Mandatory HRDD at EU level needs liability, a value chain approach and governance support ‘quality’

Anna Triponel

October 5, 2020

Shift has released Accountability as part of Mandatory Human Rights Due Diligence, a briefing note “explore[ing] what well-designed mandatory HRDD measures could look like, with a focus on the role of accountability – or consequences – for meeting a new legal standard of conduct.”

As the EU continues to determine the bounds of its mandatory human rights due diligence (HRDD) legislation on track to be introduced in 2021, the question of how to create corporate accountability for human rights has risen to the forefront. This question is also relevant as other countries (notably Germany and the UK, in addition to pressure in Sweden and the Netherlands—see Shift’s map of “the State of Play” for HRDD in Europe below) are also exploring implementing their own due diligence laws. In his remarks at the Human Rights and Decent Work in Global Supply Chains conference, hosted by the German Federal Ministry of Labor and Social Affairs, Professor John Ruggie said that “the EU, as the world’s largest trading bloc, has a golden opportunity to provide authoritative standards, which inevitably would have international spillover effects.”

Shift outlines three key considerations for business amidst the accelerating development of mandatory human rights due diligence laws.

Three key considerations for business when it comes to accountability

1. “The Legitimate Role of Liability in Implementing the UN Guiding Principles”

  • The UNGPs “clearly foresaw the relevance of liability as one form of accountability for businesses in ensuring they meet their responsibility to respect human rights”—where companies can demonstrate good faith efforts to conduct robust human rights due diligence, this is likely to help them address legal risk (while not necessarily “absolv[ing]” them of their liability).
  • Liability—whether civil or criminal—is therefore an important tool to ensure corporate accountability. It is also an important means of ensuring that affected people have access to remedy, especially given the many barriers that can preclude this. The briefing emphasizes that, “[a]s businesses grapple with discussions on liability, they should not lose sight of these realities for people seeking remedy for harms.”

2. “Incentivizing Robust HRDD Through Accountability Measures That Go Beyond Liability”

  • Shift points out that liability alone will not necessarily create the conditions for robust corporate human rights due diligence. Where there is “an excessively narrow, compliance-focused approach,” companies may seek to meet only the minimum requirements and limit their scope of their due diligence to “the (relatively small) circle of business relationships that may give rise to liability risks. In many sectors, those entities are unlikely to be the same as the entities that are the cause of human rights harms deep in their global value chains – harms which often result from complex, systemic issues.”
  • The briefing paper maps out the resulting “accountability gap:

Source: Shift, Accountability as part of Mandatory Human Rights Due Diligence (October 2020)

  • The gap could be bridged by including different measures in HRDD legislation, including: “positive incentives (such as positive weighting of measurable human rights criteria in public procurement or access to export credit or trade promotion services), administrative penalties (such as public listing and/or fines for companies that fail to comply with requirements to disclose key elements of their HRDD efforts), and support (such as guidance on how businesses should respond to evolving challenges like COVID-19 or sourcing from contexts with a high risk of forced labor).”

3. “Assessing the Quality of a Company’s Due Diligence”

  • Some companies express concern that the definition of “quality” HRDD is nebulous, especially in light of ever-evolving standards on business and human rights. Shift counters that there are indeed certain “predictable features of ‘quality HRDD’” which “should inform what is required of companies in the area of non-financial reporting” and “should also inform efforts to bring greater clarity to investors’ expectations of companies with regard to the social component of ESG assessments […].”
  • Shift has developed guidance on the key features of internal human rights governance, and is also exploring other areas including: “the quality of a company’s human rights risk identification and prioritization processes; the quality of its engagement with affected stakeholders in its HRDD efforts; and the quality of its actions to address salient human rights issues, including in setting meaningful targets and collaborating with others to use leverage.” Shift encourages companies to focus on “existing guidance and areas of consensus about what constitutes ‘quality HRDD’ and on its integration into any new legislative measures.” (See Shift’s Valuing Respect project hub for more information).

Shift, Human Rights Due Diligence: The State of Play in Europe (October 2020)

“Effective regulation should take account of the legitimate concerns of various stakeholder groups. For mandatory HRDD, that means forging legislation that speaks to businesses’ concerns that liability on its own won’t incentivize the right kinds of practices and behaviors by companies throughout their value chains. But it also has to address the understandable views of civil society that a failure to meet an agreed standard of conduct should result in robust consequences, including a basis for those harmed to seek remedy.”                      

Rachel Davis, Vice President and Co-Founder, Shift, Accountability as part of Mandatory Human Rights Due Diligence (October 2020)

“Progress on these two fronts [human rights due diligence and strengthening non-financial disclosure requirements] would contribute significantly to the overarching concern of this conference with promoting decent work in supply chains. Indeed, I believe it would go even further and help inform the grand debate taking place on both sides of the Atlantic on the social purpose of the corporation, on the need for it to better serve a broad array of stakeholders in addition to shareholders.”                        

Professor John Ruggie, Berthold Beitz Research Professor in Human Rights and International Affairs at Harvard’s Kennedy School of Government, Opening Remarks at the Conference “Human Rights and Decent Work in Global Supply Chains” (6 October 2020)

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