Key Takeaways

Momentum to enact mandatory human rights due diligence (HRDD) legislation is building around the world. Such legislation is necessary to ensure corporations respect human rights and that victims of corporate abuse have access to justice and remedy. As a result, legislators must determine how to turn the normative standards for HRDD contained in the UN Guiding Principles and OECD Guidelines into binding, hard-law obligations. Despite their comprehensiveness, these authoritative instruments are principle-based and do not easily translate into law within different jurisdictions and legal traditions. They are formulated in an open and flexible manner as to allow for adaptability in their implementation and respond nimbly to dynamic environments.

While some degree of flexibility is inherent in HRDD, it also poses additional risks in terms of misinterpretation or misrepresentation. If lawmakers do not achieve the right balance between practical flexibility and normative rigidity, there is a significant risk that HRDD laws will become, at best, a paper tiger that yields no real positive impact for people and, at worst, a new greenwashing technique behind which businesses can hide while continuing to do harm. In order to ensure this does not happen, this paper identifies 12 key interpretations of the norms that legislators must get right when establishing HRDD obligations.

These are the key takeaways for each of 12 particular challenges we have identified:

HRDD IS A STANDARD OF CONDUCT WHERE RESULTS MATTER It is important to specify that the purpose of HRDD is for companies to respect human rights. Due diligence then becomes a standard of conduct for achieving this purpose, it is essential that the adequacy of due diligence be measured using that same yardstick. Companies must demonstrate progress and results regarding specific risks and impacts. It is important to assess and adapt continuously, and when efforts do not result in the desired outcome, processes and actions need to be revised.

THE BAR FOR “CONTRIBUTING” VS. BEING “DIRECTLY LINKED” TO IMPACTS IN THE SUPPLY CHAIN A company’s relationship to a human rights harm is not static and, depending on its own prevention and mitigation efforts, may change over time. Accordingly, the actions required from a company to carry out its responsibilities vary in relation to its mode of connection to the impact and should be revised if the situation does not improve. A company that is initially only “directly linked” to an adverse impact may shift to a relationship of “contributing to” the harm over time if the company fails to take appropriate action to seek to address the impact. Companies can “contribute to” impacts throughout the entire value chain, regardless of how many “tiers” away the harm occurs. Rather than tiers or proximity, factors such as foreseeability and effectiveness of due diligence should be considered in distinguishing between “contributing to” and “directly linked”.

THE BAR FOR BEING “DIRECTLY LINKED” VS. “NOT LINKED” TO VIOLATIONS BY A SUPPLIER Companies cannot ignore abuses committed by business partners, even if these are not directly linked to their products or services, because of the risk that the practices that led to them may carry over into the companies own line of products or services. This has serious implications for the company’s due diligence responsibilities. The norms expect downstream brands and retailers to holistically assess their suppliers’ due diligence across its full range of activities and operations. In other words, human rights due diligence is not simply about tracking individual products or limiting due diligence to single product lines, but about adopting a proportionate, risk-based approach to identifying risks at all levels of the supply chain.

ADEQUATE PROVISIONS FOR DISCLOSURE, COMMUNICATION, AND INFORMATION Legislators must make it clear in the law what information companies are expected to disclose at minimum on their due diligence to demonstrate to relevant stakeholders and rights holders that their due diligence is adequate. This includes publicly communicating regarding human rights risks and impacts and how the company has prioritized them, as well as the HRDD processes that are used to address, mitigate and remedy them. This will also prevent the reduction of the communication step to mere reporting. Any legislation should shift the burden onto companies to actively seek ways to disclose HRDD information to the greatest extent possible, in a meaningful and user-friendly manner. Legislators should induce a change in companies’ default position from non-disclosure to disclosure. For this purpose, it is important to clarify the limits of non-disclosure agreements and provide a clear definition of the notion of “commercially sensitive” information.

PRIORITIZATION IN HRDD PROCESSES, INCLUDING WITH REGARD TO PURCHASING PRACTICES Companies are expected to address all human rights impacts and risks, but if it is genuinely not possible for them to address all impacts and risks immediately or simultaneously, they can prioritize and sequence their actions. When companies do prioritize, this should be based on the severity of the impact and the likelihood of it occurring. In some cases, a company may be connected to an impact by virtue of its business model or due to systemic risks, or the company may have limited resources to address the impacts in question.  Such challenges, however, do not provide a legitimate reason for not addressing a risk or impact. Legislators should provide for additional clear and prescriptive standards in several sectors where purchasing practices are in play. Rather than allowing each company to individually set its own specific purchasing standards, some common rules would help align practices and ensure a level playing field. Legislators have increasingly started to limit contractual freedom within trade relationships, notably on issues such as payment terms, unilateral discounts and economic dependency. More clear-cut and prescriptive approaches to purchasing practices should accompany any HRDD legislation. Legislators should prohibit companies from buying under the cost of production and insist that they commit to existing orders, pay on time, provide reliable forecasting, as well as refrain from unfair trading practices.

THE “DUE” IN DUE DILIGENCE: RESOURCE/ LEVERAGE CONSTRAINTS AND WHAT TO DO WITH SMALL AND MEDIUM-SIZE ENTERPRISES To stay in line with the international normative standards, legislators should make it clear that all companies, large and small, have an obligation to respect human rights and conduct due diligence. In the implementation of HRDD legislation, regulators and courts can take a proportionate approach and account for factors such as leverage and size in terms of turnover and employees, particularly when evaluating the policies and processes of smaller companies, while still making it clear that these companies are required to perform some degree of due diligence.

PREVENTION VS. MITIGATION Legislators should place a strong emphasis on the preventative nature of HRDD and make it clear that prevention, mitigation and remediation do not exist on an equal footing. Prevention of harm is the purpose and first priority of due diligence. Mitigation and remediation are undertaken if prevention fails, not as a substitute. This is implicit in the business responsibility to respect human rights, but additional clarification on the purpose of due diligence, namely to prevent adverse impacts, is recommended.

THE MEANING OF “MEANINGFUL” IN “MEANINGFUL STAKEHOLDER ENGAGEMENT” Legislators should specify expectations for companies regarding meaningful stakeholder consultation as a necessary part of the quality of human rights due diligence. Such consultation should be diversified in relation to the specific rights holders and other stakeholders and should be undertaken in an adaptable and continuous manner.

RESPONSIBLE DISENGAGEMENT As part of HRDD, companies should have a responsible exit plan in place and be prepared to use the credible threat of disengagement to increase leverage. Companies must also be prepared to act upon this exit plan and responsibly disengage, particularly in cases of severe impacts that are unlikely to be addressed through continued engagement. Legislation should be clear that a decision to not responsibly disengage from a business relationship that is repeatedly causing severe abuses may increase the company’s degree of responsibility for the impact. When companies do disengage, they should contribute to the remediation of past impacts to which they contributed and prevent impacts from the disengagement itself.

REMEDY, ESPECIALLY IN THE CASE OF CONTRIBUTION AND DIRECT LINKAGES TO HUMAN RIGHTS HARMS Legislators should ensure that companies have an obligation to engage with rights holders in a legitimate process with the aim of providing remedy. There are different expectations for companies depending on their relation to the harm. Legislators should ensure that one of the pathways to remedy is liability. In cases where several companies are involved, legislators should ensure the possibility of joint liability among several parties. Furthermore, rightsholders should also have access to collective remediation instruments.

STATE OBLIGATIONS AND BUSINESS RESPONSIBILITIES: SEPARATE, BUT INTERLINKED Companies should respect, encourage and support the state in executing its obligations. Policymakers should make sure that in cases of conflicting norms, companies are instructed try to find ways to respect both laws and higher human rights standards. Companies cannot take over the state duties to protect and fulfil human rights but should abstain from actions that could endanger the realization of rights even if such risks are the result of state action.

THE ROLE OF AUDITING AND CERTIFICATION IN HRDD Legislators should clarify that the actual duty of due diligence and the responsibility to implement this duty lies and remains with the company itself. Legislation should state that audits and certification are not to be considered sufficient proof of human rights due diligence. Even though a company may in practice seek external assistance from social auditors or compliance firms or initiatives to carry out certain parts of the due diligence process, legislators should ensure the buck stops with the company itself. HRDD is by its very nature context-specific and tailored to an individual company.

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