Navigating the evolving legal and regulatory landscape on business and human rights: A look at the proposed EU mandatory human rights due diligence legislation
What is the proposed EU human rights due diligence law?
In April 2020, the European Commissioner for Justice, Didier Reynders, announced that the European Commission plans to introduce legislation requiring EU companies to carry out mandatory human rights due diligence by early 2021. Falling under the EU’s COVID-19 recovery package and the European Green Deal, the aim of the proposed legislation is to ensure that affirmative action is taken by EU companies to identify, prevent, mitigate and account for human rights risks and impacts within their operations and business relationships.
While this legislative initiative is still being developed in consultation with stakeholders, the resulting legislation is expected to incorporate the following features:
- Cross-sectoral, with potential sector-specific requirements
- Applicable to all corporate activities and their subsidiaries, thus extending across a company’s supply chains
- Focused on outcomes rather than a ‘tick-box’, procedural approach; this means that companies would tentatively be required to move beyond disclosures and to sufficiently demonstrate their duty of care
- Include strong enforcement mechanisms and access to remedy for victims of corporate human rights abuses
This proposal comes in the context of promising legal and regulatory developments on business and human rights, at both the international and national level
The introduction of this proposed EU legislation comes in the context of an increasingly dynamic legal and regulatory landscape on the corporate respect for human rights. In 2011, the UN Human Rights Council endorsed the United Nations Guiding Principles on Business and Human Rights (UNGP), the first globally accepted standard to hold businesses and governments accountable for adverse human rights impacts. By clearly defining the corporate responsibility to respect human rights across the value chain, the UNGP established a common framework on responsible business conduct and provided broadly supported tools to facilitate businesses in carrying out human rights due diligence. Following the international momentum generated by the UNGP, numerous standards, sectoral alliances, multi-stakeholder initiatives and reporting frameworks on business and human rights have emerged in the past years. Among others, this includes guidelines published by the OECD and the ILO, which reflect key principles and features of the UNGP.
Another significant development has been the adoption of practices outlined by the UNGP (such as reporting requirements and the obligation to conduct due diligence) into the national legislation of various countries. Given that the UNGP provides a set of guidelines and does not itself include enforcement mechanisms, the introduction of national legislation on corporate human rights due diligence is a meaningful step forward, and signals the serious commitment of stakeholders to address the human rights impact of businesses. The ‘Corporate Duty of Vigilance Law’ in France, and the ‘Child Labour Due Diligence Law’ in the Netherlands, introduced in 2017 and 2019 respectively, both feature mandatory human rights due diligence for corporations (albeit limited in their scope of applicability). Across Europe, countries such as Germany, Finland, Austria, Denmark, and Switzerland are also considering proposals for laws on mandatory corporate human rights due diligence. Meanwhile, legislations such as the UK’s Modern Slavery Act (2015) and Australia’s Modern Slavery Act (2018) also incorporate key features of the UNGP, including the requirement for companies to undertake a mandatory disclosure of their human rights impacts and risks.
Strong business support for EU-wide legislation on human rights due diligence
In the context of an increasing patchwork of legal and regulatory regimes across different jurisdictions, many businesses have come forward to express their support for strengthening and harmonising legislation on corporate human rights due diligence. In December 2019, cocoa companies, including Barry Callebaut AG, Mars Wrigley and Mondelēz International, called for the EU to introduce mandatory human rights due diligence in global cocoa supply chains. The momentum has since been rising. In September this year, 26 large corporations (among them Adidas, Unilever, Nestlé and Aldi) holding a combined annual turnover of almost 350 billion EUR, issued a joint statement supporting the implementation of EU-wide human rights and environmental due diligence requirements.
This support corresponds to the findings of a European Commission survey published February this year, which revealed that 70% of business respondents agreed that EU-level regulation on human rights due diligence would be favourable for companies.
Leaders from within the business community have articulated several benefits of new EU due diligence laws for companies. The first relates to increased legal certainty, as opposed to the present situation in which companies are required to navigate various legal regimes on business and human rights across different national jurisdictions. Another advantage would be that by introducing EU-wide laws, all business actors would be held to a uniform standard of conduct, thus levelling the playing field and allowing companies to address human rights risks in their supply chains without the fear of being undercut.
Implications for businesses: Why act now?
Looking at the rising tide of legislation on business and human rights in the past few years, it appears evident that more and more laws will continue to emerge in this area, covering broader aspects of corporate human rights due diligence. The proposed EU legislation, once passed, is expected to hold particular influence, given the EU’s strong position in global markets. Therefore, even non-EU companies are likely to be impacted, either through their EU operations or from their roles in the supply chains of EU companies subjected to the upcoming legislation.
Therefore, as corporate human rights due diligence becomes the new norm (and is increasingly required by governments and investors), businesses that already have in place strong due diligence compliance programs and processes, will gain a competitive edge over less-prepared businesses. Thus, companies would be well-advised to act now to ensure that they are taking the right steps to strengthen their human rights due diligence practices.