The British Institute of International and Comparative Law (BIICL) published Towards New Human Rights and Environmental Due Diligence Laws: Reflections on Changes in Corporate Practice (October 2024). This study focuses on the human rights and environmental due diligence (HREDD) laws in Europe, namely the French Duty of Vigilance Law (DVL), the German Supply Chain Due Diligence Act (LkSG), and the EU Corporate Sustainability Due Diligence Directive (CSDDD). It does so by providing reflections on changes in corporate practice resulting from the implementation of these laws, and a comparative analysis of these legal models.
Human Level’s Take
- The insides of companies are already shifting significantly to adapt to the business and human rights laws that we have on the books! Companies are changing how they govern and oversee their HREDD obligations.
- Examples include escalating human rights issues to senior level, establishing specialised committees, integrating human rights into board governance and implementing internal mechanisms to ensure compliance.
- And this is true even for those companies that are not in scope! A number of companies are getting ahead of the game, and are foreseeing future HREDD developments - as well as more generally how HREDD is changing business practice.
- The next step is ensuring that company departments (e.g., sustainability, legal, supply chain, risk management and procurement) share the implementation of HREDD between them - rather than working in silos. Other areas for companies to advance on include stakeholder engagement, grievance mechanisms, pushing beyond social audits and third party certifications, and embracing a shared responsibility approach with suppliers.
For Further Reading
- Harmonisation of regulation and alignment with the UNGPs: The study finds that the French and German HREDD laws are not fully aligned with the UNGPs. For instance, the LkSG’s scope is companies’ own area of business and direct suppliers (unless there is ‘substantiated knowledge’ of a risk), whereas the UNGPs extends to the full value chain. Although the CSDDD has some limitations, its adoption is an important step toward harmonising HREDD requirements in line with the UNGPs. The study finds that companies with more mature programmes are using international standards - the UNGPs and the OECD Guidelines - to develop their HREDD frameworks. Policy makers are recommended to see the UNGPs as the standard reference and at the heart of HREDD regulation.
- More mature risk-based HREDD process over time: The study finds that HREDD laws are encouraging companies, even those who are not directly in-scope, to adopt risk-based HREDD processes. Companies are also trying to foresee future HREDD developments and adopt a highest standards approach when developing internal compliance frameworks. In addition, it is anticipated that the CSDDD will drive a more integrated approach to human rights and the environment and a more holistic HREDD process. Even though there are positive changes at the policy, integration and management levels, gaps still exist. Gaps exists in relation to the identification, assessment and prioritisation of risks, tracking performance and measuring effectiveness, conducting meaningful stakeholder engagement, and grievance mechanisms. Policy makers are recommended to require an expansive holistic, risk-based approach to HREDD in line with the expectations of the UNGPs.
- Balance between flexibility in the implementation of HREDD processes and legal specificity: The study highlights the tension between the flexible approach to HREDD in the UNGPs and OECD Guidelines and the prescriptive approach in hard laws. It finds that a balance must be struck between the two approaches to allow companies to approach HREDD in a way that is reflective of their own risk areas and processes. According to the study, the CSDDD “made the right level of compromise” by listing mandatory ‘appropriate measures’ that companies should take, and additional measures that they can choose to take. Furthermore, policy makers are recommended to clarify that minimum ‘tick-box’ compliance is not embedded in HREDD laws, and companies are encouraged to develop transformative internal and commercial business strategies following a risk-based and shared responsibility approach.
- Engagement with suppliers and shared responsibility: The study finds that regulatory obligations for HREDD risk assessment and the risk of liability are forcing companies to find innovative ways to overcome visibility over their entire supply chain challenges. However, companies in Europe continue to rely on social audits, third party certifications. This is incompatible with the UNGPs because audits and certifications are shown to be ineffective at identifying and addressing adverse impacts in value chains. Companies are also yet to implement a shared responsibility approach. This fails to align with the CSDDD, for example, which embraces a shared responsibility approach by requiring large companies to enter into ‘fair, reasonable and non-discriminatory’ contracts with their business partners, and provide ‘targeted and proportionate support’, bear the cost of independent third-party verifications, and look at their own purchasing practices.
- Responsible disengagement: The UNGPs expects companies to engage with a business partner and use its leverage to address adverse impact. It also recognises situations where termination is appropriate given the severity of the adverse human rights impacts and the inability to exert leverage to change the situation. Similar to the UNGPs, the CSDDD clarifies that disengagement from suppliers should happen in a responsible manner and when there is no reasonable expectation that leverage effort would succeed. Despite fears that the HREDD laws would promote business termination in the absence of responsible engagement or complete divestment from certain countries, the study did not find evidence of such practice.
- Changes in internal corporate HREDD governance: The study finds that HREDD laws are driving significant changes in how companies govern and oversee their HREDD obligations. Examples include escalating human rights issues to senior level, establishing specialised committees, integrating human rights into board governance and implementing internal mechanisms to ensure compliance. However, important gaps still exist. For instance, company departments (e.g., sustainability, legal, supply chain, risk management and procurement) still tend to work in silos, rather than sharing the implementation of HREDD between them.
- Stakeholder engagement: The study finds that companies continue to approach stakeholder engagement as an ‘add-on’ instead of a core step of the HREDD process, which does not align with the UNGPs. It recognises that the CSDDD requires companies to engage meaningfully with stakeholder but with some loopholes. Instead, it requires that policy makers require meaningful stakeholder engagement throughout the entire HREDD process and clarify that multi-stakeholder initiatives or industry initiatives are not substitutes for such engagement.
- Grievance mechanisms: The study finds that this is an area where most progress still needs to be made. For instance, companies are still to embrace grievance mechanisms as a human rights risk prevention tool - including its role in identifying adverse human rights impacts, tracking the effectiveness of HREDD processes, and enabling remediation for those who have been impacted.
