The Supply Chain Act is a major step forward, but in some cases it brings with it unnecessary bureaucracy. Roger Peltzer explains how all the objectives of the Supply Chain Act can be achieved with less bureaucracy by benchmarking against proven and recognized sustainability standards.
The European Supply Chain Act is on its way and that is a good thing. Many partners from the Global South are already reporting that companies subject to the German Supply Chain Act are paying much closer attention to local living and working conditions. The chairman of the Costa Rican banana workers’ union notes that a representative of Lidl, for example, has now traveled to Costa Rica following complaints from the union, in order to take a look at the working hours and wages of the workers there and to hold out the prospect of improvements. And with European legislation, there is now a level playing field for all larger companies. This is why companies such as Tchibo, Otto, Rewe, Ikea and others have also campaigned for this law.
Excessive bureaucracy becomes a blockade
Nevertheless, the accusation that companies are being overwhelmed with a lot of (unnecessary) bureaucracy as a result of the Supply Chain Act cannot be completely dismissed. In fact, companies operating in the textile sector, for example, are confronted with a large number of voluntary and statutory requirements, each of which entails many reporting obligations that have to be processed separately, even if the requirements of many of them largely coincide.
Human rights, social and environmental risks limited by sustainability standards
Let’s take the example of cotton cultivation and processing. There are high human rights, social and environmental risks in this area. These include exploitative child labor, the unprotected use of toxic pesticides, low-paid and miserable seasonal work in cotton ginning plants. In order to limit these risks, which can cause considerable damage to the image and loss of sales for companies selling cotton textiles, companies such as Otto, Tchibo, Rewe, Ikea, H&M and many others joined forces years ago with non-governmental organizations, cotton traders, cotton growers and the German and Dutch governments to develop the standards for cotton textiles. Cotton Made in Africa (CmiA) – limited to Africa – and Better Cotton Initiative (BCI), which operates worldwide.
These standards ensure – and this is regularly checked by independent auditing companies – that minimum social and ecological criteria are observed in cotton cultivation. For example, BCI or CmiA certified cotton must not use exploitative child labor; no cotton may be grown in areas with high ecological diversity; no cotton may be grown in areas with high ecological diversity. WHO particularly hazardous pesticides must not be used, corrupt business practices are not permitted; contracts between farmers and cotton buyers must be negotiated transparently; farmers must have the right to join together in associations, etc.
In addition, the aforementioned standards commit to continuously improving the degree of fulfillment of other criteria over time. For example, the number of farmers using natural compost in cultivation is to increase over time, the cultivation of nitrogenous plants such as peas or soya in the crop rotation is to be increased in order to improve soil fertility, etc. Compliance with this commitment is also monitored by independent auditors and reported transparently on the websites of the respective organizations. Partners who do not comply with these conditions will have their CMIA or BCI license withdrawn, so that Tchibo and Ikea, for example, can be sure that they are only making “safe” purchases with the CmiA and BCI certificates. This also applies to Fairtrade or organic cotton, which only have very small market shares.
Requirements in the Supply Chain Act are 95% in line with existing standards
If you now look at the risks that are to be excluded, limited or reduced under the Supply Chain Act, you will see that at least 95% of them are covered by the CmiA and BCI standards. Does this mean that companies that source CmiA and BCI-certified cotton are now exempt from the extensive reporting obligations under the Supply Chain Act for this area? Unfortunately, definitely not!
Now, of course, you can ask yourself who ensures that a sustainability standard is not just greenwashing. However, the German government and the BMZ found an answer to this problem years ago by helping to set up the international ISEAL Alliance based in London. Among other things, ISEAL ensures that the standards that wish to become members of ISEAL must fulfill certain demanding criteria. They need a transparent governance structure with checks and balances; they must be transparent to the general public; the social and environmental criteria must meet certain minimum requirements; they must carry out independent impact monitoring and work on continuous improvement, etc. And ISEAL regularly checks whether the member standards meet all these criteria. If this is not the case, they will lose their ISEAL membership status. Does membership of ISEAL mean that a company is exempt from the reporting obligations under the Supply Chain Act with regard to the area covered by an ISEAL-recognized sustainability standard? Again, unfortunately, clearly no.
Benchmarking could solve bureaucracy problem
The examples of CmiA and BCI used here also apply to many other standards outside the textile sector. However, if only in the textile sector the cotton standards mentioned, the Fairware Standard and or the membership criteria for the Green Dot (which was also initiated by the BMZ) were recognized as equivalent to the requirements of the Supply Chain Act, around 2/3 of the reporting obligations for the companies concerned in the textile sector would no longer apply. In principle, the competent federal office BAFA, which is responsible for checking compliance with the obligations under the Supply Chain Act, would then only have to go and determine at regular intervals whether a particular standard continues to comply with the obligations of the international standards organization ISEAL.
Companies would have an incentive to introduce sustainability standards
Such benchmarking would also increase the incentive for companies in the textile supply chain to join the recognized standards and the Green Dot. This in turn would increase the market for sustainable textiles and the demand for sustainable cotton, which would have a substantial positive impact on development policy. The BMZ could now fight poverty by reducing bureaucracy without spending a single euro.
The employees of the various institutions and authorities are now so caught up in the logic of their respective implementation regulations that they cannot be expected to make simplification proposals. This requires political and ministerial initiatives, a task on which the traffic light factions should also be able to agree easily.
Cover picture by AlexanderStielau
