What makes a Multi Stakeholder Initiative (MSI) fit for supporting corporate human rights due diligence implementation?
Given the complexity of conducting supply chain due diligence, companies will increasingly turn to an array of tools to address their potential or actual adverse impacts. This article describes SLCP’s view of the indicators of an effective MSI for these purposes and aims to guide European policymakers in developing practical guidance on key indicators of a fit-for-purpose ‘accompanying measure’ for sustainability due diligence.
The confusion over the role of MSIs in undertaking due diligence
Several governments, primarily in Europe, are adopting mandatory due diligence and sustainability reporting standards in an attempt to address adverse human rights impacts in global supply chains. In February 2022, the European Commission released its proposed Corporate Sustainability Due Diligence (CSDD) Directive. As companies begin to interpret their due diligence obligations, they will turn to existing MSIs to support in meeting their new regulatory requirements. The Commission has rightly recognized MSIs and industry initiatives under the provision for “accompanying measures” as described in Article 14 of the proposal text.
In parallel to regulatory efforts, there has been a proliferation of sustainability MSIs of all shapes and sizes. This has occurred without any standardization or clear communication on particular MSIs’ limitations. As such, companies are left confused on what tools to use. European policymakers should develop practical guidance to clarify to companies which tools they can and should turn to for support, and when so.
“Sustainability standards have proliferated rapidly since the 1990s, initiated mostly by NGOs. It has become confusing to differentiate between initiatives that seem to address similar issues, while implementing their programmes in sometimes very different ways. ITC has developed the Standards Map as a response to the complicated landscape of sustainability initiatives. From our experience, the main challenge in “mapping” these initiatives comes from the fact that they are very different in terms of scope, governance and implementation – for example, codes of conduct versus certification programmes or due diligence sets of good practices.” said Mathieu Lamolle, Senior Advisory, Sustainability Standards and Global Value Chains, International Trade Centre (ITC)
Art 14(4) of the proposed CSDD states that the Commission may provide guidance on how companies should assess the fitness of such schemes or initiatives. But what should the Commission consider in developing this guidance? And what in practice makes an MSI “fit-for-purpose” to support due diligence? The work of existing MSIs provides evidence of effective approaches in conducting due diligence.
Five indicators of an effective MSI for supporting due diligence efforts
Building on the OECD’s background note “the role of sustainability initiatives in mandatory due diligence” and recent White paper from the Geneva Center for Business & Human Rights, SLCP believes there are five integral features that a MSI should possess to effectively support due diligence. By outlining how to identify appropriate measures for undertaking due diligence, policymakers can guide companies towards tools which are relevant and meeting company’s compliance needs.
Indicator 1: Good governance (Multi-stakeholder governance structure)
Initiatives or schemes that embody good governance are well positioned to support companies in meeting the requirements of human rights due diligence. Good governance indicators in this context include ensuring that all relevant stakeholders are represented and involved in decision-making (manufacturers, brands, civil society, and others), clear rules of engagement, and accountability of the governing body to stakeholders. By involving varied perspectives, MSIs are more likely to develop tools that reflect the needs of their stakeholders. Tools which are solely developed by brands, for example, may not take into account the experience of supplier. This is important for all six steps of human rights due diligence and, therefore, critical to bolstering the effectiveness of the EU’s directive.
SLCP has a transparent multi-stakeholder governance structure, ensuring decision-making is legitimate, independent, collaborative, and involves a diverse range of key stakeholders. Moreover, SLCP has a functional Council, clearly aligning strategic plans with objectives and KPIs. This ensures accountability and allows for scrutiny from the public and signatories.
Indicator 2: Legitimacy through open development process and technical expertise
When companies are determining which initiatives are suitable accompanying measures to implement supply chain Due Diligence, legitimacy of the tool is critical. The legitimacy of a tool is grounded in the following factors:
Alignment with established international rules and norms
Developed in and open and inclusive process and widely tested before launch and then continuously assessed and updated regularly
Backed by robust technical expertise and assessment methodologies to address the complexities of human rights due diligence.
SLCP’s Converged Assessment Framework (CAF) has been developed in alignment with international and national laws and norms and is based on technical expertise, such as the OECD Guidance on Due Diligence in Garment & Footwear Supply Chainsand ILO Conventions. The SLCP tool was designed using a holistic, elaboratively tested and widely supported approach with robust assessment and continuous development methodologies.
Indicator 3: Credibility through stringent Quality Assurance
Credibility of information is paramount in undertaking human rights due diligence. The MSI must have rigorous systems and processes to ensure that companies are acting upon accurate and credible data when using the tool to understand and act upon human rights’ risks in their supply chains.
SLCP provides credible & actionable data to drive improved working conditions. It has a robust system in place to ensure data quality & integrity, including external verifications.
Indicator 4: Robust monitoring & evaluation practices
MSIs which are ‘learning organizations’ with robust monitoring and evaluation frameworks are best suited to support due diligence efforts. By understanding the impacts and potential successes, the MSI can learn from their efforts in order to continuously improve its system over time. This is important for supporting due diligence, where up-to-date and tried and tested tools are needed.
SLCP conducts rigorous internal analysis to determine the impact of the CAF. Additionally, SLCP continually monitors its organizational impact by analyzing user experience, and evaluating the scaling operations. This information is published in a comprehensive annual learning and evaluation report for SLCP signatories, ensuring the key stakeholders have oversight on the impact, learnings, and successes.
Indicator 5: Transparency of systems, tools and scope
As evidenced through research and in practice, transparency is a key element in ensuring accountability, particularly for MSIs. For the MSI, establishing trust with stakeholders is an important factor. For policymakers and companies alike, transparency is particularly relevant to understand possible role and scope of the tool. This allows companies to have clear expectations of the outcomes, and to understand where there may be gaps in their due diligence efforts.
Moreover, transparency of systems mitigates concerns around the quality of information and ambiguities on what information the data conveys. By considering how transparent MSI and their systems are, companies can ensure they choose a tool that can be publicly scrutinized and therefore used for due diligence purposes.
SLCP applies transparency through its publicly available Converged Assessment Framework (CAF) and quality assurance processes, published aggregated labor data, public list of facilities, and the sharing of data to standard holders. Moreover, SLCP is transparent on the scope of its tool – it is not a one stop shop for conducting human rights due diligence. Instead, as outlined in our response to the proposed CSDD, it is one of the tools that can support companies to meet certain steps in the due diligence process.
“The SLCP Converged Assessment Framework has been referenced on the ITC Standards Map. It offers a comparable set of data that can be benchmarked across sustainability initiatives, hence leading to better transparency and efficiency to improve working conditions”, said Mathieu Lamolle, Senior Advisory, Sustainability Standards and Global Value Chains, International Trade Centre (ITC).
Conclusion
Research identifies effective MSIs as those that embody good governance; have been developed based on evidence and with the necessary technical expertise; and are credible and transparent learning organizations. It follows that MSIs that meet these criteria have the potential to provide suitable and effective tools to support companies in conducting human rights due diligence.
In the context of the proposed European CSDD Directive, it is promising to see the European Commission recognize the importance of accompanying measures in ensuring due diligence is conducted adequately. However, policymakers should act to mitigate the confusion over the role of MSIs and how they align. While developing more specifics in the future, such as through practical guidance, the Commission should keep in mind the five indicators outlined in this article. When applying this framework, SLCP can be considered fit for purpose.
