With no consequences faced by corporations for failing to comply with HRDD obligations, they are able to benefit from social washing.
lmost 14 years ago, the United Nations Guiding Principles (UNGPs) on Business and Human Rights was released. It introduced Human Rights Due Diligence (HRDD), a process that encompasses the steps of assessing actual and potential human rights impacts, integrating and acting upon findings, tracking responses and communicating how impacts are addressed.
In the past decade, the implementation of HRDD has progressed substantially, with several countries, such as France and Germany, officially mandating HRDD. Just last year, the European Union Corporate Sustainability Due Diligence Directive entered into force, establishing a corporate due diligence duty. These recent developments call for a change in Indonesia’s approach to Business and Human Rights (BHR), considering that the fourth agenda of its Golden Indonesia 2045 Vision includes the objective to strengthen the respect, protection and fulfillment of human rights and the execution of human rights audits for corporations.
Most policies on HRDD in Indonesia are voluntary and fall short of meeting the standards expected by the UNGPs. For instance, the Financial Services Authority (OJK) issued Regulation No. 51/POJK.03/2017 requiring public corporations to formulate and submit a sustainability report, but it does not prevent the banking sector from granting loans for projects that could potentially cause environmental damage and forced labor, such as those in the palm oil and mining sectors. Furthermore, in 2021, PRISMA, a non-obligatory self-assessment tool for human rights risks, was launched. To date, only 260 corporations are registered according to data published on its website. Its voluntary nature further complicates efforts to drive businesses to change.
The proliferation of voluntary standards makes it difficult to realize the benefits of HRDD. With no consequences faced by corporations for failing to comply with HRDD obligations, they are able to benefit from social washing. Ultimately, mandatory HRDD is urgent as Indonesia is riddled with prevalent BHR-related issues. In its 2023 annual report, the National Commission on Human Rights (Komnas HAM) noted that it received a total of 2,753 complaints, with corporations as the third highest party reported.
Fundamentally, there are three main reasons why mandatory HRDD is necessary.
First, there has been a paradigm shift among global investors as they weigh corporation’s compliance toward human rights obligations in making their decisions. The growing importance of environment, social and governance (ESG) performance for investors constitutes an example. There is an increasing belief among investors that companies performing well on ESG are associated with less risks, making them a safer choice for the long term. Companies scoring well on the social aspect provide an outlook for investors regarding its corporate reputation, remembering that pressure is paramount, especially from the public, as it does not hesitate to boycott and name and shame corporations linked to human rights risks.
Second, the global value chain is now tightly interconnected. In the garment industry, for instance, fashion brands no longer have physical factories and instead enter into contractual relations with various factories in developing countries to produce their goods. The complexity of the globalized supply chains has enabled brands to shirk their responsibility over labor violations in factories.
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