10 February 2021

Human Rights due diligence in the supply chain

An interview with Veronika Pountcheva and Eddy Vanhille

We met Veronika Pountcheva, Senior Vice President and Global Director Corporate Responsibility and Eddy Vanhille, METRO’s Chief Procurement Officer, for a sincere talk highlighting the challenging balance between the rightful expectations towards companies on one hand and the difficulty of managing a value chain that sources up to 120.000 products from up to 75.000 direct suppliers on the other.

Human Rights in the supply chain

Over the past decade and especially in the last 12 months, the discussion to further regulate the respect for human right in business operations has gained momentum. Businesses, the argument goes, do not progress quickly enough with voluntary guidelines, such as the OECD Guidelines for Multinational companies or the UN Guiding Principles on Business and Human Rights (UNGP).

These globally accepted guidelines act as a blueprint for companies seeking to avoid infringement on human rights and show how due diligence can prevent, mitigate and remedy adverse impacts. There is only one caveat: they are voluntary. Several countries – within and outside of the EU – have now stepped forward with mandatory rules. This year, the European Commission seeks to present its own legislative initiative.

Veronika Pountcheva

Veronika Pountcheva, Global Director Corporate Responsibility, METRO AG

Veronika, as Global Director for Corporate Responsibility you strive to create a sustainable business model, with environmental and social considerations firmly embedded in the company strategy. Can you explain, what human rights due diligence means in the context of corporate responsibility and how you approach this central issue within METRO?

At METRO we pledge to respect all human rights within our own operations and our value chain. Essentially, due diligence is about making sure that in all our practices we as METRO and our business partners respect the Universal Declaration of Human Rights. Our business is a people’s business and we value each person working with and for us as our most precious resource.

And more specifically, human rights due diligence is a continuous management process. A process where companies conduct thorough assessments of their own operations and their value chains, to find out actual and potential human rights impacts of their business activities. The findings are analysed and acted upon to avoid, alleviate and remedy human rights violations. Any findings must be tracked and documented to ensure accountability. And companies should be transparent about how they plan to address violations.

Eddy, as Operating Partner Global Procurement you ensure that in our 678 wholesale markets customers can find products sourced from all over the world. Where do you see the main challenges but also ways forward when it comes to due diligence duties?

Indeed, our core responsibility is to define and implement an assortment strategy for the METRO Cash & Carry countries. Our goal is to maximize the satisfaction of our customers through a variety of categories and product choices. Each METRO country offers a mix of national and international brands and regional and local products relevant for that specific market. So, to put it bluntly, our core business is the challenge in itself: it is the complexity of our supply chains, not only because of the number of involved parties. I also think about all the cultural differences that come along the many locations we source from.

That said, our only chance to manage this is by establishing somewhat standardized processes without giving up flexibility. That means: we define what we need to manage and we develop guidelines, standards and operating procedures. Finally, we carry out trainings and say who is responsible for what. This may sound very technical, and of course the devil lies in the detail. But it all starts (and ends) with a clean definition and process.

Eddy Vanhille, Chief Procurement Officer, METRO AG

Eddy Vanhille, Chief Procurement Officer, METRO AG

There is disagreement between those who argue that companies should be able to control their entire value chain and those who argue that businesses can extend leverage over direct contracts only – the so-called tier-1 level. At the same time, there is a heated debate on whether companies should be held accountable not only for social but also environmental impacts. What is your perspective on the possible scope and leverage of responsibility?

As we talk about leverage it’s important to distinguish between own brand suppliers and manufacturers of branded goods. In the current political climate this apparently small but important distinction is flying under the radar. Our Code of Conduct targets all of our business partners, but leverage with our own brand suppliers is much higher. With that in mind, indeed the first step is to ensure that all our Tier 1 suppliers and producers of own brand products are compliant with our stringent due diligence requirements. But our aim is to go further and assess all suppliers throughout our value chain in due time.

And to your question about environmental standards: of course, these aspects need to be managed just as thoroughly. I am doubtful whether it makes sense to address this together with human rights due diligence. It makes sense to move step-by-step instead of overworking a piece of legislation.

Veronika, the European Commission argues that companies do not sufficiently consider adverse impacts of their business activities, and that therefore, human rights due diligence should be mandatory. What is your reaction to that opinion and is a legislative framework the right way to incentivize companies?

In the last 10 years, we have seen many voluntary commitments from various businesses, mostly multinational companies. All business activities – both big and small – have an impact on the environment and on society. A framework requiring all businesses to conduct their activities responsibly is an important step to create a level playing field.

The pandemic dominated the global agenda for the last 12 months. The Covid-19 crisis exposed the vulnerabilities in global value chains and the precarity of global business operations once more – and the weakness of voluntary corporate action in addressing these issues. Millions of workers and communities around the world feel the consequences. In this context it is difficult to progress with the human rights agenda when whole sectors are affected, jobs are vanishing, and workers are ready to go the extra mile to maintain their livelihood.

There are signs this could change. A good way forward is a smart mix of voluntary and mandatory measures, that will allow businesses to transform and avoid serious violations or harm to human rights and fundamental freedoms. In this era of rapid globalization and increasingly complex supply chains we must look deeper and further into the practices of our value chains. And improve where we do not have enough understanding and transparency.

What are your thoughts on about voluntary initiatives and commitments? Are they enough to achieve change on the ground and to incentivize companies to better protect human rights in their value chains?

Unfortunately, reality proves that we do not have the formula to eradicate or prevent human rights violations. Hence, voluntary, or not: we have not done enough.

For example: METRO is a founding member of amfori BSCI and actively cooperating with SEDEX. These are two organizations that actively help us build a safer and fairer value chain. We work on every pillar of a solid due diligence process, we encourage stakeholder’s transparency and we communicate about impact. Audits play an important, but limited part. They take just a snapshot of reality in a factory.

METRO is also part of the Consumer Good Forum’s Human Rights Coalition of action working to end forced labor. We cooperate with other companies from our industry – who share the same values and passion for change. The Coalition members are committed to the establishment of human rights due diligence and to acting upon findings in their own operations and value chains. I am confident that this platform will help us find practical approaches and to accelerate implementation.

These voluntary commitments are a valuable way to make progress. But they are not universally valid for all. They can´t replace a regulatory framework.

A good way forward is a smart mix of voluntary and mandatory measures, that will allow businesses to transform and avoid serious violations or harm to human rights and fundamental freedoms.

Veronika Pountcheva, Global Director Corporate Responsibility, METRO AG
Sustainable Development Goal 8

Sustainable Development Goal 8

SDG 17

Sustainable Development Goal 17

Due diligence mechanisms need to be thorough and that takes time – and it will take time to implement processes step-by-step and therefore achieve change on the ground.

Eddy Vanhille, Chief Procurement Officer, METRO AG

Eddy, many international companies argue that a harmonized EU approach is better than a patchwork of national regulations. Do you agree?

The reality is that in Germany, where METRO AG is headquartered, there is a heated debate over the possibility of a national legislative initiative. In other countries, such as the Netherlands and France, human rights due diligence is already mandatory. Although it’s too early to judge the effect, it’s clear that the success will depend on how consistently a legislation with a support basis is enforced. After all, a law is only as effective as its enforcement. As a company with an EU-wide portfolio (and beyond) having a harmonized approach is much better than multiple national approaches.

Veronika, the question of accountability presents a stumbling block. Should companies be held liable for human rights violations? What is your stance on this issue and how do you address the issue of remediation today at METRO?

It’s important that human rights due diligence efforts go beyond checking the box. But as we just said, supply chains today are global and complex. Asking a company to accept liability for practices which are far down the value chain is a real challenge. We need to avoid that businesses prefer discontinuing cooperation with affected suppliers. We need positive incentives to address issues and deliver better outcomes for people on the ground. I believe the concept of continuous improvement could serve as a suitable foundation – in the spirit of sustainable development.

Finding productive remediation mechanisms is obviously a very important and challenging part of the human rights due diligence process. At METRO we have had a publicly accessible complaint mechanism in place for many years. We know that this is not enough to hear what we really need to hear. We need to look into effective grievance mechanisms and provide workers with more opportunity to be heard. If we dare to look at remediation from a “chance” point of view, I am confident we can seize much more efficiently from any case.

 

We spoke about of many of the challenges in this due diligence debate, from liability, to leverage, to scope. If you could draft a legislation that is both effective in its execution, and feasible in its implementation, what would it look like?

Veronika: I would welcome a legislation that truly levels the playing field with a single harmonized standard. It should be cross-sectoral and apply to all recognized human rights (not only to specific issues such as child labor, or modern slavery).

Eddy: And at the same time, it should take into account particularities of different sectors. A well-designed transitional period will be very important, too. Due diligence mechanisms need to be thorough and that takes time – and it will take time to implement processes step-by-step and therefore achieve change on the ground.

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