The UN Guiding Principles (UNGPs) highlight due diligence as a key aspect of the corporate responsibility to respect human rights. Under the UNGPs, human rights due diligence (HRDD) is defined as “an ongoing risk management process…in order to identify, prevent, mitigate and account for how [a company] addresses its adverse human rights impacts”.
2020 marks the tenth anniversary of the UNGPs. At a recent online event hosted by the UN to mark the milestone, speakers were invited to discuss progress and next steps after a decade of the UNGPs. What was overwhelmingly clear was the need to translate the soft law expectation of a corporate responsibility to respect human rights, under the UNGPs, into hard law, through legislative action. More specifically, speakers from worldwide investors, businesses, and institutions repeatedly emphasised the need for, and expectation of, mandatory due diligence laws throughout the next decade.
In some jurisdictions mandatory due diligence has already begun to be implemented, in others, the foundations have been laid in the form of reporting legislation. Examples of reporting laws include the UK Modern Slavery Act, Australia Modern Slavery Act, and California Supply Chains Transparency Act. Amongst other things, these laws require companies to disclose their efforts to identify and mitigate human rights risks. They do not, however, place an obligation on companies to conduct any specific due diligence in the first place. In theory, organisations can be compliant with these laws despite conducting only surface level due diligence. This has led to widespread criticism for the first generation of human rights reporting laws, not only due to lack of enforcement, but because they do not set specific expectations regarding HRDD.
Conversely, mandatory HRDD laws set specific standards that organisations must meet to satisfy that they have robust due diligence measures in place. There have been a host of mandatory HRDD laws passed by European governments in recent years, such as:
- France’s Duty of Vigilance Law 2017
- The Netherlands’ Child Labour Due Diligence Law 2019
- EU Conflict Minerals Regulation 2017
As well as several draft laws and proposals in the pipeline:
- Germany’s Sustainable Value Chains Bill
- U.S.A’s Corporate Human Rights Risk Assessment, Prevention, and Mitigation Bill 2019
- Swiss Coalition for Corporate Justice (SCCJ) proposed mandatory Due diligence legislation 2020
Like the reporting regulations, these laws all require companies to publicly disclose details of their business, supply chains, and efforts to identify and mitigate risks. However, they differ in that the statement must declare that due diligence has been carried out and, where appropriate, acted upon. For example, the Dutch Child Labour Due Diligence Law requires companies to determine whether child labour occurs in their supply chains. If so, companies must set out a plan of action on how to combat it and issue a due diligence statement on their investigation and plan of action. The key difference between the two types of regulation requirements is that reporting legislation allows companies to passively describe the actions they are taking within their supply chains without demonstrating that this is effective.
Furthermore, mandatory HRDD laws outline a benchmark for what constitutes robust due diligence. For example, the Swiss proposal states that due diligence should be aligned with the standards set out in the UNGPs and the EU Conflict Minerals Regulations cite the OECD conflict minerals guidelines. Both frameworks have been adopted by companies on a voluntary basis, but not to a sufficient degree. In fact, the Corporate Human Rights Benchmark 2019 results observed that 49% of the 200 largest global companies in four high-risk sectors scored 0 across all HRDD process indicators. As a result there is a need for mandatory requirements, including meaningful enforcement and remedy provisions, to replace reporting regulations.
What does this mean for business?
Crucially, the due diligence requirements impose a legal standard, meaning due diligence carried out by a business must meet objective standards to be considered sufficient. In light of this, even those companies that are already carrying out due diligence will have to assess whether their current procedures fulfil their duty under these laws.
It is entirely possible that we will see more companies held accountable for abuse of human rights or for failure to address negative environmental impacts through mandatory HRDD legislation. New laws could expand access to judicial remedy, opening the door for litigation on the grounds that a company has failed to protect workers and other stakeholders. In theory, businesses are likely to find it more difficult to contest human rights complaints where they have breached due diligence requirements that are set in a legal standard. This potential liability is likely to be pertinent to parent companies who will have to ensure that their subsidiaries are conducting proper due diligence, regardless of where they are operating.
Historically, a common response to allegations of human rights impacts have been met with claims that the organisation did not have sight of the issue. Mandatory HRDD legislation opens up the possibility that such a response to accusations is either evidence of a failure to conduct proper due diligence. Businesses must be proactive in seeking out and tackling issues, as opposed to turning a blind eye and reporting that no negative human rights impacts have been identified.
Some actions for businesses to consider are:
- Establish a means of documenting new and proposed HRDD regulations that apply in jurisdictions the company operates in and sells products into;
- Identify what, if any, due diligence processes your company currently has in place regarding human rights;
- Consider whether the current due diligence framework aligns with international standards such as the UNGPs and OECD guidelines;
- Asses whether additional data or evidence is required in order for the company to produce sufficient HRDD disclosures; and
- If the organisation is a parent company, establish a line of communication with subsidiaries to ensure they are in a position to fulfil their HRDD obligations going forward.
How Ardea International can help
Ardea International understands that businesses have to ensure that they establish robust due diligence procedures to underpin their human rights reporting disclosures. We support our clients by helping them identify how to manage human rights impacts and risks, ensuring they meet legal compliance obligations and integrate best practice into their policies and procedures.
Ardea International has developed a number of effective compliance solutions, including a human rights and environmental disclosure legal register. The legal compliance due diligence register allows businesses to track incoming legislation as well as current reporting obligations they may be subject to. We can also assess your business’ compliance with disclosure regulations, including preparedness to comply with new legislation. In addition, Ardea can examine your business’ due diligence procedures and provide priority steps to improve performance.
We have also developed a new training course on developing Mandatory and Human Rights Due Diligence framework. Sign up for the course.
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