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Analysis

Respect for Human Rights in Global Value Chains: Risks and Opportunities for German Industries

Text: Bibiana García, Daniel Weiß

For the purpose of devel­oping sectoral dialogues, a study has identified 11 industries in the German economy which exhibit particularly relevant human rights risks along their value chains. Two of the study’s authors explain the methodology applied, summarise their results and formulate recommendations.

BIO

The German Federal Government adopted the National Action Plan for Business and Human Rights (NAP) in 2016. This plan lays down German companies’ responsibility to respect human rights. In addition, it provides for a bundle of measures to assist companies with implementing and organ­ising their due diligence with regard to human rights. The study “Respect for Human Rights in Global Value Chains. Risks and Opportunities for German Industries”1 is one of these measures. It analyses human rights risks found in the value chain of various German industries.

As part of the implementation of the NAP, the aim of this study is to provide a basis for the German government’s decision on which in­dustries will be offered assistance in the form of sectoral dialogues. The entire German economy was examined from a human rights perspective and 11 “focus industries” were identified. Data on national and international activities already being undertaken by these industries to exer­cise corporate due diligence with regard to human rights was collected in the course of inter­views and background discussions with sectoral representatives, trade unions and stake­holders from civil society. The project team de­vel­oped potential starting points for sectoral dialogues and further activities for the 11 focus industries. Cross-sectoral recommendations were also formulated.

Preliminary considerations regarding methodology

According to the OECD Due Diligence Guidance, industry-specific risks are risks that are ‘prevalent within a sector as a result of the characteristics of the sector, its activities, its products and production processes’.2

One of the project team’s primary tasks was to bundle and operationalise the individual industry’s specific perspective with regard to human rights due diligence in a way that would make the process of analysing and narrowing down input in order to prepare in-depth examinations of the focus industries not only manageable but also comprehensible. The tiered methodological approach (Figure 1) takes into account both qualitative and quantitative data. In order to be able to make statements about individual German industries, information on risks to human rights and structural industry data were additionally combined and examined. Similar approaches have been used in industry-specific studies and analyses conducted in other countries, including the Netherlands and Belgium.3


Main steps in the analysis and narrowing-down stage

The starting point for the study was a general survey of all of the approximately 100 industries that make up the German economy. As a first step, a structured analysis of several data sources4 was conducted to identify those industries which, from an international perspective, exhibit risks to human rights. Similar industries were then grouped together. By using databases to identify risks and grouping industries together, it was possible to ascertain human rights risks for 29 industries. Industries where this was not the case, such as libraries, archives, museums, botan­ical and zoological gardens, were disregarded. This does not mean, however, that risks to human rights do not exist in those industries that were not subject to further analysis. Rather, they display less empirical evidence of risks com­pared to other industries.

Narrowing the number of industries down to 29 (Figure 2) made it possible to conduct, in a second step, a detailed examination of the indi­vidual industries. This not only revealed which human rights risks exist in a particular industry, but also where in the value chain these risks occur, the degree of the industry’s international integra­tion and the industry’s economic importance for Germany. During the narrowing-down process, industries with little international integration and which, compared to other industries, have less evidence of human rights risks of special relevance were disregarded. These included mining and minerals, waste management, forestry, real estate activities and water supply. Other industries that were disregarded include those with a low level of international integration and a strong focus on using their own production sites in Germany for their value chain. This is the case for “construction”, “agriculture and fishing”, “personnel, cleaning and security services” and “transport and logistics”. However, the analyses conducted on the individual industries made it clear that these industries can be linked to risks to human and labour rights in a national context as well.

For the final selection of the focus industries, industries with similar risk profiles were examined together for the purposes of the study (the electronics industry was combined with telecommunications and digital products and services to create the category “electronics, telecommunications and digital products and services” while gastronomy and hotels was combined with travel and recreation to create “tourism and recreation”) and the remaining industries were arranged in order of their economic importance.


German focus industries

The results of the analysis suggest that a comparatively large number of human rights risks relating to fundamental rights and free­­doms exists in these focus industries. In addition, many human rights risks of particular rele­vance can be found in the first tiers of the value chain (extraction of raw materials). These industries also have human rights risks that are (directly) related to their business activities in the value chain.5

From a structural standpoint, the findings show that these industries have a high level of international integration (import penetration rate). ­With regard to their upstream value chains, these industries are resource-­intensive and/or import, in some instances, raw materials from countries with significant governance and human rights challenges. (Figure 3)


Case study: Automotive industry6

With € 482 billion in sales, the automotive industry is the industry with the highest revenue in Germany. It is characterised by a very complex supply chain and high level of international integration.

Outline of industry-specific human rights risks

Significant human rights risks exist in particular in the international upstream value chain (Figure 4). Human rights risks were identified especially in connection with the extraction and processing of raw materials. The automotive industry requires large amounts of raw materials such as bauxite and natural rub­ber that are often obtained under precarious conditions in countries with challenging governance contexts. This can lead to human rights violations such as damage to the health of wor­kers and the local population, land grabbing, violence against indigenous peoples and precari­ous working condi­tions. In the wake of the shift to electric mobility, the risk of human rights vio­la­­tions in the supply chain for the required raw materials is growing (for example, in connection with the extraction of lithium and cobalt). Furthermore, precari­ous working conditions, inade­quate health and safety standards, and damage to the health of workers, for example, have been docu­mented in the automotive industry’s own in­ter­national value chain in the past.


Situational analysis of industry activities

Characteristic from an institutional point of view is the large number of players and issues that are related to the automotive industry. Besides the two main industry-specific initiatives – the European Drive Sustainability Initiative and the Automotive Industry Action Group (AIAG), which was founded in the USA – many automobile manufacturers and automotive suppliers particip­ate in cross-industry initiatives. These initiatives look into a number of issues, particularly raw materials, but also specific automotive com­ponents such as tyres and batteries. This has led to an exten­sive, highly complex network of ini­­tiatives that are relevant to the industry. Also strik­ing is the strong international orientation of initiatives in the automotive industry. This corre­sponds to the industry’s high degree of international integration.

Recommendations

As part of this study, concrete starting points for conceivable sectoral dialogues and other ac­tivi­ties were formulated for each of the 11 focus industries, largely on the basis of the assignment of the identified industry activities to the five core elements of due diligence in the field of human rights as set forth in the German NAP. The study findings suggest that it would be fundamentally advisable for the German government to provide assistance for all five of the NAP7 core elements.

With regard to the design and structure of the dialogue formats, it is important to focus directly on the individual sectors’ needs and to take current initiatives into account. Moreover, in addition to dialogues at industry level in Germany, consider­ation should be given to thematic and cross-sectoral dialogues (such as on challenges arising in connection with the extraction of raw materials) or to expanding existing formats and supporting activities at European and/or international level, as the case may be. Taking a multi-stakeholder approach is essential not only to ensure a collabo­rative ex­change between key players, but also in order to take particular account of the standpoints of civil society. European players should be inte­grated into dialogues when they are relevant for German industries. The profiles of the 11 focus industries indicate that the key players in a num­ber of these industries are European. Looking ahead, dialogues could be established at European level as well. Using multi-stakeholder dialogues, national and European players could share views and information about activities where collective action at European level can produce the greatest leverage for implementing human rights due diligence and which should be expanded. In addition to having to take a multi-stakeholder approach as outlined above, all sectoral dialogues should be subject to minimum requirements regarding content and procedures: industry studies which cover sector-specific human rights risks and existing activities should serve as the empirical starting point in this regard. Furthermore, existing OECD and EU guidelines relating to the subject should be taken into account in order to develop an understanding for what human rights due dili­gence means in a particular industry or at industry level, which human rights challenges exist and which activities could be undertaken to address them. Moreover, sectoral dialogues should build on the UN Guiding Principles on Business and Human Rights (and the core elements of human rights due diligence as outlined in the German NAP).

Footnotes

1.
Weiß, Daniel; Garcia, Bibiana; van Ackern, Pia; Rüttinger, Lukas; Albrecht, Patrick; Dech, Marlene; Knopf, Jutta. (2019). Die Achtung von Menschenrechten entlang globaler Wertschöpfungsketten. Risiken und Chancen für Branchen der deutschen Wirtschaft. Federal Ministry of Labour and Social Affairs: Berlin. This study was conducted by adelphi in cooperation with EY on behalf of the Federal Ministry of Labour and Social Affairs.
2.
OECD Due Diligence Guidance for Responsible Business Conduct. Organisation for Economic Cooperation and Development. Paris, p. 62.
3.
In Belgium for example, companies can use the Human Rights Toolbox from the Belgian Federal Institute for Sustainable Development to inform themselves about risks to human rights in their business activities. In the Netherlands, two ministries commissioned the consultancy KPMG to conduct a study analysing human rights risks in Dutch industries. The study used a methodological approach that is similar to the Belgian toolbox. The Dutch approach went into much greater detail, however.
4.
This approach was based on the analysis of three comprehensive, publicly available data sources: The Materiality Map and the industry standards of the Sustainability Accounting Standards Board, the complaints database of the Business and Human Rights Resource Centre, and the CSR Risk Check from MVO Netherlands. The first step focused on ascertaining the existence of clearly recognisable industry-specific risks in the three aforementioned data sources.
5.
Not every industry exhibits all of the human rights and/or structural characteristics.
6.
Industry profiles were prepared for the 11 focus industries. These profiles outline the identified risks and examine the human rights risks and regions where human rights are at risk in connection with goods and products that are exemplary for the industry. The profiles also list current activities pertaining to the industries’ human rights due diligence obligations. The section which follows is an excerpt from the profile for the automotive industry.
7.
The core elements of human rights due diligence as laid down in the NAP are: (1) a human rights policy statement; (2) procedures for the identification of actual or potential adverse impact on human rights; (3) measures to ward off potentially adverse impacts and review of the effectiveness of these measures; (4) reporting; (5) a grievance mechanism.
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