Requirements for businesses under emerging human rights legislation

As human rights legislation continues to evolve, businesses are under increasing pressure to identify and address any human rights impacts. As part of that process, businesses are being mandated to undertake human rights due diligence in an ever-growing number of jurisdictions.

The pressure for human rights due diligence

Human rights due diligence refers to the process through which organisations meet their responsibility of care by identifying, preventing, mitigating and accounting for the ways in which they address any human rights impacts resulting from their business activities. Emerging legislation means that businesses are facing growing pressure to take greater responsibility for the activities in their own operations and supply chain, including any potential and actual adverse impacts on human rights, and for implementing appropriate mitigation measures.

Increasingly complex global value chains make it difficult for companies to assess the scope of their adverse impacts and implement effective management systems. In the past decade, the United Nations Guiding Principles (UNGPs) have provided a basis for international regulation of human rights due diligence.

However, soft law paired with weak enforcement processes mean that businesses have not always been compelled to comply with their legal obligations. Emerging legislation is set to strengthen the enforcement of existing guidance by making human rights due diligence legally binding, and some will sanction companies that fail to comply. Companies need to understand how they will be affected by new regulation and the steps they should take to prepare.

Emerging human rights legislation

In a bid to enshrine the UNGPs into law, the United Nations (UN) Open-ended Intergovernmental Working Group (OEIGWG), set up in 2014, offers prospects for a UN Binding Treaty on Business and Human Rights, following the eighth session of treaty discussions held at the end of last October. In the meantime, the UN Special Rapporteur on Human Rights and the Environment policy brief outlines important elements to be included in human rights and environmental due diligence legislation.

Another important development in this area is the European Union Corporate Sustainability Due Diligence (CSDD) Directive proposed in February last year which presents an opportunity for EU binding legislation and is currently under negotiation between the Council of the EU and the European Parliament. Separately, organisations are also required to publicly communicate on due diligence in line with the Non-Financial Reporting Directive (NFRD) and the Corporate Sustainability Reporting Directive (CSRD) adopted in January this year.

In accordance with the UNGPs, which establish the duty of states to implement national laws with a view to protect human rights, the number of state-level laws which set expectations on businesses is ever-growing. The UK’s Modern Slavery Act (2015) became the first legislation of its kind in Europe to address the role of businesses in preventing modern slavery in their operations and supply chains. France followed suit shortly, passing the Duty of Vigilance Act in 2017 which requires companies to put in place a ‘vigilance plan’. This plan must demonstrate that the company has taken adequate measures to identify and prevent human rights and environmental risks and impacts in their own activities and those of their subsidiaries, subcontractors and suppliers. Last year witnessed the implementation of Norway’s Transparency Act (2022) and this year will bring into effect further legislation, such as Germany’s Supply Chain Due Diligence Act (which came into force in January 2023) and more rigid due diligence reporting requirements in Switzerland.

Mandatory human rights supply chain due diligence

In principle, emerging legislation will obligate companies to identify, prevent, mitigate, and remediate human rights impacts in operations throughout their supply chain. Companies will need to integrate human rights due diligence into policies and procedures, monitor their effectiveness, and be able to report on their actions and progress. To be successful, organisations will be required to allocate more time and resources to ensure they remain compliant and meet best practice.

Many organisations are already committed to implementing a due diligence strategy that conforms to best practice. For over 20 years, GoodCorporation has helped organisations operating across a range of sectors to understand and manage their human rights risks and impacts. Based on our experience in this area, we have identified four stages any organisation can adopt to be better prepared for emerging corporate human rights legislation.

Complying with corporate human rights legislation

  1. Review and assess human rights risks and impacts

Companies should begin by conducting company-wide human rights risk assessments to identify their salient human rights issues, i.e. those issues that are most at risk of severe impact, and areas of operation most at risk from human rights abuses. This will provide organisations with a global understanding of the risks, both within their own operations and business relationships, and will help companies to more clearly define the path forward and priority actions.

Companies will also need to identify and assess potential and actual adverse human rights impacts linked to specific high-risk projects, operations, products or raw material. To do so, human rights impact assessments are an essential tool. They are based on extensive stakeholder engagement and allow the rights-holders, and in particular vulnerable groups, to express concerns that affect them at work and in the community. Their perspectives should also contribute to the design of remediation measures.

GoodCorporation works with companies to carry out such human rights risk mapping and human rights impact assessments, using our expertise in this area to ensure that all human rights impacts are identified and prioritised.

2. Implement a strategy to provide effective remedy for human rights risks and impacts

Organisations need to devise and implement an effective strategy to ensure that risks and impacts are identified, and corresponding mitigating and effective remedies are put in place.

Human rights risk areas identified in the initial human rights risk assessment should be documented clearly and existing impacts ordered by priority, according to scale, scope and irremediability. Owners and timeframes should also be allocated to specific actions to address the identified impacts.

The strategy needs also to integrate human rights considerations, at least salient issues, into company policies and procedures. This could include the development of a stand-alone human rights policy, comprising all required practices and procedures, together with a roadmap of the appropriate processes to implement the policy and verify compliance. Human rights considerations should also be incorporated within other policies and procedures, as human rights issues cut across all business functions.

An organisation’s strategy must ensure that: –

  • human rights due diligence is based on people-centred risk management systems which place employees, external stakeholders, and communities at the centre of processes. Too often, corporate human rights policies and procedures seem overly business-orientated;
  • human rights risks that exist within the specific sector are considered. An organisation’s strategy should consider salient risks and the country contexts in which it operates;
  • the organisation will take responsibility for the human rights risks and impacts that arise in its supply chain and from third-party business operations. This includes ensuring that an appropriate remediation process is in place and that the organisation’s leverage is used to influence the practices of its partners;
  • the remediation process is sufficient to adequately make up for the size and scale of any human rights impact; and
  • sufficient resources will be allocated to human rights due diligence.

GoodCorporation’s human rights experts assist organisations in designing and embedding policies and processes to effectively manage and prevent potential and actual adverse impacts. Our human rights framework, covering governance, labour rights and community rights, can be used to develop or assess an organisation’s approach to human rights due diligence. It can also be tailored to an organisation’s needs to best fit its business model. We use this framework to conduct gap analyses of our clients’ human rights strategies and can benchmark results against other companies. Our collection of services, including human rights training (face-to-face and online) and supplier/affiliate evaluation questionnaires, can facilitate businesses to follow best practice that is tailored to the requirements of the organisation.

3. Set accountability for human rights due diligence and obtain ‘buy in’ from all parties

A successful human rights due diligence programme must be driven from the top of the organisation, with clear accountability at a senior level for implementing and monitoring policies. This is increasingly being recognised by the law as key. The EU CSDD Directive proposal, for example, states that it should be the duty of company directors to integrate human rights due diligence into business strategy. The proposed law also suggests that that directors’ renumeration could be used to incentivise involvement in the development and oversight of company human rights due diligence practices.

Companies need to consider how to successfully obtain ‘buy in’ from all parts in the value chain. Incentivising employees and third parties could encourage them to pay closer attention to their operations and adverse impacts that may arise. Performance appraisals and results-based reward systems may be a good starting point to emphasise how seriously the company takes human rights. Regular conversations and communications on the expected standards are a must.

Businesses are also coming under pressure from investors to evidence the measures being taken to manage and mitigate their human rights impacts in order to demonstrate progress with their environmental, social and governance commitments.

4. Implement effective speak-up systems and review progress made

Companies should encourage all employees and third parties to take responsibility for identifying human rights risks and reporting breaches and negative impacts. Through codes of conduct, training, adequate leadership and fit-for-purpose systems for reporting, organisations can promote an ethical culture based on trust and open communication. Such a culture can help ensure that business operations are transparent, and that expectations of behaviour and the process for reporting any concerns are clearly understood by all stakeholders. This approach can be strengthened by adopting an effective speak-up policy that integrates whistleblowing procedures to help the company identify and address impacts before they escalate.

Likewise, engaging in meaningful communication with affected stakeholders such as workers and communities enables the company to understand the extent of their impacts. Taking the context of the business and local laws into account, companies need to adjust their human rights due diligence policies and procedures. GoodCorporation works with local partners across the globe to understand local contexts and carry out meaningful work with stakeholders to promote best practice.

Finally, companies should regularly evaluate the effectiveness of their human rights due diligence programmes. This includes reviewing actions taken as a result of human rights impact assessments and identifying meaningful key performance indicators to measure the effectiveness of actions. GoodCorporation’s human rights experts can also help companies design an effective monitoring programme, including relevant indicators.

How GoodCorporation can help

Effective human rights due diligence is an on-going process particularly as human rights law is continuously evolving to strengthen the legal requirements. Businesses are going to have to adopt business models to ensure human rights risks and impacts are understood, prioritised, and adequately addressed and also compliant with the different legislation as and when it emerges. This should be seen as an opportunity for organisations to understand their operations and value chains more fully, put appropriate policies and practices in place and proactively engage with their broader ESG responsibilities, particularly in anticipation of the EU Corporate Sustainability Due Diligence Directive. That being said, organisations should understand their obligation to respect human rights as a corporate duty that goes beyond legal requirements and strive to implement best practice.

While not every organisation is currently bound by human rights legislation, GoodCorporation strongly advises all organisations to implement programmes based on best practice. This will also bring benefits through gained experience once new legislation emerges. Our team of experts and practitioners work with clients across a range of sectors to build their businesses on a foundation of transparency, integrity, and respect.