Taking a proactive stance on human rights due diligence

31 July 2024

In our fast-paced, globalised society, it is increasingly imperative for businesses to actively safeguard and uphold human rights throughout their operations.

Decoding human rights due diligence

Human rights due diligence is a crucial process that businesses undertake to identify, prevent, and mitigate any adverse impacts on human rights. It encompasses a comprehensive evaluation of a company's operations, supply chain, and business relationships to ensure compliance with international human rights standards.

It is not a passive responsibility but requires actions by companies; actions that align with an overall policy commitment and well-defined due diligence and remediation processes. Companies are turning to the UN Guiding Principles on Business and Human Rights (UNGPs), which underlines their responsibility to identify, address and remediate human rights violations. However, the question remains as to whether the UNGPs and related guidance is properly understood and applied effectively.

UNGP17, for instance, provides businesses with a framework to highlight where their human rights risks are so that companies can start to implement policies and processes to counter those risks as they occur. Above all, it enhances a company’s ability to analyse, integrate and take action based on the results of due diligence assessments.

However, as companies, markets and industries change, so do the risks. This is an important point in terms of how companies move from a passive attitude towards their human rights responsibilities to a more dynamic, purposeful approach. 

Below are four key points to note regarding human rights due diligence:

1. The transition from guidance to law

Companies need to better understand and enhance their human rights due diligence due to the transition of key principles from soft to hard law.

The UNGPs and the Organisation for Economic Co-operation and Development’s (OECD) Guidelines for Multinational Enterprises on Responsible Business Conduct are being applied to sustainability law at both national and European levels. As part of the EU Green Deal, the Corporate Sustainability Reporting Directive (CSRD) and the Task Force on Climate-related Financial Disclosures (TCFD) are already in play for large and listed companies. The success of companies in interpreting and implementing new sustainability reporting laws will depend on their ability to be more proactive in progressing their human rights due diligence. This obligation to perform meaningful due diligence is articulated in the Corporate Sustainability Due Diligence Directive (CSDDD), whilst this is aimed at large organisations it will impact their value chain partners.

2. The intersection of environmental and social impacts

At a policy level, there is a growing recognition that environmental and social due diligence go hand in hand. For example, German supply chain legislation, which already applies to some companies, as well as the CSDDD, necessitates organisations to have an understanding of their environmental impact from a social point of view and what measures are in place to address those impacts. This acknowledgement that the two are inextricably linked means companies need to extend their human rights due diligence to reflect both aspects across their supply chain.

3. Forced labour bans on the radar

Forced labour import bans are becoming more prevalent, with over 50 current ongoing investigations in the US alone. Importers are now required to provide evidence that their goods were not produced using forced labour before they are brought into the country. Europe has also adopted the Forced Labour Regulation and other global jurisdictions will likely follow. Therefore, companies must have effective human rights due diligence processes in place to avoid any unexpected issues and to provide evidence to support the case to release impounded goods.

4. Collaboration between standard setters and regulators

Standard setters are now collaborating with regulators to establish guidelines for companies regarding human rights due diligence. Questions on topics such as what types of disclosures companies should make, whether they are consistent and comparable across sectors and how to measure the effectiveness of disclosures are now on the agenda.

For example, in line with the UK’s Modern Slavery Act, many companies focus on reporting rather than action. However, regulators have come to realise that simply asking companies to report is no longer enough. The implementation of the Corporate Sustainability Due Diligence Directive (CSDDD) in the EU is a clear indication of this shift, signifying the transition from a reporting obligation to a duty to take action that companies must adhere to.

Undoubtedly, establishing effective human rights due diligence procedures requires significant human and financial resources to implement, stress test and monitor the effectiveness of policies using appropriate key performance indicators (KPIs). However, this investment will bring positive returns. Companies that can analyse, integrate and act upon the findings of due diligence assessments will be better positioned to avoid violating evolving human rights legislation.

Steps to implement human rights due diligence:

By integrating a systematic approach to human rights due diligence, companies can identify, prevent, and mitigate any adverse human rights impacts resulting from their activities.

Here are some key steps to enact human rights due diligence:

Commitment and policy: the first step is for businesses to establish a clear commitment to human rights and develop a comprehensive human rights policy. This policy should align with international standards and set out the company's responsibility to respect human rights throughout its operations.
Assessing risks: conducting a thorough assessment of human rights risks is essential. This involves identifying potential human rights impacts associated with the company's activities, products, and services. The assessment should consider the company's value chain, including suppliers, contractors, and business partners.
Integration into systems and processes: human rights due diligence should be integrated into existing business systems and processes. This includes embedding human rights considerations into decision-making processes, risk management frameworks, and supplier selection criteria.
Monitoring and reporting: regular monitoring and reporting on human rights performance are crucial to ensure ongoing compliance. Companies should establish key performance indicators (KPIs) and mechanisms to track progress, address any shortcomings, and communicate transparently with stakeholders.