Emerging Voices: Momentum Builds for Mandatory Human Rights Due Diligence

[Alison Berthet is an English-qualified lawyer who specialises in business & human rights. After several years in private practice, she is now an independent business & human rights consultant.] 

The world has come a long way since 2011, when the United Nations and the OECD adopted the first international standards on the responsibility of businesses to respect human rights. Today, few would deny that a corporate duty to respect human rights exists independently of states’ duty to protect human rights. This is no small achievement, but only the first step.

The debate has now moved on to how businesses should respect human rights.

According to the UN Guiding Principles and the OECD Guidelines, the heart of the answer lies in the conduct of human rights due diligence to identify and prevent adverse human rights impacts. Much guidance has been published on what this means for companies in practice, building on the UN Guiding Principles that human rights due diligence should (i) assess the actual and potential human rights impacts that may be caused by a business (or to which it may contribute or be directly linked through its business relationships), (ii) integrate and act upon these findings, (iii) communicate how impacts are addressed, and (iv) be conducted on an on-going basis.

Until recently, however, these principles remained in the realm of “soft” law, relying on voluntary adoption by businesses. And although credit should be given to the many voluntary initiatives at company and industry level, overall performance remains poor. Last November, the Corporate Human Rights Benchmark found that 40 out of 101 of some of the largest companies in the world were failing to carry out proper human rights due diligence.

Thus, governments – who still bear the primary duty to protect human rights – are realising that the scale and depth of changes needed to business practices will require legislative action.

A legislative tide…

The first legislative initiatives (like the California Supply Chain Transparency Act 2010 or the UK Modern Slavery Act 2015) focused on transparency and reporting, requiring companies to disclose steps taken to avoid human rights violations but stopping short of imposing substantive obligations to take specific steps.

In recent years, the mood has decidedly shifted towards support for the adoption of legislation imposing mandatory human rights due diligence (mHRDD):

• In March 2017, France passed a “duty of vigilance” law requiring French companies of a certain size to publish and implement a “vigilance plan” and account for how they address human rights impacts in their global operations (including through subcontractors and suppliers with whom they have established business relationships).
• In May 2019, the Netherlands adopted new legislation (due to come into force in 2020) requiring Dutch-registered companies and companies delivering products or services to the Dutch market to declare that they have carried out due diligence on the risk of child labour in their supply chains.
• In Switzerland, a citizen-led “Responsible Business Initiative” has compelled the Swiss parliament to consider a legal proposal for imposing mHRDD obligations on Swiss companies. The parliament is struggling to find a consensus, failing which the proposal will be put to a public referendum.
• In its 2016 National Action Plan on Business and Human Rights, the German government undertook to consider introducing legislation if by 2020 less than half of German companies with over 500 employees have human rights due diligence processes in place. A first monitoring survey was launched this summer but a draft law leaked in February has already fired up the political debate.
• In the UK, the focus has been on the implementation of the Modern Slavery Act 2015, which requires companies conducting business in the UK and with a global turnover exceeding £36m to report on steps taken to ensure that there is no forced labour and trafficking in their supply chains. Disappointing compliance by companies and a more robust Australian Modern Slavery Act (adopted in 2018) have fuelled calls for strengthening the UK Act (e.g. by specifying reporting criteria or publicising non-compliance). Meanwhile, civil society groups are also calling for mHRDD legislation, but this is not expected to gain much traction until the review of the Act (and of the UK National Action Plan) has completed.
• Finland most recently joined the trend, announcing on 3 June that it would work to adopt mHRDD at the national and European level, where it assumed control of the EU presidency on 1 July 2019.

Finland will find some support for EU-wide legislation – not least from Germany, who is expected to make this a priority during its own EU presidency in 2020. EU legislation already includes a Conflict Minerals Regulation (imposing due diligence on EU importers of conflict minerals) and a Non-Financial Reporting Directive (requiring certain large entities to report on how they manage non-financial risks, including human rights), but momentum is building for further action. Notably, in March 2019 the European Parliament’s Working Group on Responsible Business Conduct launched a shadow EU Action plan calling on the EU Commission to adopt mHRDD legislation. It would therefore not be surprising to see this make its way onto the EU agenda before long.

The debate has also reached the global level, where negotiations are progressing slowly on a UN-sponsored business and human rights treaty. The latest draft, published on 16 July 2019 ahead of the fifth round of negotiations taking place in October 2019, includes an obligation on states to ensure businesses conduct human rights due diligence as understood under the UN Guiding Principles.

… with business support

What is interesting is the growing support among the business community for mHRDD legislation.

Indeed, in the face of evolving social expectations (from consumers, employees, investors etc.), conducting business responsibly and with respect for human rights is no longer optional for many companies. Provided it is well-designed, legislation can offer legal certainty and a level playing field, vis-à-vis both competitors and upstream business partners who may not face the same public pressure.

William Anderson, in-house counsel at Adidas, comments that “it is not a question of if, but when such laws will be in place” and calls on governments to “engage with companies and wherever possible reduce duplicative processes and the administrative burden of multiple reporting channels. Streamline expectations around business and human rights due diligence.”

Virginie Mahin, global social sustainability and human rights lead for Mondelez International, agrees that it would be “beneficial to have a binding law at EU level to provide a level field.”

These views are shared by a growing number of global companies, like BMW, Coca-Cola and Mars, who prefer clear and harmonised standards against which they can set their performance to the current patchwork of soft and hard law.

To what end?

Human rights due diligence is a core tool to enable businesses to identify the risks of adverse human rights impacts, which is the first step in preventing them. We need to be clear, however, on what mHRDD legislation is intended to achieve. Is it to mainstream human rights due diligence and the standard at which it is conducted? Or is it to hold companies accountable for human rights abuses?

This is where opinions diverge. Unsurprisingly, businesses want assurances that being more transparent about their human rights risks won’t increase the risk of litigation. Conversely, civil society is concerned that mHRDD legislation should have some “teeth”, and include meaningful sanctions for non-compliance and/or provide a remedy for victims. Navigating these competing demands represents a challenge for legislators.

France and the Netherlands have adopted different approaches. Under the French law, a company may be ordered to remedy a failure to publish or report on the implementation of its vigilance plan (under threat of penalty). More radically, it may face liability for damages resulting from non-compliance (i.e. where a human rights harm would have been avoided by the company’s proper implementation of an adequate vigilance plan) in civil proceedings that can be commenced by “interested” parties. By contrast, enforcement of the Dutch law is limited to affected parties bringing complaints to the regulator, which could lead to small fines or ultimately (after repeated non-compliance) criminal actions against directors, but no liability for damages. 

It will be interesting to see how these mechanisms are used in practice and how other jurisdictions contemplating legislation choose to deal with enforcement and sanctions. 2019 is the first year civil proceedings can be commenced under the French law and civil society has already been gearing up, creating a public registry of vigilance plans to encourage and facilitate the scrutiny of companies subject to the law.

There is a risk in trying to hit too many birds with one stone. Although access to remedy for victims is an important goal – and one that is thankfully receiving increased attention in the business & human rights community – mHRDD legislation may not be the most effective way to achieve it. Indeed, a causal link between human rights violations and inadequate due diligence will not always be obvious, and will often be difficult to establish evidentially (particularly where the burden of proof is on claimants). 

The promise of mHRDD legislation may lie rather in mainstreaming human rights due diligence and the identification and disclosure of human rights risks, which companies will be compelled to address once they know about them – resulting in overall greater prevention and remediation of adverse human rights impacts.