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17 Feb 2022

Nahla Davies

Are US Businesses Falling Behind On Human Rights Due Diligence?

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A widespread movement for mandatory human rights due diligence legislation is taking place in the European Union (EU). However, the United States hasn’t made much progress on this issue since corporate due diligence legislation was proposed in 2019. This legislation, had it been enacted, would have mandated public companies in the United States to include a Human Rights Risk and Impact Report in an annual human rights analysis report. Now retailers and investors are honing in on human rights due diligence legislation as a value shift continues.

Section 307 of the US Tariff Act of 1930 was enacted to prevent imports of products made with forced, prison, or child labour. The Act was recently revisited in light of the reports of atrocities taking place against the Uyghurs in Xinjiang and President Biden signed the Uyghur Forced Labor Prevention Act (UFLPA) into law on December 23, 2021.

This new iteration of the US Tariff Act highlighted a few issues with the original legislation that has allowed companies to operate without broad human rights due diligence mandates. Under the new law, regular reporting of confiscated goods and persons allegedly responsible for forced labour in Xinjiang is required, as well as due diligence for companies using supplies and materials from that region.

While the UFLPA is a good step forward to protect victims of forced labour in the Xinjiang area, and holds important lessons for the EU debate on mandatory due diligence, the implementation of broader human rights due diligence will remain crucial to eliminating human rights abuses, including forced labour, from our global supply chains. Retailers, including in the US, are increasingly demanding human rights and environmental checks throughout the value and supply chain, even as the US lags behind. Let’s take a look at the state of the issue in the US and what future legislation might look like.

Is the US falling behind on global human rights measures?

While recent interest in social equity has come to a head in a display of violence and political unrest, the US government has been focused on issues like tech regulations and compliance.

The US is plagued by a history of excluding minorities from labour protections - in addition to the fact that labour protections have long been loosely defined, limited in scope, and in favour of employers. Labour law debates in the US largely revolve around costs and economic impacts instead of protecting the human rights of individuals. Millions of workers are denied labour law protections, and those who can unionise are subjected to rules that unfairly favour their employers.

With the rollout of GDPR regulations in the EU, the US has been forced to reexamine how they treat personal data. This has opened up a much broader conversation on privacy rights in general, but this conversation has yet to extend to other human rights.

Businesses and government organisations in the US are focused on measures such as PCI compliance, cybersecurity, and digital infrastructure security. But with new regulations developing across the pond, there is an expected shift toward mandatory due diligence in the business supply chains as well.

Why now?

More retail companies and investors are seeking mandatory due diligence legislation for a few reasons. For one, it will become necessary to be able to continue to participate in trade with countries that do have mandatory due diligence standards. There is also the matter of shifting values among certain customer and employee demographics, prioritising things like sustainability over purely economic aims.

Investment priorities are also shifting with a greater focus on environment, social, and governance issues. According to recent surveys, there has been a 50% increase in the number of people purchasing comprehensive insurance policies since the pandemic began as well as an increase in ESG investing. In short, priorities are changing, and many retailers recognize that they must adapt to these consumer expectations or risk losing market share.

The push for mandatory due diligence legislation in the EU is also taking place at individual country level. For example, the Dutch Minister for Foreign Trade and Development Cooperation recently announced that they will develop their own due diligence law while the EU one is being debated. Businesses around the world are beginning to realise that simply focusing on profits without mandatory human rights and environmental checks and balances is no longer a sustainable economic model.

Although companies are taking steps toward embedding due diligence into their processes and operations, it has been made clear through repeated labour scandals that it is not enough to rely on companies taking matters into their own hands. Mandatory human rights due diligence laws such as the EU’s proposed law requires more visibility and monitoring. This will push businesses to identify and eliminate human rights abuses in business supply chains, or risk fines and loss of legitimacy.

Future due diligence legislation in the US

The US should follow the EU process closely, including recommendations to the EU e.g. by the UN, to formulate due diligence legislation that covers all types of human rights impacts throughout the value chain. Instead of focusing on reporting, future bills should highlight meaningful processes so businesses are required to facilitate effective recourse for abuses. Legislation should cover all companies and governing agencies, including offshore enterprises, with strict compliance monitoring and enforcement structures.

More and more companies in the US are leaning toward sustainable and circular economies that are profitable without causing harm. Effective due diligence, mandatory or not, can prevent abuse before it happens. Companies should adopt worker-driven due diligence models that include education components to ensure workers are aware of their rights and protections. Having highly engaged workers helps position companies ahead of legislative moves and leads the way in creating processes for other businesses to follow.

Nahla Davies is a software developer and tech writer. Before devoting her work full time to technical writing, she served as a lead programmer at an Inc. 5,000 experiential branding organization.

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