Libby Reynolds

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In May 2021, the International Federation for Human Rights (FIDH) published a report setting out a series of tools investors can use to identify and address human rights risks, including modern slavery risks, in their portfolio companies.  The report includes a sectoral analysis of modern slavery rights in four sectors – Tourism, Construction, Food and Beverage, and Textile and Footwear – and adds to the growing toolkit of ESG-related resources available to investors (see, for example, our briefing Asset Managers: Mastering Non-Financial Risk – The Evolution of Human Rights Due Diligence).
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Continue Reading Business and Human Rights – Analysing modern slavery risks in portfolio companies: practical considerations for investors

European Union - Germany - Berlin

On 29 April 2021, the German Federal Constitutional Court published its groundbreaking ruling following several constitutional complaints against provisions of the German Federal Climate Change Act of 2019. In its order, the First Senate of the Constitutional Court held that the provisions determining national climate targets and the annual emission amounts allowed until 2030 are incompatible with fundamental rights insofar as they lack sufficient specifications for further emission reductions from 2031 onwards. The German legislator is now obliged to enact provisions by 31 December 2022 that specify in greater detail how the reduction targets for greenhouse gas emissions are to be adjusted after 2030.
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Continue Reading ESG litigation: German Federal Constitutional Court rules that the German Federal Climate Change Act is partially unconstitutional

United Kingdom - London

There have been two recent developments in the UK which further highlight the litigation risk for  international companies in respect of the activities of  their foreign subsidiaries. The UK is certainly not the only regime where there has been a notable increase in human rights related litigation but a distinct pattern is emerging.

PGI Group (PGI), a group of companies that operate in the agribusiness and renewable energy spaces, and its Malawian subsidiary, Lujeri Tea Estates Ltd (Lujeri), are facing a legal action in the UK High Court in connection with alleged systemic sexual abuse, including rape, sexual assault and discrimination, in Malawi.  Lujeri is a supplier to a number of known UK tea brands, including Typhoo, Yorkshire Tea and Tetley.  It is also a major supplier of macadamia nuts, which are grown in its Malawi orchards.

In the meantime, British American Tobacco (BAT) and Imperial Brands sought last month to strike out claims made against them and their subsidiaries by Malawian tobacco farmers, which were filed in the UK High Court last December.

These cases add to the growing list of companies to have faced legal claims in the UK courts in respect of the actions of their foreign subsidiaries (see our previous commentary on Camellia plc, Royal Dutch Shell plc and Vedanta Resources plc).  The cases also highlight the increasing litigation risk dynamic amid the growing trend of human rights and environmental litigation and underline the importance of UK companies taking steps to identify, prevent and mitigated human rights-related risks both in their own operations and also in the operations of their subsidiaries.…
Continue Reading Business and Human Rights in the UK – Litigation Risk

European Union - EU - Brussels

On 21 April 2021, the EU Commission announced its proposal to extend existing sustainability reporting in a new Corporate Sustainability Reporting Directive (CSRD).  The proposal, which revises the Non-Financial Reporting Directive (the “NFRD“), will extend the reach of sustainability reporting to more companies and will cover more sustainability topics.

This is part of a wider, concerted effort by the EU to legislate for greater E, S and G reporting and accountability standards, like the EU’s proposed mandatory human rights and environmental due diligence law.  It is also part of a larger global trend: for example, New Zealand recently introduced a new Climate Disclosure Law (see our Blog Post on this here). Companies are increasingly embracing voluntary sustainability reporting but there are increased demands for mandatory reporting – the Global Reporting Initiative (GRI) for instance called for mandatory reporting in December last year. However companies’ standards of  voluntary reporting are of variable quality and often do not address the impacts of companies’ business activities on people and the environment.

Key aspects of the proposed Sustainability Reporting Directive:

  1. More companies would be asked to report on sustainability, up from 11,000 previously to nearly 50,000.
  2. The “double materiality perspective” is further reinforced – that is companies have to report on the impact of their business activities on people and the planet across the full value chain, as well as the sustainability risks for the business itself, and to disclose the process for determining their material issues.
  3. Measurements of sustainability will be more consistent, reliable, and therefore comparable, for investors and other stakeholders.
  4. Timing is subject to change, but it is expected these measures would take effect in 2024, i.e. reporting on the financial year ending 2023.

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Continue Reading EU Moves Toward Comprehensive Corporate Sustainability Reporting Directive

Governance

EU legislators are being pressed to ensure that, as they progress plans for mandatory human rights and environmental due diligence, they highlight the importance of companies identifying and mitigating corruption.

Global Witness and Transparency International EU published a report in April 2021 which highlights that, despite commitments from every EU country to tackle bribery and corruption, only three of 27 countries (France, Germany and Italy) have enacted legislation that requires companies to prevent and detect corruption.  The report proposes that the EU’s proposed mandatory human rights due diligence legislation should make it clear that companies should address the negative risks and impacts of corruption as part of a broader human rights and environmental due diligence obligation.

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Continue Reading Business and Human Rights: The Corruption Dimension

Portraits of National Leaders

In a Report published in April 2021, The Circle, an NGO that champions equal rights and equal opportunities for women and girls, proposed an EU regulation specifically aimed at achieving a living wage for workers in the garment industry. As the fashion industry emerges from the COVID-19 pandemic – which has brought renewed attention to complex supply chains and the conditions of workers in garment factories – Jessica Simor QC, author of the Report, argues the need for a legal framework to protect garment workers from exploitation.

The proposal comes off the back of the EU’s commitment to introduce a mandatory human rights due diligence law, and other initiatives currently progressing at the EU-level, which indicate considerable political will to introduce measures that identify and remediate human rights harms in global supply chains.

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Continue Reading Business and Human Rights: Fashion Focus – A Proposal for New EU Legislation on a Living Wage

Governance

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.

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Continue Reading Business and Human Rights: Pitfalls Of Social Auditing

Asset Management

The “Find It, Fix It, Prevent It” initiative, which extends to some 56 large investors including M & G, Fidelity International, Schroeder’s and Edentree, seeks to increase the effectiveness of corporate action against modern slavery.

Initially, the “Find It, Fix It, Prevent It” initiative was focused on the hospitality sector, with investors seeking to engage with the largest UK-listed hospitality firms to encourage companies to develop better policies, processes and procedures for tackling modern slavery–and better disclosure. This year, “Find It, Fix It, Prevent It” will look to broaden its engagement with companies to include the construction and materials sector, with plans to commence engagement with targeted companies from the third quarter: the initiative’s activities and future focus are set out in its first annual report. The CCLA estimates that “the construction industry is estimated to contain 18% of the world’s victims of forced labor”. The term “modern slavery” extends to slavery, servitude, human trafficking and forced or compulsory labor (read more on the key indicators of modern slavery here).

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Continue Reading Business and Human Rights: Investors Call Out “Modern Slavery” and Focus on Hospitality, Construction and Materials Sectors

Asset Management

This month, the American Bar Association (the “ABA“) published a Report on its suggested Model Contract Clauses to Protect Workers in International Supply Chains (the “MCCs“).

While the MCCs are not put forward as a binding standard, they do provide food for thought for companies who are seeking to align their supply chain contracts with the UN Guiding Principles on Business and Human Rights (the “UNGPs“), and the increasing tide of mandatory human rights due diligence legislation (see more on this impending legislation here).

Key takeaways:

  1. The aim of the MCCs is to align drafting in international supply chain contracts with existing human rights due diligence standards and obligations, with a view to providing “operational guidance for mapping, identifying and addressing human rights risks at every tier of the supply chain” and seeking to help companies “implement healthy corporate policies in their supply chains in a way that is both legally effective and operationally likely.”
  2. In aligning supply chain contracts with existing obligations and requiring reasonable due diligence by both contract parties, the MCCs seek to address what could be considered an imbalance in the typical negotiation of supply chain contracts where, traditionally, a buyer has tended to shift all responsibility for human rights issues to the supplier.
  3. The publication of the MCCs pose some interesting considerations for buyers negotiating supply chain contracts. For example, to what extent is it reasonable for the supply chain contract to reflect the stance that abuses of workers’ rights occurring in global supply chains is a shared responsibility of both buyers and suppliers? The cooperative approach submitted is very different to the traditional oppositional relationship between buyer and supplier, where buyers seek to ensure that any and all responsibility for adherence to prescribed human rights standards falls to suppliers by requiring representations and warranties from suppliers on a “strict liability” basis.

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Continue Reading Human Rights Due Diligence in Supply Chain Contracts: A Shared Responsibility of Buyer and Supplier?

Social

Camellia plc and certain of its subsidiary companies have recently settled legal claims in the United Kingdom based on allegations against two businesses in Camellia plc’s African operations, namely Kakuzi in Kenya and EPM in Malawi. The claimants – supported by the Kenyan Human Rights Commission, the Centre for Research on Multinational Corporations (SOMO) and the Ndula Resources Centre – had alleged personal injuries suffered by local residents in Kenya allegedly carried out by security guards employed by Kakuzi in Kenya and sexual harassment and gender-based violence suffered by EPM’s female employees in Malawi. These claims have now been resolved at settlements costing up to £4.6m in relation to the Kenyan claims, and £2.3m in relation to the Malawian claims (see Camellia’s trading statement here).

The settlement highlights the role and importance of remedial community measures and Operational-level Grievance Mechanisms, as well as the increased exposure to litigation of parent companies for human rights related failures by their subsidiaries (for further examples, see our coverage here and here).

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Continue Reading Business and Human Rights: Operational-level Grievance Mechanisms Form Part of Camellia plc’s Settlement of Claims in Connection with Operations in Kenya and Malawi