A New Era of Corporate Accountability: Mandatory Human Rights Due Diligence

The “Business and Human Rights Galaxy” that governs corporate accountability for human rights abuses in supply chains lacks sufficient legal incentives for businesses to adhere.[1] In 2011, the United Nations Human Rights Council endorsed the Guiding Principles on Business and Human Rights, establishing a global standard of practice expected of all States and businesses.[2] The framework outlined 31 Guiding Principles, including eight that specifically addressed the need for businesses to develop and maintain human rights due diligence and remediation processes.[3]Unfortunately, these are not legally binding.[4] Pre-dating the UN’s Guiding Principles, businesses have long faced pressure to maintain robust corporate social responsibility programs, which has led to the mandated “disclosure regime” we see today.[5] This regime consists of a web of local and national issue-specific or disclosure-only regulations and international “soft-laws.” [6] While this tendency towards disclosure over due diligence has resulted in some supply chain accountability, the question we should be asking is, is it enough?

The Human Rights Watch has identified the following areas as being the most pervasive human rights problems in corporate supply chains: labor rights violations; child labor; environmental damages; violations for the right to health, land, food, and water; and violations of international humanitarian law.[7] Generally, women workers, migrant workers, child laborers, or residents of rural or poor urban areas are most affected by these abuses.[8] Within the context of the global supply chain, a human rights abuse is either direct or indirect; It is direct when inflicted by the primary company or a subsidiary, and indirect when inflicted by a supplier or subcontractor.[9] An example of an indirect abuse is when a supplier acts contrary to the terms of their contract and, for example, utilizes child labor instead of paid laborers to harvest cocoa beans.[10] An individual company’s global supply chain often involves many suppliers and subcontractors, including operators in the informal sector, which is where a large portion of abuses occur and where heightened due diligence is needed.[11]

The World Benchmarking Alliance completes an annual analysis that measures 230 global companies and their impact on human rights performance.[12] Their analysis focuses on the five sectors that present the highest risk of negative human rights impacts: agricultural products, apparel, extractives, ICT manufacturing, and automotive manufacturing.[13] The 2020 Corporate Human Rights Benchmark Report identified two areas of emerging and significant concern: (1) Only a minority of companies demonstrate the willingness and commitment to take human rights seriously; and (2) A growing disconnect between commitments and processes and actual performance and results.[14]Furthermore, human rights due diligence was singled-out as an area of poor performance with 46.2% of companies scoring zero points.[15] Clearly, more needs to be done to hold companies legally accountable for human rights abuses, and due diligence requirements may be one answer.

Worldwide, there is growing momentum towards imposing national, and even regional, mandatory due diligence and reporting requirements that would hold companies legally responsible for maintaining a human rights due diligence framework.[16] In February 2017, France became the first country to require this of certain companies.[17]  The French law, known as the “Law on the Duty of Vigilance” requires French companies to “establish, publish, and effectively implement adapted measures” focused on identifying risk and preventing severe human rights abuses.[18] The law applies to the primary operating company, as well as its subsidiaries, sub-contractors, and suppliers.[19] Furthermore, the law is imbedded in French Commercial Code and imposes an administrative liability for failure to abide by its due diligence requirements and civil liability to provide remedies for harms caused.[20]

Since its passing, an increasing number of countries have adopted or are starting to contemplate various forms of mandatory human rights due diligence legislation:

  • In 2019, the Netherlands adopted the Child Labor Due Diligence Act, requiring companies to investigate “reasonable suspicions” of child labor within their supply chain, develop and execute a plan of action in the case there is a reasonable suspicion, and publish a public statement of compliance.[21] If a company does not adhere, the company’s director could risk imprisonment, or the company could face a fine of up to €750,000 or 10% of the Company’s annual turnover.[22]
  • In 2020, the United Kingdom set forth a new set of measures and legislation to bolster the existing transparency provisions in their 2015 Modern Slavery Act, which requires commercial organizations of a certain size to publish an annual slavery and human trafficking statement.[23] It is expected that the next update will include civil penalties for failure to follow reporting and transparency guidelines.[24]
  • In 2021, the German Parliament adopted the Supply Chain Act, requiring companies to make reasonable efforts to ensure there are no violations of human rights in their own business operations and supply chains, including direct suppliers.[25] The Act contains provisions requiring risk analysis, review of preventative and remedial measures, policy statements, and document and reporting obligations.[26] Non-compliance may result in a fine of up to 2% of average annual turnover and a three-year exclusion from public tenders.[27] While the Supply Chain Act does not impose a civil liability, nor extend due diligence requirements to indirect suppliers, it is considered a step in the right direction.[28]

Today, parliaments in at least seven other European countries are considering laws that would legally require companies to identify risks in transnational supply chains and take steps to prevent them.[29] While not explicitly discussed herein, issue-specific and disclosure focused regulations also exist in the United States, Australia, and other countries across the globe.[30] 

As demonstrated above, the adopted and contemplated legislation varies in scope, focus, and application and, until recently, has only existed at a national level.[31] However, in March 2021, the European Parliament passed a legislative initiative for an EU directive on Mandatory Human Rights, Environmental and Good Governance Due Diligence (“MHRDD”).[32] Unlike the voluntary principles and standards set forth in most of the world today, the MHRDD would require all EU companies of a certain size to “carry out a risk assessment of their value chains and address any identified human rights . . . issues with enforcement mechanisms and sanctions.”[33] To put pressure on companies to comply, the final legislation is expected to include a liability regime that would hold companies liable for their actions and implement a fine for causing or contributing to the harm, unless they can prove measures had been taken to prevent such harm.[34]The European Parliament is expected to approve the legislation in 2022, with a possible entry into force in 2023.[35]

The EU directive on MHRDD is a positive development towards replacing the web of transparency and reporting requirements that exist today.[36] A mandatory regional requirement is expected to improve the clarity in methodology, provide greater visibility to human rights abuses in corporate supply chains, and push towards greater collaboration and cooperation within the private sector to address these impacts directly and provide remedies.[37] Furthermore, several large, multi-national companies have already expressed their support for the MHRDD because, in addition to the benefits outlined above, it will also aid in reducing unfair competition from companies currently taking no action, and help companies improve their own social responsibility commitments.[38] Thus, while it may be too soon to tell, the MHRDD and initiatives discussed herein may just introduce the legal mechanisms we need to strengthen corporate accountability for human rights abuses in global supply chains.

[1]  Elise Groulx Diggs, Mitt Regan, & Beatrice Parance, Business and Human Rights as a Galaxy of Norms, 50 Geo. J. Int’l L. 309, 310-315 (2019).

[2] U.N. Hum. Rts. Off. of the High Comm’r, The Corporate Responsibility to Respect Human Rights – An Interpretive Guide (2012), https://www.ohchr.org/Documents/Publications/HR.PUB.12.2_En.pdf.

[3]  Id.

[4] Judy Gearhart, The Corporate Accountability Paradox, Bus. & Hum. Rts. Res. Ctr.: Blog (July 19, 2021), https://www.business-humanrights.org/en/blog/the-corporate-accountability-paradox/.

[5] Anonymous, French duty of vigilance law takes trend toward mandated corporate disclosure regimes to new level, Freshfields Bruckhaus Deringer (April 6, 2017), https://sustainability.freshfields.com/post/102e4aq/french-duty-of-vigilance-law-takes-trend-toward-mandated-corporate-disclosure-reg.

[6] Céline Da Graça Pires, Cynthia Wang, Francesca Manta, & Salah Husseini, The Future of Human Rights Due Diligence: Legislation and Regulation for a Level Playing Field, BSR: Blog (Oct. 5, 2020), https://www.bsr.org/en/our-insights/blog-view/the-future-of-human-rights-due-diligence-legislation-and-regulation.

[7] Human Rights in Supply Chains: A Call for a Binding Global Standard on Due Diligence, Hum. Rts. Watch (May 30, 2016), https://www.hrw.org/report/2016/05/30/human-rights-supply-chains/call-binding-global-standard-due-diligence.

[8] Id.

[9] U.N. Hum. Rts. Off. of the High Comm’r, supra note 2, at 53.

[10] U.N. Hum. Rts. Off. of the High Comm’r, supra note 2, at 54.

[11] Hum. Rts. Watch, supra note 7.

[12] Corporate Human Rights Benchmark, World Benchmarking All., https://www.worldbenchmarkingalliance.org/publication/chrb/ (last visited Oc. 29, 2021).

[13] Id.

[14] Corporate Human Rights Benchmark 2020 Key Findings, World Benchmarking All.,https://assets.worldbenchmarkingalliance.org/app/uploads/2020/11/WBA-2020-CHRB-Key-Findings-Report.pdf (last visited Oct. 29, 2021).

[15] Id.

[16] Pires et al, supra note 6; Towards Mandatory Human Rights Due Diligence, Bus. & Hum. Rts. Res. Ctr.: Blog, https://www.business-humanrights.org/en/blog/?opinion_series=3&backdate_after=&backdate_before=&query= (last visited Oct. 27, 2021).

[17] Vigilance Plans Reference Guidance, Sherpa 1, 80-81, https://vigilance-plan.org/wp-content/uploads//2019/06/2019-VPRG-English.pdf#page=80(last visited Oct. 27, 2021).

[18] Id.

[19] Id.

[20] Id.; European Parliament resolution of 10 March 2021 with recommendations to the Commission on corporate due diligence and corporate accountability (2020/2129(INL)), P9_TA(2021)0073.

[21] Rich Van ‘T Hullenaar, The Netherlands Adopts Business and Human Rights Legislation to Combat Child Labor, Jones Day (February 2020), https://www.jonesday.com/en/insights/2020/02/the-netherlands-tackling-child-labor-with-new-act.

[22] Flora Southey, The Netherlands cracks down on child labour with due diligence bill, FoodNavigator.com (Jun. 4, 2019, 2:25 PM), https://www.foodnavigator.com/Article/2019/06/04/The-Netherlands-cracks-down-on-child-labour-with-due-diligence-bill.

[23] Clare Connellan, Jacquelyn MacLennan, Emiko Singh, Darragh Byrne, Dr. Julia Sitter (née Kersjes), & Dr. Adele Juliane Kirschner, Increased human rights supply chain scrutiny with UK and EU legislative proposals, White & Case (Oct. 13, 2020), https://www.whitecase.com/publications/alert/increased-human-rights-supply-chain-scrutiny-uk-and-eu-legislative-proposals

[24]  Id.

[25] Sebastian Rünz & Volker Herrmann, Overview of the German Supply Chain Due Diligence Act, TaylorWessing (July 28, 2021), https://www.taylorwessing.com/en/insights-and-events/insights/2021/07/overview-of-the-german-supply-chain-due-diligence-act.

[26] Id.

[27] Id.

[28] Flora Southey, Germany outlaws human rights violations in global supply chains, but is it enough?, FoodNavigator.com (Jun. 11, 2021, 2:49 PM), https://www.foodnavigator.com/Article/2021/06/11/Germany-adopts-Supply-Chain-Act-but-is-it-enough.

[29] Holding Companies to Account: Momentum Builds for Corporate Human Rights Duties, Hum. Rts. Watch (2020), https://www.hrw.org/world-report/2020/country-chapters/global-2#.

[30] Pires et al, supra note 6. 

[31] Autentika Global, The European Due Diligence Act, CBI Ministry of Foreign Affs. (July 1, 2021), https://www.cbi.eu/news/european-due-diligence-act

[32] European Parliament resolution, supra note 20.

[33] Claire Connellan, Louise Lundberg, & Jacquelyn MacLennan, Pressure mounts on EU regulator to deliver on Mandatory Human Rights, Environmental and Governance Due Diligence, JD Supra (Mar. 22, 2021), https://www.jdsupra.com/legalnews/pressure-mounts-on-eu-regulator-to-2903517.

[34] Id.

[35] Autentika Global, supra note 28.

[36] Pires et al, supra note 6. 

[37] Pires et al, supra note 6. 

[38] Evie Clarke, Workers must be the foundation of any human rights due diligence approach, Bus. & Hum. Rts. Res. Ctr.: Blog (July 26, 2021), https://www.business-humanrights.org/en/blog/workers-must-be-the-foundation-of-any-human-rights-due-diligence-approach/.