The European Coalition for Corporate Justice, European Center for Constitutional and Human Rights and Initiative Lieferkettengesetz reflect, in a Business and Human Rights Resource Centre Paper entitled “Towards EU Mandatory Due Diligence Legislation”, on insights from past efforts of companies to advance responsible business conduct and monitor their supply chain. Among other things, they caution against relying on “policing” suppliers through social audits and warn that private auditing and certification must not become a synonym for human rights and environmental due diligence. According to the Paper:

Private auditing and certification must not become a surrogate for the human rights and environmental due diligence of companies. Auditing and certification failures are widespread, ranging from garment factory collapses and fires (Rana Plaza, Ali Enterprise, Tazreen) to dam collapses, resulting in thousands of avoidable deaths and injuries. We now know these mechanisms under-identify and under-document risks and impacts, and can serve as a ‘fig leaf’ disguising actual negative impacts. Currently this multi-billion euro compliance industry goes about unchecked and unregulated with various inherent conflicts of interest.”

In this Blog Post, we discuss the future of social auditing, including with respect to emerging human rights due diligence legislation, and practical steps that businesses can take today to position themselves for the future of human rights due diligence.

The Future of Social Auditing

The Paper continues:

“If private auditing and certification is to have any role in future legislative design, specific measures must be taken to ensure that auditors and certifiers not only do their own human rights and environmental due diligence, but meet stringently enforced minimum standards of quality, integrity and governance; and are held legally liable for their professional failures.

Multi-stakeholder Initiatives (MSIs) have become highly overestimated tools in their capacity to help companies implement responsible business conduct. Evidence shows that MSIs fail to sufficiently oversee compliance with standards, evaluate human rights and environmental due diligence processes, or hold member companies to account for non-adherence. They also fail to ensure access to remedy for victims of corporate misconduct If MSIs are to have any role in future human rights and environmental due diligence legislation, they must be subject to specific oversight and regulation mandating high standards of transparency, outcomes and accountability.”

Social Auditing and Mandatory Human Rights Due Diligence

As companies reflect on how to address the challenge presented by emerging mandatory human rights due diligence legislation (see our previous Blog Post) they should be wary of over reliance on social auditing and multi stakeholder initiatives. Social audits have, in the past, failed to identify misconduct and adverse human rights impacts.  For example, in Lesotho, social audits failed to detect widespread sexual harassment of workers in garment factories supplying major global brands according to August 2020 reports.  Whilst auditing, certification, and multi stakeholder initiatives can certainly play a role in demonstrating effective monitoring of suppliers‘ business conduct, they will not in themselves be sufficient to address regulatory and wider stakeholder expectations – indeed, an increasing number of campaigns are gathering research to highlight “the pitfalls of social auditing”.

Practical Steps to Prepare for Human Rights Due Diligence

Generally, businesses can position themselves for emerging HRDD laws by:

  1. Integrating human rights into group policies and strategic planning processes;
  2. Disclosing how human rights considerations are integrated into strategies, policies and procedures;
  3. Carrying out a human rights impact assessment and taking proportionate counter-measures, as well as communicating internally and externally on what measures have been taken;
  4. Reviewing and reinforcing complaints mechanisms and speak-up programs;
  5. Ensuring the business is well equipped to deal with ‘crises’;
  6. Reviewing the extent to which their board is equipped to address supply chain risks; and
  7. Reviewing the role, resources and expertise of the legal and compliance functions, who should play a key part in addressing these new challenges

For more practical steps businesses can take to prepare for emerging HRDD legislation in the asset management industry, specifically, see our guide, “Asset Managers: Mastering Non-Financial Risk – The Evolution of Human Rights Due Diligence” hosted by the Business and Human Rights Resource Centre here.