Why Reputation Is Law in the EU – and Still Soft Policy in Kazakhstan

A recent case from Italy shook the business world. A Milan court took the unprecedented step of placing the luxury brand Loro Piana (part of the LVMH group) under external administration for a year. The reason? Violations of labor rights at subcontractor factories. Orders were funneled to illegal workshops where migrant workers were clocking up to 90 hours a week, earning just €4 an hour, and living in the same unsafe factory conditions.

This wasn’t an isolated event. Similar violations led to sanctions against Dior, Armani, and other major fashion houses in the past two years. The Italian government sees the “Made in Italy”label not as a marketing gimmick but as a vital economic asset that brings in billions. Every scandal chips away at global trust in Italian quality.

These cases show a trend: countries are stepping up enforcement. And nowhere has this shift been more pronounced than in the European Union, where reputational risk has moved from corporate ethics to legal obligation.

What used to be a matter of voluntary corporate responsibility is now a legal requirement. In 2024, the EU introduced the Corporate Sustainability Due Diligence Directive (CSDDD). It mandates large companies to identify and mitigate human rights and environmental risks across their entire supply chain.

Companies that fail to comply face fines of up to 5% of their global turnover.

The directive applies to about 13,000 EU-based companies and more than 4,000 non-EU firms that do business with the bloc. The average annual cost of compliance is estimated at €225,000 per company, but the real cost comes from lost reputation — and lost business.

This shift didn’t happen by chance. It came after years of watching companies respond only after damage was done. Governments realized self-regulation wasn’t working. Legal enforcement became the only way to push companies to act before scandals erupted.

When companies ignore transparency and accountability, they don’t just risk bad press — they face real financial losses.

Take United Airlines. In 2009, the airline refused to compensate musician Dave Carroll after baggage handlers broke his $3,500 guitar. After nine months of ignored complaints, Carroll released a song called “United Breaks Guitars.” The video went viral, public outrage exploded — and United’s stock dropped by nearly 10%, costing the company about $180 million. Only then did the airline offer a settlement — but the damage was already done.

A similar story played out in the UK. In 2020, Boohoo, an online fashion retailer, faced a major scandal when reporters revealed that workers in Leicester factories were being paid just £3.50 an hour — well below the legal minimum — and working in poor conditions. Boohoo’s stock plunged by 23%, wiping out over £1.1 billion in market value. Under pressure from investors and the public, the company promised reforms — but only after the damage.

These cases show that voluntary standards often fail. Most companies only make real changes after a crisis — when the financial and reputational toll becomes too great.

That’s why the EU passed its directive: to force companies to identify and prevent human rights violations and environmental harm before they happen. It’s about building a culture of proactive responsibility.

The economic logic is clear. Reputational damage leads to lost customers, shaken investor confidence, and higher financing costs. According to PwC, over 80% of global investorsconsidered ESG (environmental, social, governance) metrics in their decision-making in 2024.

Ignoring ESG isn’t just a corporate risk — it increases a country’s overall risk profile, reduces access to capital, and weakens export competitiveness. The broader economy suffers too — through lower tax revenues, investor flight, and weaker positioning in global markets.

And this goes beyond numbers. According to the International Labour Organization, 28 million people worldwide are currently in forced labor. In South Asia alone, 45% of factories are still unsafe — even after tragedies like the 2013 Rana Plaza collapse, which killed 1,100 garment workers. Ignoring these risks costs human lives.

Kazakhstan is currently where the EU used to be — relying on “soft law” and voluntary frameworks. But as the EU experience shows, these approaches don’t work without legal backing.

On paper, Kazakhstan has kept up with global trends. In 2017, the country adopted the OECD Guidelines for Responsible Business Conduct and established a National Contact Point (NCP) to handle complaints and promote responsible business.

But in practice, the NCP has done little. Since 2012, it has handled just 7 complaints. Its recommendations are non-binding and largely symbolic. Without legal force or public pressure, companies in Kazakhstan have little reason to invest in due diligence systems.

Another issue: soft law has little cultural traction in Kazakhstan. OECD principles aren’t part of national legislation. Trust in institutions is low. As a result, Kazakhstan remains a high-risk country. According to the Walk Free Index, there are 11.1 cases of modern slavery per 1,000 people — higher than the regional average.

Kazakhstan must move from statements to enforcement. That means:

• ⁠ ⁠Legally embedding responsible business principles;
• ⁠ ⁠Integrating due diligence requirements into regulations;
• ⁠ ⁠Introducing penalties for non-compliance.

The National Contact Point must be reformed too — it should become a real dispute-resolution body, not a formality.

Incentives matter as well:

• ⁠ ⁠Make ESG criteria part of public procurement rules;
• ⁠ ⁠Publish a national registry of responsible suppliers;
• ⁠ ⁠Improve public awareness and education.

In a world moving toward ESG accountability, a country’s competitiveness is no longer just about GDP. It’s also about how well it protects transparency and responsible business practices.

In today’s global economy, reputation is currency. The EU has recognized this and made transparency across supply chains a condition for doing business.

Kazakhstan now faces a choice: will it stick to non-binding recommendations and risk falling behind — or embrace the global standards that are quickly becoming the new normal?

The cost of delay is steep: lost markets, missed investment, weakened competitiveness — and most importantly, human lives.