsibility and involving the relevant actors to make a change.
If you look at the dynamics of due diligence laws, with the EU legislation kicking in, it starts making systemic differences. There’s a shift in the way managers are running businesses and taking new factors into account when making decisions. And that's what I had hoped for, that the shift would start with the European legislation, not in a singular national environment but pan-European.
And we should also acknowledge the difference the US Uyghur Forced Labor Act initiated by Marco Rubio has made. Unfortunately, it is only focusing on one region and not on the topic of modern slavery as a whole. The EU and the US should align the scope of the EU-Forced Labor Ban and US anti-slavery legislation. This would certainly increase the impact. And it would send a political signal of commitment and cooperation on business and human rights.
Bosch: Do you think the CSDDD was a good start even with the watering down of the requirements and thresholds?
Löning: Well, there has been a lot of political fighting, lobbying from civil society and human rights organizations on one side and from business associations on the other side. You have all sorts of different business associations, some in favor of regulation, some against it. But quite a large number of German corporations have clearly said, they want European legislation rather than German legislation. They want one set of rules for the whole single market because this will be setting the standard for markets outside the EU.
The political debate is going back and forth. I wouldn't talk about watering down; political debates in democracies are always about different interests, different views, and in the end about compromise. I agreed with John Ruggie when he was saying that he thought civil liability should have been taken out of this package, because his main argument was, as I understood it, that this would scare company leaders and make the whole debate very complex and toxic. They will try to resist these kinds of laws as long as possible. I think he was completely right with this view.
I believe sustainability regulations must set standards and obligations. What are human rights and how is the respect for them implemented by companies? What are the due diligence obligations of companies, and what are the standards their business operations need to meet? That's the first step. I’m a fan of reviewing laws after a couple of years and addressing open questions on the back of experience and evidence of what works and what doesn’t. The EU regulations are not the last step in a process but rather one step on the way forward.
Bosch: Was there another possible way to reach the same goal?
Löning: The CSDDD is taking a risk-based approach. And that's a real improvement compared to the German law. So, there's no confusion about the first tier and other suppliers. It is very clear. Companies need to identify risks and take action. That's the right approach. I believe the issue of scope is less relevant although it is discussed with a lot of emotions. Lawmakers should give companies, the academic world, and consultancies time and space to develop processes and systems that will work. Looking at the considerable investments going into digital solutions, I feel very confident we will have viable and affordable solutions for SMEs very soon.
Bosch: Is there more legalization in the pipeline to flank the CSDDD?
Löning: Yes, we need to be aware that the CSDDD is just one piece of legislation in a larger package. Other legislation has been adopted and will come into force step by step. We’re talking about the Corporate Sustainability Reporting Directive, the Forced Labor Ban, the EU Deforestation Directive and the Battery Regulation. There is specific legislation for financial markets, like the EU taxonomy that also includes some reporting obligations. So, the whole package makes the difference. The EU Commission has announced a simplification and streamlining in a so-called omnibus legislation. Companies will have to look at the entire package and see how they can align. And most global companies will also look at legislation in North America. But also, they should be aware of what’s happening in Brazil, Japan, India, and China, and what the expectations of investors are. Global companies need to look at the whole picture.
Bosch: You have been to Africa and Asia, where a lot of the supply chain issues originate. How do countries in those areas think about the new law in Germany and the European Directive?
Löning: I don't think there's one answer. I hear very different things. I hear from a friend of mine in Thailand, for example, “Well, it's another law again. You're trying to block market entrance for our businesses with this. It's another non-tariff trade barrier you are putting there.” When I'm talking to other businesses in Asia, they ask, “How can we align, we want to be at the forefront because this will give us access to the EU single market. We want to be competitive. So how can we align with the required sustainability standards? What should we do?” They see meeting sustainability standards as a competitive advantage. Speaking to human rights activists, they emphasize that EU legislation actually helps enforce national labor laws.
Bosch: Are Asian or African countries starting legislation projects as well and following the idea of the CSDDD?
Löning: What we see is legislation or National Action Plans in place in quite a few countries across the world. Brazil is discussing a human rights due diligence law. The Japanese Government has fairly recently introduced a set of rules. There's legislation in place in India. Thirty countries have adopted National Action plans on Business and Human Rights and another thirty-four are busy developing them. If you look at the Stock Exchange in Shanghai and the things they are asking from companies, you can see there's a lot of movement even in a country you wouldn’t maybe expect. National Action Plans are usually the first step toward legislation. So, there is some hope that with the European legislation, other laws in Latin American, Asian and African countries will follow the ideas of the UN Guiding Principles for Business, and Human Rights.
Bosch: Is this also your view? Or would you have another idea about what should be done?
Löning: I'm in this business because I believe that change is going to happen. Change is possible. I'm fairly optimistic about what I see. In most situations it is about working hours, freedom of association, non-discrimination, decent pay, health and safety at the workplace, and other labor law issues. But companies must also see that there are high-risk situations with very severe human rights violations, like forced labor or child labor in their supply chains. The root causes of these serious violations vary and mitigating them takes a good understanding of the social, economic and political context.
Improving situations will only work cooperatively. Governments and rightsholders need to be involved. Suppliers need to be incentivized beyond just more pressure and control. They need to see a benefit for their business to move things forward. I hear that suppliers are interested to stay in business with their European customers. They start improving working conditions because they say, “Well, you know. I'm counting on my European customers. So, I need to do something about that.”
Bosch: One of the issues that I see is that the financial sector has granted a free pass to neglecting human rights and environmental impact. How do you think this free pass is impacting acceptance? Is this something that needs to change in the future, namely that the finance industry is also part of the human rights environment?
Löning: What I hear from our clients, most of whom are large companies with global operations, is that they are under pressure from investors, whether it's family offices or institutional investors. All of the investors are asking, “how good is your human rights risk management? Is there something that's going to pop up, creating a financial risk for the company or a reputational risk that can turn into a financial risk? Something that will have an effect on the value of the company?” So, there is a movement, which I perceive, which has to do with the fact that investors are interested in good risk management because it mitigates their investment risk. Additionally, with generational change, family offices start putting more emphasis on sustainable investment while still expecting good returns. The demand for “green” or “sustainable” funds has hugely increased over the last decade while it seems to be stalling at the moment. The new US government and the US debate around ESG seem to have a chilling effect. But the more investors are looking at the importance of sustainable practices for company growth and value, the more they will realize to what extent responsible business has become good business.
Bosch: There is a fairly long timeline now for national implementation of the CSDDD. It began this year with the transposition in national laws in the European countries. As a first step, by 2027, the entry into force of the law for very large corporations, and then in 2029 for all corporations. That is still three to four years ahead of us. What happens in the meanwhile? Do you think there will be slight adaptations? Or will there be another movement surpassing this? Because human rights is such a pressing topic, we can't really wait four more years before companies undertake supply chain risk management.
Löning: What I see in Europe is that most of our clients are deeply invested in implementation of human rights due diligence. And interestingly we’re also getting more and more requests from US companies. Whether EU legislation enters into force in 2025 or 2027 is irrelevant. Corporations are aware, that this is the direction business is heading, which means they need to prepare and start building human rights due diligence systems. They realize they need to train their people, align policies, review purchasing practices, and so on. And companies are busy doing that. They’re looking beyond disturbing political debates and focusing on long term business interest.
At the end of the day, they all know this is coming. So, they decide to prepare. Some are faster than others, especially those that have a lot of visibility such as consumer brands. They tend to act faster because they see that this is something having an impact on brand value. Generally, people want companies to act responsibly with regard to climate and environment as well as with regard to human rights and social issues. Well run companies will be moving forward on this.
About the Author:
Dr. Matthias Bosch is a founding partner of the intellectual property law firm Bosch Jehle in Munich, specializing in patent litigation and portfolio management in the tech industry. He holds a mechanical engineering degree from TU Munich and a Ph.D. in patent law from LMU-Munich/Max Planck Institute for Innovation and Competition. After retiring from his law practice in 2020, Matthias pursued nonprofit leadership. He served as Executive Coordinator and Board Member at Global Dignity Inc. from 2021 to 2023. As a 2023 Fellow of Harvard's Advanced Leadership Initiative, he explored human rights in supply chains, sustainable investing, philanthropy, and family enterprises, laying the groundwork for his new venture, Bosch Global Advisors.
This Q&A has been edited for length and clarity.