Investors across the globe are increasingly putting pressure on legislators to mandate human rights and environmental due diligence (“HREDD“). The UK Government has not been immune from such pressure.
As highlighted in our earlier blog post, in early September 2022, a group of 47 companies, investors, business associations and initiatives operating in
The expectation for businesses to conduct human rights and environmental due diligence (“HREDD“) is increasingly becoming mandated by legislators across the globe. As discussed in our earlier blog post, mandatory HREDD obligations are already in-place across Europe, including in France, Germany and Norway, whilst the EU is expected to adopt the draft Corporate Sustainability and Due Diligence Directive – which sets out a proposed mandatory HREDD standard – in 2023. Although the UK Government has announced its intention to introduce a new Modern Slavery Bill (see pages 83 to 84 of the Queen’s Speech briefing, published on 10 May 2022), the UK Government has not indicated that it intends to follow Europe’s lead in introducing a UK-level mandatory HREDD law.
As a result, in September 2022, 47 companies, investors, business associations and initiatives operating in the UK published a joint statement calling on the UK Government to “introduce a new legal requirement for companies and investors to carry out human rights and environmental due diligence“. This follows calls, in August 2022, from a group of 39 investors for the UK Government to bring forward a ‘Business, Human Rights and Environment Act’ to mandate all companies operating in the UK to conduct HREDD.
The recent publication, on 27 February 2022, of the second instalment to the Sixth Assessment Report of the UN’s Intergovernmental Panel on Climate Change (“IPCC“) did not receive the same degree of attention as the first instalment in August 2021. The findings, and message, of the second instalment, are no less severe, or potentially consequential, however, delivering as it does, the “bleakest warning yet” of the impacts of climate change.
The first instalment, developed by the IPCC’s Working Group I, focused on the physical science basis of climate change. The second instalment, developed by the IPCC’s Working Group II, assesses the impacts of climate change, looking at ecosystems, biodiversity and human communities at global and regional levels.
The findings of the IPCC are, of course, deeply troubling in many respects, and the implications of those findings are likely to be extensive. One area in which those implications are likely to be felt is that of climate litigation. As explored in our previous article, the science based findings of the IPCC have played a role in affirming international legal standards on climate change and establishing the link between emissions and climate change, thereby – in some respects – strengthening the cases of climate litigants who may previously have encountered difficulties in establishing causation. The ever-increasing urgency of the climate crisis, and the willingness – and ability – of stakeholders to use litigation to compel action to address that crisis, will continue to be features of the landscape as attention focuses on the IPCC’s findings.
On 23 February 2022, the European Commission published its much-anticipated draft corporate sustainability and due diligence directive (the Draft Directive), after a number of delays (see our Previous Blog). The Draft Directive sets out a proposed EU standard for human rights and environmental due diligence (HREDD). This includes an obligation for companies to take appropriate measures to identify actual and potential adverse human rights and environmental impacts arising from their own operations or those of their subsidiaries and, where related to their value chains, from their “established business relationships”. The Draft Directive also provides a mechanism for sanctions to be imposed for non-compliance with the due diligence obligations and provides for director responsibility and accountability in relation to a company’s HREDD programme.
Whilst the Draft Directive remains subject to further legislative scrutiny and approval, it provides the most detailed insight yet as to the scope and form of the prospective EU HREDD obligations, and it provides a helpful template for corporates to continue developing their due diligence policies and procedures designed to identify, assess and mitigate adverse human rights and environmental impacts – both in their operations and in their supply chains.
The fashion industry often faces scrutiny from stakeholders to improve due diligence in supply chains. A landmark proposed bill in New York, drafted last October and presented for the first time to a legislative committee on January 5 2022, is seeking to drive accountability and transparency in the supply chains of fashion companies. The Fashion Sustainability and Social Accountability Act (the “Act“) historic in its scope and nature, would require fashion retail sellers and manufacturers to disclose their environmental and social impacts, and to set out targets to reduce those impacts.
Continue Reading ESG: Fashion in Focus – The Fashion Sustainability and Social Accountability Act
On 6 December 2021, the Netherlands became the latest European government to announce plans to introduce mandatory human rights and environmental due diligence (HREDD) legislation at a national level, adding to a growing movement and proliferation of national HREDD laws. This puts the Netherlands in the company of the likes of France, Germany and Norway (which have enacted or adopted such laws) and Austria, Belgium and Switzerland, among others (which are progressing their own national HREDD laws).
This development comes despite further delay on the publication of HREDD legislation at an EU level (see our previous Blog Post). On 6 December 2021, the Dutch Foreign Trade and Development minister said that he was “very disappointed” at the European Commission’s further delay to introduce EU mandatory HREDD legislation and announced the Dutch Government’s plans to develop and introduce a national HREDD law instead.
The European Commission has indefinitely postponed its much-anticipated directive on human rights and environmental due diligence (HREDD) – more than 150 days after it was first expected to be published. While the reason for the delay is unclear, 47 civil society organisations have penned an open letter seeking “full transparency on the reasons for the delay and on the decision-making process going forwards.”
Despite this setback, national HREDD legislation continues afoot: laws have been adopted or are in force in France, Germany and Norway, while proposed national legislation is being progressed in a number of other European countries. Most recently, in December 2021, the Netherlands announced its intent to introduce its own national HREDD law in view of the further delay of the proposed EU law.
Legislative developments aside, investors, civil society and other stakeholders are scrutinising how companies identify and mitigate human rights impacts in their operations and supply chains more closely than ever.
And so the message is clear: companies still need to take steps to develop and reinforce their human rights due diligence programmes, both in anticipation of further mandatory HREDD laws and to respond to stakeholder expectations and demands.
During the COP26 summit, a coalition of 190 countries and organisations committed to phase out coal energy by 2040 as part of their commitment to transition to a low-carbon economy. The coalition also stated, in their ‘Global Coal To Clean Power Transition Statement’, that they would provide a framework to support affected workers, sectors and communities to make a “just transition” away from unabated coal power. The coalition’s concern is that the transition to a low-carbon economy may leave many coal-dependent economies at risk of economic hardship and social unrest.
The ‘Just Transition Assessment‘ (the Assessment) recently published by the World Benchmarking Alliance (WBA) provides important insight into the metrics that NGOs may lobby for in order to achieve what they view as a “just transition” (for information on some of the WBA’s other initiatives, please see our Corporate Human Rights Benchmark publication). In carrying out the Assessment, the WBA states that it has measured the actions that some of the world’s most influential companies have taken to support workers and communities whilst they transform to low-carbon business models.
The Assessment contends that there is a “systematic lack of action by companies to identify, prepare for and mitigate the social impacts of their low-carbon strategies”. The Assessment goes on to state that these purported inadequacies need to be addressed, as transition risks being adversely affected by social unrest among those whose livelihoods are threatened.
In September 2021, the Business & Human Rights Resource Centre (BHRRC) published a briefing entitled “Social Audit Liability: Hard law strategies to redress weak social assurances” (the “Briefing”).
The Briefing contends that the existing model of social auditing is inadequate and that social auditing is not a substitute for human rights due diligence (see our previous Blog Post). Among other things, the Briefing reflects on the failure of social audits to detect human rights abuse in the past and on the potential flaws in certification schemes. Ultimately, the Briefing argues that companies should not solely rely on social audits and certifications and should instead adopt a “transformative approach” to human rights due diligence which goes beyond social auditing.
Continue Reading Business and Human Rights: The Case to Look Beyond Social Auditing
“… we renew our call on all governments to develop, implement, and enforce mandatory human rights and environmental due diligence requirements for businesses headquartered or operating within their own jurisdictions or, where appropriate, to further strengthen these regulatory regimes where they already exist.” – a statement from 94 investors representing over $6.3 trillion in AUM
On 7 October 2021, 94 investors representing over $6.3 trillion in assets under management and advisement, sent a statement to European Commissioners and the European Parliament, voicing their support for mandated human rights and environmental due diligence (mHREDD) (the “Statement“). The Statement was sent in light of the upcoming European Commission legislative proposal on Sustainable Corporate Governance. The proposal would require companies to consider their human rights and environmental impacts, allowing them to better manage sustainability related matters in their value chains and overall operations.