On 29th April 2020, European Commissioner for Justice Didier Reynders presented a study conducted for DG Justice and Consumers on due diligence requirements through the supply chain, which surveyed over 630 stakeholders across Europe (“the study”). Based on the findings of the study, he announced that the European Commission would put forward a legislative initiative on mandatory human rights and environmental due diligence as part of the EU's COVID-19 recovery package. As we approach the legislative consultation, it is helpful to draw out a few key findings of this study which could inform the formulation of the regulation.

A “do no harm” standard of care rather than a tick-box list: The study found that due diligence as a standard of care is 'based on the basic tort law or negligence principle – phrased differently but similar in nature across civil and common law jurisdictions – being that a person should take reasonable care not to cause harm to another persons' (p. 260). Stakeholders across the board emphasised the need to follow the context-sensitive concept of human rights due diligence (HRDD) set out in the UN Guiding Principles on Business and Human Rights (UNGPs), which expects a company to identify and address human rights risks relevant to rights-holders on an ongoing basis, whilst allowing for prioritisation based on the severity of the risk or the irremediability of delaying a response. In contrast, it was highlighted that a superficial “tick-box” approach, whereby a company ticks off certain issues or steps off a pre-defined list, does not benefit anyone, is overly cumbersome and inefficient, and draws away resources and attention from real-life issues.

It is accordingly important that the regulation itself does not create such a checklist. Hence the need expressed by the majority of survey respondents for a general cross-sectoral legal duty which requires courts and enforcement bodies to take into account the specificities of each particular case, including the sector, size of the company, and operating context. The study explained:

To complement this general standard of care, the study recommends that the regulation be accompanied by non-binding guidance to inform the understanding of what HRDD looks like in relation to a specific sector or issue.

A due diligence standard of care understood in this way could be distinguished from a duty which triggers a strict or absolute liability (which would follow automatically once a harm occurs, regardless of whether the company acted with fault or negligence in relation to the steps it took or absence thereof), and is also different from due diligence for legal compliance. The fact that a human rights harm occurred (or is about to occur) in the company’s operations or supply chain will not automatically result in liability, nor will tick-box compliance with a due diligence obligation automatically exclude it. The question will be what proactive steps did the company take on the facts to find out about this harm, to prevent and address it, and whether these steps were reasonable in the particular circumstances (p. 264-5). The fact that local law prohibits or allows the conduct is not decisive, as the UNGPs provide that the corporate responsibility to respect human rights ‘exists over and above compliance with national laws and regulations protecting human rights’. The study states that: ‘In this way, the due diligence standard incentivises effective, high quality and practical due diligence processes which target real risks and priorities’ (p. 262).

Human rights due diligence as described in the UNGPs does not encourage or require divestment. On the contrary, in order to meet the standard of care the company would need to show proactive meaningful engagement, and concrete attempts to increase leverage where such engagement is not leading to improvements. The UNGPs are clear that termination of the relationship should only be considered as a last resort, and if so only when the human rights impacts of ending the relationship has been taken into account. The study states:

A corporate duty to exercise due diligence as a standard of care for human rights and environmental harms in the company’s operations and value chain is also different from corporate governance rules and fiduciary duties of directors. Despite a recent trend to extend the understanding of “materiality” to include “environmental and social materiality”, this focus still relates to the risks to the company, rather than the risks to the rights-holders. The study states that:

Stakeholders in the study, especially those from civil society, emphasised the need for the regulation to provide for access to remedy.

The UNGPs provide that effective grievance mechanisms play an important role as part of both the state duty to protect and the corporate responsibility to respect. However, non-State-based grievance mechanisms can only complement and not replace State-based judicial remedies. Indeed, the duty to provide remedy, as set out in international human rights law as well as Pillar III of the UNGPs, is that of States.