What Opportunities Would a European Sectoral Dialogue within the Automotive Industry Create?
Hiltrud Dorothea Werner (Volkswagen AG), Michelle Wen (Groupe PSA) and Iztok Seljak (Hidria Holding) discuss the significance of human rights along global supply chains for a sustainable automotive industry, their expectations of policymakers and to what extent European sectoral dialogue within the industry impacts their own competitive environment.
How important are responsible supply chains to the automotive industry on the road to sustainable mobility?
Werner: We believe that sustainability throughout the entire supply chain is crucial to shaping the mobility of the future, especially in ecological and social terms: with an increasing proportion of CO2-neutral electric vehicles, emissions are shifting from the use phase to the production phase and thus into the supply chain. The large amount of energy needed for the production of components such as batteries plays an important role here. This is precisely why reducing CO2 in the supply chain is one of our strategic priorities. Another central problem is that the raw materials for batteries, such as cobalt and lithium, are often currently mined under conditions that must be viewed critically. We see it as our responsibility to work toward the sustainable mining of the minerals while absolutely respecting human rights, and to guarantee this by implementing appropriate processes.
Seljak: Supply chains are of enormous importance for green mobility. As a company we first of all need to make sure that we produce ecologically friendly products with carbon-neutral production processes and that we are treating our own employees with maximum respect as well. While as an international company in the automotive sector we are an important player in the supply chain, we are only one link. In order to act responsibly with respect for the planet and the environment, we need to make sure that our partners and suppliers conduct business sustainably as well: engage those applying measures already and make sure that the others apply them ASAP. This is more and more frequently also the expectation placed on us by our customers, the car manufacturers.
Wen: In Groupe PSA more than 75 per cent of vehicle components are purchased material. To make a responsibly produced vehicle possible, supply chains and all our suppliers acting therein have a very important role to play. On the path to creating a sustainable automotive industry, supply chains and our suppliers are very important, if not the most important contributor in general.
How significant is compliance with human rights at foreign sites and in the automotive industry’s supply chains?
Wen: The Groupe PSA‘s Purchasing Department has established qualification and selection processes for its suppliers that apply regardless of the country in which we buy our parts or services. In particular, we have developed an overall CSR requirements policy, which applies to all our suppliers without exception. Thus, we can guarantee the same performance indicators for all our suppliers regardless of their location all over the world. More specifically, we require our suppliers to all be assessed in CSR by an independent body, ECOVADIS, which verifies the suppliers’ compliance with our expectations. The assessment process notably includes the following areas: environment, labour and human rights, ethics and sustainable procurement. A minimum score is required in each of these categories to qualify as a supplier.
Seljak: Responsibility for human rights throughout the supply chain plays a crucial role in the success of our company. While compliance with human rights is taken for granted in our European/western production sites, where we still have a majority of our operations, this may unfortunately not be the case in some other areas within our global presence. We will be expanding specifically those sites intensively in the future, which will require special attention and willingness to act.
Werner: We are an internationally active group, with production in China, Russia, South Africa, Brazil, India, the USA and many other countries. All over the world, we comply with local laws and international standards, and with our own ethical standards. We don’t just export cars; we also create jobs worldwide and communicate our social standards and values wherever those jobs are. We also evaluate suppliers according to their human rights record and link our contract decisions to this in the framework of the so-called “S rating”. This rating evaluates sustainability in environmental and social terms, including human rights, and the integrity of direct suppliers.
What are the biggest challenges you face in implementing human rights due diligence requirements in your company?
Wen: We currently deal with more than 8,000 suppliers in more than 60 countries around the world. The range of technical and material processes is particularly wide. In addition, we must ensure control of the entire supply chain, which can sometimes include up to seven or eight levels of sub-suppliers. Our CSR requirements include a mandatory assessment of our suppliers by an independent third party, ECOVADIS, and we also require that all our suppliers confirm by their signature that they apply the recognised international standards of the ILO and United Nations in a specific CSR purchasing charter. For the most critical groups of goods, we perform audits of our suppliers’ sites and we require that all of the sub-suppliers be communicated to us so that we are aware of the complete supplier mapping, from raw materials to the finished product that we buy. In the event of a CSR disruption in our supply chain, whatever the level of the chain, we must be able to react quickly. Our conditions of purchase valid for all our commercial contracts allow us to react unilaterally at any time if necessary.
Werner: The human rights responsibilities of states were set down centuries ago. Companies’ human rights due diligence obligations were only agreed in 2011 with the UN Guiding Principles on Business and Human Rights. Nevertheless, we have already put it into practice and set up a compliance management system which includes human rights. Grave human rights violations such as child labour or forced labour are taboo for us.
We see it as our corporate responsibility to respect and protect human rights. There are legal reasons and also economic reasons why we are now devoting more attention to this issue. Investors are already basing decisions about which companies to invest in on sustainability ratings. Our goal is to ensure that our standards are upheld along the entire supply chain, although this presents us with major challenges – both in terms of implementation and control.
Seljak: Back in the early 90s a number of customers started to require from us that we ensure human rights were being respected throughout our entire supply chain, including preventing “child abuse in child labour”. We complied of course and that was a good 30 years ago, long before the official endorsement of the UN Guiding Principles on Business and Human Rights. To this end, we adopted the Hidria Ethic Codex, which specifically deals with respecting human rights. It is published on our website and is available to our customers and suppliers. The guidelines it lays out form an integral part of our agreements with suppliers. Despite this, we still face many challenges, in particular how to make sure that our suppliers and in turn their suppliers are respecting human rights. In many cases, we are dealing with small companies or even individuals, who do not have access to the processes and systems needed for procurement management. On the other hand, that is exactly what we have told our customers we are committed to doing.
What support would you like to receive from policymakers in this context?
Seljak: We would expect and strongly suggest that policymakers be more aligned and consistent in setting legal requirements for all employers to implement an ethics code and to actively monitor that it is being respected. Providing a global, or initially at least an EU-wide standard, would help smaller companies to be able to implement it and make sure that it is then followed through. Perhaps a designated public agency should help with implementation? That would emphasise its great importance further.
Werner: As a globally active group, we would like to see the most uniform regulations possible around the world, particularly uniform standards in Europe. The distinction between the states’ obligation to protect human rights and corporate responsibility for human rights requires a continuous dialogue between the parties involved – on both principles and implementation. It is often challenging for companies to obtain concrete, unprejudiced information that enables a genuine, comprehensive assessment of human rights-relevant situations. Policymakers and the state can provide concrete support in obtaining this information.
Wen: More collaboration at least within the EU, preferably worldwide. This would support fair trade and sustainable business practices in the most efficient way for all actors along the supply chain as well as on the OEM1 side. In the context of free trade agreement negotiation, the EU should ensure that sustainability chapters properly address human right issues.
Do companies in the automotive industry cooperate with each other to jointly tackle human rights risks in supply chains? If so, what role do you play in this?
Wen: There are several organisations and cooperation bodies. Human rights are also handled there to some extent, however, they are not the main focus. Groupe PSA works with independent companies that operate across sectors, like the Responsible Business Alliance. For the evaluation of our suppliers we also work with independent parties. We do not cooperate directly with other OEMs, however; rather we rely on cross-sectoral initiatives like in the Responsible Business Alliance, which hosts the RMI2 network.
Seljak: We do cooperate with each other, in fact that is an integral part our business, specifically between the car producers and systems suppliers of tier 1 and tier 2, but also among car producers and systems suppliers themselves. However, I’m not sure what goes on at the lower levels of the supply chain.
Werner: Our aim is to work together with our suppliers to improve sustainability. It is not in anybody’s interest to ban as many companies as possible from the supply chain that are currently not yet fully compliant while endangering many livelihoods. We also want to develop the suppliers. In doing so, joint, industry-wide initiatives are crucially important. We seek out close cooperation with international organisations, for instance. As a member of the Global Battery Alliance, we want to be a catalyst and accelerate measures towards a socially responsible, ecologically sustainable and innovative battery value chain. Another key element of our activities is our involvement in the industry initiative Drive Sustainability, coordinated by CSR Europe. The development of the joint questionnaire standard for evaluating sustainability aspects of suppliers was a milestone in this respect, as was the joint training approach undertaken with other OEMs for suppliers with training events in selected countries. Moreover, we actively contribute to sectoral dialogue within the German automotive sector related to the National Action Plan for Business and Human Rights, in which manufacturers, suppliers, unions, NGOs and the German Federal Government participate.
Do you also cooperate with companies from other sectors? If so, in what areas?
Werner: Yes, when it comes to the topic of business and human rights, it makes a lot of sense to share ideas across industries, especially on management approaches and examples of good practices. Specific risk scenarios can also affect several sectors at the same time. For example, we share information with corporate groups of similar size and structure that have also embedded the topic of business and human rights within their companies. We also exchange information with numerous companies in other industries within the Global Business Initiative on Human Rights regarding the implementation of human rights due diligence obligations.
Seljak: The rules adopted in the automotive industry are typically being carried over to other industries. The same goes for human rights compliance. In our case, we are expanding the issue into the HVAC (heating, ventilation and air-conditioning) industry, power tools industry and others.
Wen: Our main partners for the evaluation of our suppliers as well as the Responsible Business Alliance are not solely tied to the automotive sector. Due to the variety of parts, commodities and processes that we purchase, our CSR partners might also operate in the electronics, chemical or railway business, just to name a few. Through these cross-sector benchmarks, we ensure the best solution is implemented, which may not always be from the automotive sector.
„We see it as our corporate responsibility to respect and protect human rights.“
How has your company benefited to date from cooperation?
Seljak: We view cooperation very positively. For instance, exchanging best practices and gaining insights into alternative approaches used by our peers in automotive and other sectors can be very enriching. Though our areas sometimes differ significantly, we are able to learn from one another and seek ways to apply experiences from other industries to our sector. Through this, we are advancing and becoming more respectful and are ourselves earning greater respect.
Wen: We work with many partners outside the automotive industry, so we are able to benefit from cross-industry benchmarking and exchange of best practices between us and other industries. Nevertheless, implementation must be individually executed. When doing so, we carefully consider national and EU legislation on anti-competitive behaviour and cartels.
Werner: The benefit of cooperating with others is to further mainstream the issue of business and human rights, which is still a new issue. Stakeholder contacts are useful, for example, to reflect, improve and standardise concrete approaches, questions and documents. “Progress through dialogue and exchange” is the motto here.
What advantages and opportunities would a European sectoral dialogue offer – alongside the existing initiatives and efforts?
Wen: European sectoral dialogue will strengthen the position and market opportunities at least inside the EU market for all members. It may also strengthen the position of Europe as such in competing on the global market, where other growing markets are gaining more and more influence. We would welcome new EU legislation that supports our duty of due diligence by means of a single European position towards importers of all kinds of goods or raw materials into the EU. This should also not be limited to specific industries inside or outside the EU. We recommend ongoing dialogue with international organisations like the OECD in order to provide guidance and standards for the respect of human rights. A silo-oriented approach from within the sectoral perspective would not be efficient. Major risks have been identified at the origin of the supply chain, i.e. at mine level or with farmed products. For example, the EU could lay out certain human rights standards in goods that contain mica. Here several industries would be affected, such as cosmetics, automotive, mining, plastics, insulations and pharmaceuticals, just to name a few.
„More collaboration at least within the EU, preferably worldwide. This would support fair trade and sustainable business practices in the most efficient way for all actors along the supply chain as well as on the OEM side.“
Werner: The exchange of ideas in the existing initiatives is ongoing, also at European and international level, for example in the Global Battery Alliance or Drive Sustainability. The advantages are obvious: German players alone cannot make the relevant supply chains sustainable; there has to be cooperation between all the companies involved. For the raw material supply chains for electric vehicles, these include, in addition to the other European OEMs, companies in the electronics industry and raw material companies, most of which are not based in Germany or on the European continent.
Seljak: An EU-wide regulatory framework must be defined, which should then be promoted as a global standard. We first need to be an example to other nations and communities of nations. The EU and its institutions must provide continuous support for the development and creation of policies that will be, in the context of protecting human rights, sustainable for the employees as well as the employers. These policies must be written in such a way that they support the development and competitiveness of enterprises and the economy as a whole. They must provide equal protection of human rights for all, not just for specific countries. So far the practice is as follows: countries where the level of human rights and employee rights is often lower than in the EU are still selling their goods and services to and on the EU market and competing with EU-based companies. This creates an unequal competitive framework.
Who should take part in an EU-wide dialogue?
Seljak: It should be initiated by governments while including both the industry and companies’ management as well as unions and NGOs as important stakeholders. Through dialogue at political level and the exchanging of positive ideas, we can find continually better solutions and paths to coexistence and development of our rights and obligations.
„Responsibility for human rights throughout the supply chain plays a crucial role in the success of our company.“
Wen: It is desirable that decisions regarding human rights be taken by the European institutions (Council, Commission and European Parliament) rather than EU countries individually. Furthermore, we recommend working in close cooperation with bodies such as the OECD as well as with European trading partners. Groupe PSA would be pleased to contribute to the debate either directly or via its trade associations
Werner: Besides political, economic and civil society actors, European associations and interest groups certainly play an important role. EU countries that manufacture automobiles should also be included.
What else, in your view, could the EU do to help to improve the conditions for companies to ensure respect for human rights and decent work in their supply chains?
Werner: The EU can create a level playing field for all actors. In terms of a smart regulatory mix, it can also recognise companies that are already active and provide incentives for those that are not yet working on supply chain sustainability to a comparable extent.
Wen: Promote uniform EU-wide legislation and standards that are valid for all sectors rather than country-specific legislations and rules.
Seljak: The EU should invest more time and resources in helping to implement ethics codes and educate people on key areas of respecting human rights. The EU should also ensure that these codes are not then considered simply a static document companies keep on file, but rather are actually lived in everyday operations.