The Future of Human Rights Due Diligence: Legislation and Regulation for a Level Playing Field

By: Céline da Graça Pires, Associate, BSR; Cynthia Wang, Associate, BSR; Francesca Manta, Manager, Human Rights, BSR; Salah Husseini, Associate Director, Human Rights, BSR

Authors' Note: This blog is the first of a three-part series. In this blog, we will focus on the current landscape of mandatory human rights due diligence (HRDD) and disclosure requirements and the push toward a more universal approach. The second blog will discuss the elements that BSR has found important for effective HRDD, and our third blog will focus on further unpacking the various options being proposed in the European Union’s mandatory Human Rights Due Diligence Legislation (henceforth referred to as EU mHRDD proposal).

Between a global pandemic, accelerating impacts of climate change, and the erosion of democracy worldwide, the year 2020, like the several years preceding it, has caused many of us significant stress and anguish about the state of the world.

One positive development in the human rights landscape is the push for mandatory human rights due diligence. In particular, the recent EU mHRDD proposal is noteworthy as it is the first attempt to mandate HRDD at the regional level, putting in motion an evolution originally envisioned as part of the state duty to protect under the UN Guiding Principles on Business and Human Rights (UNGPs), which are currently only a voluntary set of principles. By establishing mandatory requirements at regional or international levels, we anticipate improvements and clarity in methodologies and approaches, greater visibility on the human rights impacts of the operations of companies around the world, and a push toward greater cooperation and collaboration among private sector actors to address these impacts and provide remedy.

The EU mHRDD proposal, anticipated to take effect in early 2021, is expected to be cross-sectoral and will require EU operating companies to identify, prevent, and mitigate adverse human rights and environmental impacts of a company’s own operations and value chain, even if the impact takes place outside Europe. Already, multinational corporations have welcomed these potential improvements and, as such, are lending their voice and influence to promote such measures. In addition, civil society organizations have also expressed their support, recognizing the most important potential outcome of all, greater respect for and protection of human rights around the world.

Over the last decade, we have seen a flood of mandatory due diligence and reporting regulatory requirements from all corners of the world. These can be lumped into a few broad categories:

• Issue-specific legislation, including the U.S. and EU Conflict Minerals Rules, the UK and Australia Modern Slavery Act, and the Dutch Child Labor Due Diligence Act
• Mandatory disclosure requirements without significant implementation mechanisms, like those listed above but also including the California Transparency in Supply Chains Act and the EU Non-Financial Reporting Directive (EU NFRD)
• National-level mandatory due diligence and reporting requirements that cover all human rights, such as the French Duty of Vigilance Law, the proposed Swiss Responsible Business Initiative, and the proposed German Supply Chain Due Diligence Act

The evolution away from issue-specific or disclosure-only regulations, more popular in the first half of the 2010s, to general mandatory human rights due diligence requirements is a welcome one. While laws such as the Modern Slavery Acts and Conflict Minerals Rules were positive in raising awareness among the business community on an international scale, their focus on reporting and disclosure over due diligence and specific issues over the broad spectrum of human rights means that the impact for rightsholders may not be as significant as intended.

Conversely, the move toward broader mandatory human rights due diligence requirements, such as the EU proposal, are more likely to bring the intended outcomes: a leveled playing field, greater legal certainty and harmonization, increased respect for human rights where companies operate, remedy for the impacted rightsholders, and non-negotiable standards to increase leverage with third parties. If such requirements are consolidated at a regional or international scale and hopefully supplant issue-specific disclosure requirements, companies can dedicate more time toward developing a holistic, comprehensive human rights due diligence approach—ultimately leading to improved remedy and outcomes for rightsholders.

While there are many open questions about what the specific requirements will be in the final version of the EU mHRDD proposal, in general we believe that a regional or international mandatory HRDD approach is a significant improvement over the current landscape for the following reasons.

1. Drives prevention of human rights impacts. By holding companies to a standard duty of care with regard to how risks are identified and subsequently mitigated or remediated, we can anticipate meeting the original goals of the UNGPs in a much more impactful way—mitigation and remediation of human rights impacts on rightsholders and vulnerable populations across corporate value chains.
2. Creates a level playing field and drives legal harmonization. While the scope of applicability of the EU mHRDD proposal is yet to be determined, a regional or international legal requirement will provide legal certainty, harmonization, and clear and consistent expectations for the private sector, moving away from a hodge-podge of issue-specific disclosure or diligence requirements.
3. Creates a clear legal duty. Though the details of what liability looks like are yet to be finalized, we can anticipate that with time, a consistent duty of care will be established in terms of how HRDDs must be carried out and what corporate obligations are in terms of providing remedy.
4. Encourages a holistic approach. Human rights violations do not happen in a vacuum—there are systemic issues that result in such impacts, and thus a systemic approach to addressing them is needed. By requiring all companies to undertake HRDD across their full value chain and working collaboratively to address those risks, we move closer to a systemic approach to human rights management.

Many of the details of the EU mHRDD proposal are yet to be finalized: open questions remain around the required scope of the HRDD program, including what entities will be in scope, what the expectations are for providing remedy and redress for victims, and what liability and penalties will mean.

Still, we believe that the proposed legislation will remove many of the lasting hurdles that prevent impactful corporate HRDD programs today. In the rest of the blog series, we will explore what constitutes good HRDD practices from an impact perspective and discuss the various permutations of the EU mHRDD proposals.

Originally appeared on BSR.