Our key takeaway: The upcoming EU legislation under the Sustainable Corporate Governance Initiative offers a golden opportunity to design a due diligence structure whereby companies are empowered, equipped and incentivized to adopt a comprehensive sustainability approach to risks to people and to the planet.
Anna Triponel published a Shift viewpoint with input from Francis West and Rachel Davis (and a huge thank you to those of you reading this who gave us inputs and reflections) which offers some key reflections that can help inform a harmonized due diligence obligation in the upcoming EU legislation under the Sustainable Corporate Governance Initiative:
- We have applicable international frameworks already (the UNGPs and the OECD Guidelines). An overarching ‘sustainability due diligence’ framework should clearly build on these soft law due diligence standards and methodologies, and create further connections and synergies between them. Further, taking a full value chain approach to sustainability due diligence is becoming the expectation. In both areas, companies are increasingly accustomed to navigating international and national standards. And the actions expected for instances of cause or contribution in the environmental space are similar to the human rights space: cease, prevent, and/or mitigate the impacts and remedy the contribution.
- There are some distinctions that a due diligence framework can help bridge. The risks companies will identify through their due diligence will look different – depending on whether they are viewed from the perspective of people, the planet, or the business. By bringing these areas together under one ‘sustainability due diligence’ umbrella, we have the opportunity of more clearly understanding the inter-connections between these impacts. Further, looking at risks to people and planet today will yield a different result than looking at impacts that could occur in a year, in ten years or in a generation’s time. In practice, we are seeing that companies are finding it easier to bring environmental and human rights considerations together under one broader umbrella when both sets of impacts are more localized in nature. New legislation can reflect the differing timelines and locations of where risks may manifest, and help ensure that due diligence enables capturing change over time, both to the risk and to the expected mitigation/action. There is also an opportunity to support companies in conducting stakeholder engagement that can inform both their environmental and human rights due diligence, while recognizing where the objectives of, and audiences for, engagement may differ.
- The importance of embedding due diligence in governance. As the connections between the ‘E’ and the ‘HR’ of ‘HREDD’ grow, so too will the need for cross-functional structures and discussions that enable companies to take a holistic approach to due diligence. This extends to when companies are setting overarching targets, as well as how they set up their internal accountability and responsibility structures. Synergies should start to happen between functions, budget lines, programming and expertise on these areas within companies. And this in turn will start to inform business models that are viewed as sustainable for the long term – as well as those that are not.