Benjamin Claeson*
Overdue Diligence: Funders’ Role in a New Era of Corporate Accountability
Business activities significantly impact the 450 million people who work in global value chains – the worldwide networks that design, produce, and sell goods. Their operations also affect hundreds of millions more people in communities around the world. In recent years, there has been a growing trend towards mandatory human rights and environmental due diligence (mHREDD) laws to hold companies accountable for the impacts of their operations.
Laws such as the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD), (currently being renegotiated), require companies to closely examine, prevent, and address human rights abuses and environmental damages within their value chains. Done right, these laws can give rightsholders a stronger voice to raise grievances and, ultimately, hold companies accountable for wrongdoings. Such increased corporate accountability would, in turn, improve public health outcomes, reduce poverty, advance climate goals, and address a wide range of other rightsholder priorities.
However, despite their promise, these laws risk becoming little more than a box-ticking exercise. The latest report from Swedwatch, an independent non-profit research organization dedicated to promoting responsible business practices, found that a lack of quality funding for workers, communities, and the ecosystem of actors who support them in due diligence processes is undermining their potential. Here’s what stood out for us:
- Funding is low and diminishing. Our analysis of the Advancing Human Rights research from Human Rights Funders Network revealed a startling statistic: a mere 0.62% of the combined annual funding from governments (foreign aid) and foundations supports due diligence approaches led by workers and communities. When we looked specifically at foundation funding, we found that critical strategies like protection measures, legal support, and community organising account for just 0.11%, 1.3% and 2.14% of this already limited pool. Put simply, funding is not supporting grassroots strategies that drive real, systemic change.
- Existing funding lacks quality. We found that the limited funding that does exist to support due diligence approaches is often short-term, inflexible, and inaccessible to the actors who are trusted by and closest to business-impacted communities and workers. This approach to funding directly undermines communities’ and workers’ ability to hold businesses accountable, making it difficult for them to engage in the long-term efforts required to protect their rights.
- There is an overreliance on self-disclosure. Vast amounts of resources are misdirected, often flowing to industry approaches that rely on self-disclosure despite their ineffectiveness. For instance, companies increasingly use ESG (Environmental, Social, and Governance) ratings products to conduct due diligence. These products rely on companies’ self-disclosure for 87% of their human rights data, and they receive over 80 times the funding for independent research and documentation that human rights foundations provide. The large data sets produced by these products mask a troubling reality: companies are largely left to monitor themselves. Without significant investment in independent worker and community-driven approaches, these business-led compliance efforts will continue to dominate the landscape and fall short of their intended purpose.
The good news? Our research points to several successful models that offer a path forward for funders looking to invest in this work.
- Shifting power to community actors through community-embedded funds
Donors must direct more resources to funds that are embedded within and governed by the communities impacted by global value chains. These funds are not just intermediaries that channel resources; as they are often started and run by community activists, they are constantly listening to needs, adapting to realities, and accountable to the people they serve. This enables them to respond to communities’ priorities and their unique ways of organising. Their presence also provides the infrastructure to distribute large numbers of small grants, including to informal actors and movements that would otherwise have no access to funding. These functions are very difficult for donors and funders based outside of these communities to fulfil.
Community-embedded funds are widespread. The Swedwatch report, for example, highlights the Kenya Community Development Foundation, Casa Socio Environmental Fund in Brazil and the Environmental Justice Fund in South Africa (EJF). The latter two are members of the Socio Environmental Funds of the Global South, a network of 16 funds that resource community actors in Latin America, Africa, and Southeast Asia to advance socio-environmental justice. Directing more resources to funds like these is an essential part of any strategy to enable community-driven due diligence.
To support the critical role played by these community-embedded funds in leveraging mandatory due diligence laws, an entire ecosystem of actors is needed, including legal services, trade unions, national and international NGOs, and independent media. The connective tissue between support for these actors and support for community-based actors is often underexamined. Some global funds, like the SAGE Fund, have structured their grantmaking to support these partnerships while ensuring that organisations from the global majority are driving the work. This is not, however, the work of individual funds alone. Moving forward, greater collaboration and coordination among funders who support different types of actors in the ecosystem can both strengthen funding and help to address power dynamics within funding flows.
- Pooled funds at regional and sectoral levels
Pooled funds can be a powerful strategy for funders to collaborate on regional, sectoral, and cross-thematic levels. While they are by no means new or a silver bullet, they can bring together different constellations of funders to coordinate strategies and support more risk-tolerant approaches to resourcing worker and community-driven efforts.
Our research uncovered two promising examples of pooled funds focused on due diligence:
- The East African Philanthropy Network is developing a regional fund that matches domestic resources with external funding. One priority area is specifically devoted to community-driven due diligence in land-intensive sectors, like mining and agriculture.
- Electronics Watch, while not a typical funder, pools funds from public authorities’ affiliate dues and blends them with other sources of funding including traditional grants. This funding supports a collective approach to continuous, risk-based, and worker-driven monitoring and remedy within electronics supply chains.
Moving forward, pooled funds or even jointly funded calls for proposals, which unite both the resources and expertise of business and human rights funders with those of health funders, poverty reduction funders, and climate funders—among others—will be essential to mobilising the funding needed to meet the immense financial need continually described in interviews for the Swedwatch report.
- Micro-levies and tax reform
Between 2014 and 2023, publicly listed companies subject to the new Corporate Sustainability Due Diligence Directive (CSDDD) paid their shareholders an eye-watering €2.9 trillion euros in dividends and untaxed share buybacks. To put that figure in perspective, just 10% of an average year of this revenue would increase annual grant funding to support worker and community-driven due diligence approaches by almost 13 times over. This highlights a critical imbalance: addressing the ever-growing concentration of corporate and individual wealth must be part of any long-term funding strategy for human rights. This immense contrast between growing shareholder wealth and the resources available for due diligence grants is further highlighted when compared to the vast sums flooding into commercial services like ESG ratings and supply chain sustainability software (Figure 1).
Figure 1: Funding for industry approaches and profits far exceeds funding for worker and community-driven approaches
Beyond calls for global tax reform, new models are emerging to mobilise and distribute funding from private sources through independently governed funds. These range from micro-levies to industry fees. For example:
- UN Special Rapporteur Olivier De Schutter and the International Trade Union Confederation have called for micro-levies on specific industries to resource a Global Social Protection Fund.
- The Worker Driven Social Responsibility model blends legally binding agreements of brands and factories with industry fees, the use of which is overseen by worker organisations.
- Swedwatch has called for fees on companies in-scope to the EU CSDDD to cover litigation costs for victims of corporate harm.
Micro-levies, taxes, and industry fee models that are independently governed by workers and communities are challenging to establish and require funding for concept development and advocacy. However, a failure to invest in these approaches will only perpetuate the cycle of underfunding. These models are essential for ensuring businesses pay their fair share, ultimately moving the burden of human rights protection from a voluntary, charitable act to a mandatory business responsibility.
Moving forward with systems approaches
A funding strategy that fails to address the underlying economic, political, and social systems that produce corporate harms is insufficient. Given that corporate harms contribute to and are enabled by the same complex and intersecting systems of oppression, simply funding due diligence by itself will not solve the problem.
To meet the needs of communities most vulnerable to business activities, funders must adopt systems-oriented approaches. Our report highlights several strategies that are doing just that. The Freedom Fund, for example, addresses forced labour by co-creating 7–10 year funding cycles with a diversity of actors to respond to the complex factors that contribute to its prevalence. In parallel they support a Corporate Accountability Ecosystem in South East Asia, which through a seed fund combined with workshops, trainings and networking, is supporting a regional civil society and worker representative ecosystem to take direct action against companies that are failing to meet their human rights responsibilities. Other experts have called for a funding strategy that invests in a Rights-Based Economy where worker and community-driven approaches to corporate regulation occur as part of a broader, systemic strategy. This includes funding to develop new economic models, invest in evidence-based advocacy and narrative building to challenge de-regulation, promote tax and debt justice, and strengthen social protections.
Swedwatch will continue to work with funders and donors to explore innovative funding models, spaces for learning, and opportunities for collaboration to meet the urgent needs of business-impacted communities and the opportunities presented by new legislations.
About the author
* Benjamin Claeson is a program officer at Swedwatch, an independent, non-profit research organization dedicated to promoting responsible business practices and empowering rights holders. They achieve this by exposing the human and environmental impacts of unsustainable business operations and fostering collaboration between stakeholders to drive meaningful change. Reach out to benjamin@swedwatch.org for more.