Transnational Governance & Corporate Social Responsibility
RAINFOREST ALLIANCE SWOT ANALYSIS
Recommendations on EU cocoa due diligence
Europeans love chocolate. This notion is reflected in the fact that as of today, the European Union (EU) is the biggest importer of cocoa worldwide. Over the past decades, there has been a rise in corporations voluntarily transitioning to more sustainable supply-chains in the cocoa sector (Myers 2020). However, more has to be done. One of the key proposed measures is to pass sustainable due diligence, which would imply that cocoa suppliers would face legal consequences for not complying to the standards set by the EU, thereby closing the gap between the voluntary actions and the set sustainable goals (Myers 2020; OECD 2016). In order to provide the Rainforest Alliance (RA) with recommendations, we will use a SWOT-analysis in regards to lobbying for due diligence on the imports of cocoa on the EU level.
Strengths | Weaknesses |
1. Stringent legislation strengthens private governance. 2. Due diligence leads to strong, clear and detailed policies. 3. Increased EU harmonisation enhances predictability for corporations and complainants. 4. EU level due diligence has business support. | 1. Imposes high costs on supply-chains of corporations. 2. Due diligence is mostly designed for multinational corporations. |
Opportunities | Threats |
1. Opportunities for companies to invest smarter. 2. Legal accountability for adverse corporate activities. 3. Supranational due diligence can improve the (global) ‘regulatory gap’. 4. Companies can have a say in their own regulation. 5. Provides reputational and brand image opportunities for companies. | 1. During the legislative process, stakeholders can weaken standards. 2. High lobbying competitiveness in market legislation processes. 3. Laws are only as strong as their enforcement capacity. 4. Framework could turn out too narrow. |
Strengths |
1. Hard law in due diligence strengthens private governance (LeBaron and Rühmkorf 2017: 26). Firms are incentivized to use their contractual bargaining power and implementation of due diligence based procedures, as companies want to avoid penalties by implementing adequate due diligence procedures.
2. More strict due diligence leads to corporations publish strong, clear and detailed policies, such as ‘zero tolerance’ policies (LeBaron and Rühmkorf 2017: 24).
3. EU due diligence has two big advantages: increased harmonisation creates predictability for corporations and compaintants (Kieran 2019: 52).
4. EU level due diligence has business support (Kieran 2019: 52).
Weaknesses |
1. Due diligence requirements impose high costs on corporations. Establishing an internal identification, prevention and mitigation system is costly for companies (OECD 2016).
2. Curley argues that due diligence discourse often seems to be designed for a very limited group of industries, particularly those with only a few large companies in it. Those companies have control over their supplies and their supply chain (Curley 2020).
Opportunities |
1. Due diligence strategies make it easier to understand and manage investment risks (OECD 2017: 9). Also, due diligence strategies create incentives to evaluate the adverse impact of the Rainforest Alliance, which can further lead to smarter investments (Rainforest Alliance 2019: 3).
2. Legal accountability extends opportunities beyond the scope of voluntary sustainability approaches which, however necessary, are not enough by itself to the impactfulness of climate change regulation. “It can create a culture of accountability, in which companies and other supply chain actors are motivated to identify, prevent, mitigate, and account for social and environmental risks in their supply chains” (Rainforest Alliance 2019: 3).
3. Supranational due diligence can improve the (global) ‘regulatory gap’. (LeBaron and Rühmkorf 2017: 26). This legislative void, due to a lacking global authority, has so far prevented corporate accountability, enabling multinational corporations to avoid liability for human rights violations (Fransen and Burgoon 2012: 236–239).
4. Complying with due diligence on human rights will become mandatory for business actors in the EU in 2021(Herbert Smith Freehills LLP 2020). If NGOs, like Rainforest Alliance join early on, they can be on board forming this regulation. Therefore, they could shape the EU-level terms for business actors – and could lobby for their own values beyond human rights.
5. Effective due diligence policy could increase brand value and enhance company value and eventually increase their revenue through access to markets (OECD 2016). According to Godfrey et al. (2009), 55% of customers are willing to pay extra for products and services from environmental and social responsible companies.
Threats |
1. Combining public and private governance can undermine effectiveness, as during the legislative process of due diligence, stakeholders can weaken standards. Hence, due diligence can lead to ‘greenwashing’ or simply ineffective legislation (LeBaron and Rühmkorf 2017).
2. It is difficult to achieve effective due diligence on EU level due to high competitiveness in lobbying concerning market regulation, as lobbying in a competitive environment could lead to counter-lobbying, expertise and resources might be needed to achieve due diligence (Dür et al. 2015).
3. Laws are only as strong as their enforcement capacity, e.g. due diligence is limited if there is a lack of civil or criminal liability (Nolan 2017: 46). Member States with limited finances, staff and management of infrastructure will undermine the effectiveness of timber regulation due diligence (McDermott and Sotirov 2018: 189).
4. There is a threat of a too narrow framework of due diligence legislation, e.g. not including environmental, social, economic or other types of rights. For instance, the European Parliament proposed a draft on due diligence legislation (Draft Directive in Article 6a) which only applies to the human rights violations, therefore disregarding environmental rights (Van Calster 2020).
Recommendations |
From the SWOT analysis we have deducted the following recommendations. In case the proposed strategy will be pursued, RA should also consider what type of due diligence legislation it wants. A vague policy proposal gives interpretive freedom to policy makers therefore risking that lobby efforts by other actors will significantly alternate the policy outcome, potentially weakening sustainability standards concerning cocoa. The RA should consider the following aspects of possible due diligence legislation:
Who will create the due diligence legislation?
An unfair stakeholder approach risks a framework that facilitates greenwashing or disregards business interests. Insufficient multi-stakeholder consultation could lead to ineffective and illegitimate legislation.
What will the range of the legislation be?
The legislation has to take into account all relevant aspects: environmental, social, economic concerns, however it must actively engage with stakeholders to review other concerns by, for example, indigenous and women’s rights groups.
How effective will the legislation be?
There has to be thoughtful and evidence-based monitoring, enforcement, and evaluative grievance and remediation mechanisms to guarantee effectiveness. One important consideration is the use of voluntary or criminal/civil liability. It is not a coincidence that there are more Opportunities and Threats than Strengths and Weaknesses for this due diligence is still to a large extent a future endeavor and trial-and-error will polish the legislation along the way.
Another consideration is that lobbying should carefully be strategized. The RA members should coordinate their lobbying efforts. Overall, the strategy should also include a public campaign, potentially capitalizing on citizens support, to take away suspicion by policy makers, politicians and the public, instead transparency should be aimed for.
Bibliography |
Calster, G. van (2020). “First analysis of the European Parliament’s draft proposal to amend
Brussels Ia and Rome II with a view to corporate human rights due diligence”, https://
gavclaw.com/2020/10/02/first-analysis-of-the-european-parliaments-draft-proposal-to-amend-brussels-ia-and-rome-ii-with-a-view-to-corporate-human-rights-due-diligence/. Consulted on November 20 2020.
Curley, M. (2020) “Human Rights Due Diligence: Making it mandatory – and effective”, https://euideas.eui.eu/2020/07/03/human-rights-due-diligence-making-it-mandatory-and-effective/. Consulted on November 20 2020.
Dür, A., Bernhagen, P. and Marshall, D. (2015). “Interest group success in the European Union: When (and why) does business lose?”, Comparative Political Studies, 48(8): 951-983.
Fransen, L. and Burgoon, B. (2012). “A market for worker rights: Explaining business support for international private labour regulation”, Review of International Political Economy, 19(2): 236-266.
Godfrey, P. C., Merrill, C. B. and Hansen, J. M. (2009). “The relationship between corporate social responsibility and shareholder value: An empirical test of the risk management hypothesis”, Strategic management journal, 30(4): 425-445.
Herbert Smith Freehills LLP (2020). “EU Mandatory Human Rights Due Diligence Law Takes Shape’ Lexology”, https://www.lexology.com/library/detail.aspx?g=d82de6bb-4a9c
-40ef-9572-e87f0b9bd8c8. Consulted on November 20 2020.
Kieran, B. (2019). Europe’s sweet tooth: a proposal on how the EU can implement due diligence to tackle child labour in cocoa supply chains (Published Doctoral Dissertation), Universidad de Seville, Seville.
LeBaron, G. and Rühmkorf, A. (2017). “Steering CSR through home state regulation: A comparison of the impact of the UK bribery act and modern slavery act on global supply chain governance”, Global Policy, 8: 15-28.
McDermott, C. L. and Sotirov, M. (2018). “A political economy of the European Union's timber regulation: Which member states would, should or could support and implement EU rules on the import of illegal wood?”, Forest Policy and Economics, 90: 180-190.
Myers, A. (2020) “EU due diligence laws for cocoa sector could be in force by 2022”, https://www.confectionerynews.com/Article/2020/03/11/EU-due-diligence-laws-for-cocoa-sector-could-be-in-force-by-2022. Consulted on November 21 2020.
Nolan, J. (2017). “Business and human rights: The challenge of putting principles into practice and regulating global supply chains”, Alternative Law Journal, 42(1): 42-46.
(OECD) Organisation for Economic Co-operation and Development (2016). Quantifying the Costs, Benefits and Risks of Due Diligence for Responsible Business Conduct: Framework and Assessment Tool for Companies. Paris: OECD.
(OECD) Organisation for Economic Co-operation and Development (2017). Responsible business conduct for institutional investors: Key considerations for due diligence under the OECD Guidelines for Multinational Enterprises. Paris: OECD.
Rainforest Alliance (2019). The Need For Due Diligence Legislation: Why Due Diligence Legislation Is Essential for a World in Which People and Nature Thrive in Harmony. New York: Rainforest Alliance.
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