ECONOMYNEXT – Ethical consumerism is gaining ground across the world, and along with it comes regulation from the global North that seeks to ensure their businesses engage with suppliers observing better human rights and environmental practices.
This, then, places the onus on governments of the global south and exporters alike to reciprocate with corresponding environmental, social and governance (ESG) legislation and practices, or risk losing to those that comply.
The move to legislate began with a call from the EU Commissioner for Justice Didier Reynders, who, in 2020 sought changes to supply chain business practices which would lead to a green transition.
While an EU Due Diligence Act is still in the making, Germany introduced the Act on Corporate Due Diligence Obligations in Supply Chains, in January this year.
The Act holds German companies liable not just for their actions within the country, but for their partners along the supply chain in areas such as child labour, forced labour, occupational health and safety, the right to fair wages, and environmental violations.
Discussing the pros and cons of these developments and the readiness of the global south to comply with corresponding regulations, Nusrat Khan, Business and Human Rights National Specialist, UNDP, notes that simplifying the legislation for Small and Medium Enterprises (SMEs) and ensuring they see its benefits is important to get them on board.
SMEs, she says operate under already trying conditions and this added layer of compliance may not be welcome. However, they would, by complying, see in the next two to three years the positive impact on their businesses. The success of the legislation will be measured in the manner in which SMEs, especially those in emerging markets adopt and implement it.
Raising awareness on the importance of compliance is a challenge agrees Shiham Marikkar, Secretary General, CEO, National Chamber of Exporters, Sri Lanka, who says, of its 800 members, a majority are SMEs.
The discussion in the form of a webinar organised by the Friedrich Naumann Foundation for Freedom, South Asia on December 11th, on “Global Sustainable Value Chains – Prospects and Obstacles for South Asian SMEs, included Anil Bhardwaj, Secretary General, Federation of Indian Micro and Small and Medium Enterprises. The session was moderated by Nandhini Sharma, Director, Centre for Responsible Business, India.
Japan, says Khan, introduced the Responsible Guidelines 2022, while proposed legislation in South Korea will make compliance mandatory for SMEs. Others such as Indonesia, Malaysia, Mongolia and Pakistan are falling in line, with National Action Plans.
India, meanwhile has moved ahead introducing a slew of regulations. For larger companies, compliance is not an issue, says Anil Bhardwaj, pointing out that they would welcome the regulation as an opportunity. But for SMEs, which are the backbone of the Indian economy, it would be a challenge.
China, which is not as compliant with ESGs, continues to dominate the market with exports at $ 176 billion, while its closest competitors are far behind, Bhardwaj notes. However, the new legislation is moving the Indian market to a more robust climate, with lending agencies being more liberal in approving funding for those adopting ESG practices.
The webinar began with Pradeep Ramakrishnan from the Securities and Exchange Board, India and Rijit Sengupta, CEO of the Centre for Responsible Business providing an overview of the Indian market and legislation around ESGs.
Says Ramakrishnan, India introduced governance first. The country’s National Guidelines on Responsible Business Conduct (NGRBC) provides the platform for businesses to adopt and implement policies around human rights, training of employees and their supply chain stakeholders, remedial actions and grievance procedures. The Business Responsibility and Sustainability Report (BRSR), released in July this year outlines the core framework requiring disclosure on ESG, making the information thus provided more credible. The mandatory disclosure requirement begins with 150 top companies and will gradually be extended to cover all 1000.
The regulations tie in with India’s ambitious plan to move from a carbon-intensive setting to net zero by 2050. Their Green Bonds initiative says Ramakrishnan, is linked to climate financing, with transition bonds introduced to facilitate achieving the net zero goal successfully. Greenwashing guidelines, meanwhile will boost investor confidence, as those violating the regulations will be required to refund the monies to debenture holders, he explains.
The gap between human rights and environmental concerns is closing with the introduction of legislation notes Sengupta, naturally leading to concerns amongst SMEs in the region. It’s a time for the global North and South to unite, as the movement of goods and services is important for both. If the disclosure clauses introduced by India to promote a “responsible business culture” are taken seriously by the “top hierarchy, the legislation can be leveraged to benefit both.”
In his Keynote address, businessman and MP of the Bundestag, Carl-Julius Cronenberg notes that from a German perspective, a rule-based international order for business is important. The future bodes well, if the commitment to sustainable products is serious, and not just a trend, he says, cautioning however, that the regulations should not become a symbol of “EU protectionism or harm trade relationships” but rather one that respects “due diligence without the bureaucracy.”