Setting higher standards: Be prepared for a new regulatory era

The NYU Stern Center for Business and Human Rights released its report on Setting Higher Standards: How Governments Can Regulate Corporate Human Rights Performance (October 2024). It explores the emerging regulatory landscape and examines how governments and companies can maximise the effectiveness of these regulations. It also calls on U.S. companies and governments to lean in on regulatory approaches.

Human Level’s Take

• We are entering a new era for business and human rights. Regulations for companies to structure their approach to human rights are no longer the exception — they are the norm. And the spillover effect of laws centred in specific regions (read: the EU) means that many more companies will be caught in the net of mandatory human rights and environmental due diligence.
• The challenge (and the opportunity!) facing business now: Companies are no longer navigating voluntary frameworks, they are now facing legal requirements. U.S. companies, this means you, too. NYU Stern’s report outlines some top areas for companies — including American ones — to take action now as the laws come into effect. This is an ideal moment for leadership by companies, including outside of the EU.
• For one, starting to prepare now can help companies get on the front foot and provides the opportunity to shape solutions rather than reacting.
• In addition, companies will also need to reach beyond their four walls to engage with both stakeholders and business partners, so focusing on building those relationships now will help companies comply later on. Engaging with impacted people also allows them to help shape the approaches companies will take in response to the laws.
• Companies can also take the lead in bringing greater consensus around industry standards and performance metrics that will be adopted by government regulators. The key will be tailoring these to the unique challenges of each sector while being robust enough to hold companies accountable.
  

For Further Reading

• Take the first steps today: While the UN Guiding Principles (UNGPs) expected companies to respect human rights, new laws such as the EU’s CSDDD and CSRD, France’s Duty of Vigilance Law and Germany’s Supply Chain Act, make it mandatory. Companies must act now — even if they are not directly covered by the new regulations. To do this, companies should start gathering data on their operations and suppliers (beyond Tier 1) and implement systems to identify gaps. The report also highlights that building robust internal systems is essential, with investment in human rights training and collaboration across legal, human rights, sourcing, and procurement teams. Although building systems doesn’t happen overnight, companies should start collecting data for performance metrics now, as it will take time and resources to gather and record adequate data.  
• Prioritise, prioritise, prioritise: Keep in mind, companies don’t need to tackle all human rights issues in their supply chains at once, but should prioritise the most serious risks across the entire supply chain. This also means prioritising the approaches that are most likely to make meaningful change, instead of investing time and resources in superficial solutions.
• Get ready for standards-based performance metrics: The report stresses the need for governments to create enforceable performance standards to effectively assess corporate compliance. Regulation alone isn’t enough, and companies need robust data collection processes to measure compliance based on outcomes, not just internal policies. For example, tracking worker safety in factories requires time and resources, but setting up this rigorous process will prepare you for the standardised performance measures that are sure to come. The report also points out that moving from voluntary to required might mean that companies are internally shifting responsibility for tracking and reporting, from human rights and sustainability teams to compliance teams. To bridge potential challenges, companies should aim to have joint discussions early on to understand how the laws apply to their day-to-day business and define roles and accountability among departments.
• Engage early and often with stakeholders: Move beyond superficial compliance. Generic questionnaires on human rights will not suffice. The report encourages companies to develop meaningful stakeholder engagement plans, engage substantively with stakeholders and use this engagement to inform their future human rights approaches. The report also advises companies to communicate openly with governments, since addressing human rights challenges responsibly will take time. The report recommends being transparent and candid with regulators about the risks faced and the steps taken to address human rights challenges.
• The case for enhanced U.S. engagement: The report points out that the U.S. generates more than 20% of the world’s total income, that eight of the top ten global companies are American and that the EU and U.S. share the largest bilateral trade and investment relationship. There is no excuse for the U.S. to be a “passive observer” as the EU moves ahead with HREDD regulation. The report calls on the U.S. government to adopt its own legislation for four reasons: (1) U.S. companies are already lagging behind their global peers on HREDD; (2) U.S. companies will be subject to foreign laws that are “defining the rules of the game”; (3) regulations like the Foreign Corrupt Practices Act (FCPA) already serve as a blueprint for HREDD regulation; and (4) American values of freedom and human rights underpin the country’s founding, yet we’re seeing U.S. companies operate at home and abroad without respect for these values. For their part, U.S. companies should be engaging with government officials to push for mandatory HREDD regulation on their home turf.