December 3, 2020

The Responsible Business Initiative: The Multinationals’ Last Stand?

Eva Wuchold

A narrow defeat for Switzerland’s referendum on corporate responsibility

On 29 November, the Responsible Business Initiative was put to a vote in Switzerland. According to the final results from the cantons, 50.7 percent voted in favour. However, the initiative failed due to the results from the cantons themselves: only 8.5 cantons said yes, while 14.5 said no (some small cantons have only half as much weight in the tallying of votes). Because the initiative proposed a constitutional amendment, Swiss legislation stipulates that to be adopted, it would have required the support of the people, the “popular majority”, as well as the approval of the majority of the cantons, known as the Ständemehr.

Only a year ago, support for the initiative was significantly higher throughout Switzerland. The Responsible Business Initiative was supported by a broad coalition of 130 human rights and environmental organizations, including a number of well-known development, peace, human rights, and environmental organizations. Many small- and medium-sized enterprises and politicians from all parties, as well as a coalition of Swiss churches supported the initiative—not to mention an enormous number of Swiss citizens. Banners supporting the initiative have adorned windows and balconies across the country for years. In Geneva, there was hardly a street without them.

Accordingly, the vote last month was the subject of much discussion in Switzerland. There was clear criticism of the campaign by the so-called “corporate lobby”, which tried to discredit the initiative with disinformation. Misleading statements were launched in the media in the run-up to the vote. Opponents of the initiative argued that it would lead to a reversal of the burden of proof, that its liability rules were unique worldwide, and that it would spark a flood of lawsuits. The closer the referendum came, the more the business community’s resistance grew. A number of executives of multinational companies spoke out against it. Several companies placed full-page advertisements in Swiss newspapers urging the population to reject the proposal. The Swiss People’s Party (SVP) also aggressively opposed the initiative. In contrast, the initiative’s attempts to dispel the false arguments proved largely unsuccessful.

It remains to be seen, however, whether the signal for Switzerland as a good place to do business, and thus for the multinational corporations that have set up shop there, will be as positive as they think. Had the otherwise liberal Swiss business community accepted the initiative, it could have sent an important message—in contrast to the propaganda of the business associations.

As early as 2010, the International Commission of Jurists (ICJ) published a study commissioned by a coalition of ten Swiss NGOs examining whether Switzerland meets its obligations to protect human rights and the environment against misconduct and violations by companies. The point of departure for the commission was the fact that Switzerland is home to a number of globally active companies in sectors such as pharmaceuticals, chemicals, mechanical engineering, food, and financial services, and Switzerland therefore has a special state duty to protect. The study revealed gaps in existing Swiss legislation and policy, such as the lack of an action plan in the sphere of human rights and business. Due to gaps in the promotion of human rights in Swiss legislation, the study found that companies are in principle not responsible for the activities of their subsidiaries—and vice versa.

Studies by NGOs also cast a poor light on the activities of Swiss companies abroad. A recent study by Greenpeace Switzerland on the activities of Swiss building materials manufacturer LafargeHolcim revealed 122 cases of scandalous corporate misconduct, mostly environmental pollution and human rights violations, for which the company is or should be responsible. Research by Public Eye revealed that the Glencore Company is responsible for fatal accidents, child labour, and serious damage to the local environment in its Porco mine extracting zinc, lead, and silver in the Bolivian highlands. The initiative focused on the commodities trading industry as a problem area, as Switzerland is home to some of the world’s largest commodities trading companies, including Glencore.

Not least because of this, a survey conducted by the Responsible Business Initiative in 2016 showed that 92 percent of the Swiss population would like to see companies comply with human rights and environmental regulations abroad. In a similar representative survey conducted by infratest dimap in Germany in September 2020, 75 percent of respondents were in favour of compliance with human rights and environmental regulations. According to Thomas Beschorner, professor of business ethics and director of the Institute for Business Ethics at the University of St. Gallen, support for supply chain laws shows that capitalism is “confronted with discourses of legitimation” and that “for good reasons” society demands “an authentic and real assumption of responsibility for their economic activities” from companies, if necessary by means of regulatory measures.

With the initiative rejected, the Swiss government announced that a milder legislative proposal will now enter into force. Although this legislative proposal also includes due diligence and reporting obligations, the core concern of the initiative—holding Swiss parent companies liable for legal infringements and environmental damage abroad—was excluded. For the initiative’s proponents, the proposed law, which is expected to come into force within the next two years, does not go far enough, particularly in light of the results of the 2016 study.

According to Andreas Missbach, head of raw materials at the NGO Public Eye, formerly the Berne Declaration (EvB), it is clear “that the counter-proposal will not solve any problems at all”. The vote threatens to turn Switzerland “back into a regulatory oasis”, “which attracts dubious corporations from abroad”. According to Missbach, the initiative met with so much resistance precisely because it runs counter to Switzerland’s traditional “hands-off” approach: “In Switzerland, companies have traditionally been free to do what they want without regulation, but that simply does not correspond to the world we live in today”, he explains. Monika Roth, Co-President of the Initiative Committee, is also convinced that “voluntary commitment without effective control and liability is not sufficient to ensure that all corporations respect international environmental standards and human rights”, and that the indirect counter-proposal will therefore not bring any improvements.

Recent developments in Europe could also make the counter-proposal obsolete before it even enters into force. The law is weaker than similar laws in other European countries, most notably the UK’s 2015 Modern Slavery Act and France’s 2017 Due Diligence Act, which have already adopted liability laws relating to corporate social responsibility. Moreover, there seems to be movement on the issue across the EU. In April 2020, European Commissioner for Justice Didier Reynders committed himself to presenting a law on binding due diligence obligations for EU companies in the areas of human rights and the environment in early 2021, which will include liability and enforcement mechanisms and access to redress for victims of corporate abuse. The Commissioner committed to not postponing the initiative despite the corona virus pandemic, and assured MEPs that it would be part of both the European Green Deal and the European Economic Recovery Plan. Mr. Reynders announced that the initiative will be cross-sectoral, so as not to lead to market fragmentation, and will cover the whole supply chain and all business-related risks, including human rights, social, and environmental risks.

The Commissioner’s announcement follows the publication by the European Commission of a study on supply chain due diligence requirements carried out by the British Institute of International and Comparative Law, which underlines the failure of voluntary action by companies and confirms the need for binding rules at the EU level. However, it remains to be seen what the law will ultimately look like. It is a fact that the EU Commission’s initiative would not have come about without years of pressure from civil society, and it is precisely this civil society that must keep up the pressure until companies around the world are legally obliged to comply with human and environmental standards in their supply chains, and violations can be legally sanctioned.

Moreover, there is still a way to go at the global level. So far, human rights or social rights treaties are only addressed to individual states, but do not impose direct constraints on companies. Most international standards, such as the Global Compact (2000) or the Ruggie Principles (2011), are non-binding and voluntary. However, since 2015 the United Nations has launched international debates to create a “legally binding instrument” that would oblige signatory states to ensure that transnational corporations respect human rights. A broad international coalition of civil society organizations supports this objective. Negotiations are held in Geneva every October.

Nevertheless, the drafting of this text is particularly slow because most states do not want an international treaty committing them to specific measures ensuring that companies acting on their soil respect human rights throughout their production chain. As the ethics of global value chains increasingly becomes a global issue, it is essential for the draft of this international binding instrument, discussed within the UN, to be strongly supported and brought to a successful conclusion in the near future.