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Article

17 Jan 2022

Author:
Clifford Chance and the Global Business Initiative on Human Rights

Briefing highlights latest mandatory human rights due diligence global developments & recommendations for business to navigate evolving legal landscape

"Business and Human Rights: Navigating a Changing Legal Landscape", January 2022

Legislation governing business impacts on human rights is increasing, with mandatory human rights reporting, due diligence obligations and other regulatory and legislative devices continuing to emerge across the globe. These requirements form part of broader efforts to drive responsible business conduct, sustainable corporate governance, and to include business in efforts to tackle climate change through the energy transition. In this briefing, the Global Business Initiative on Human Rights and Clifford Chance consider these developments, focusing on what businesses need to know to navigate the changing legal landscape...

...Five things businesses need to know

  1. Piecemeal legislation is giving rise to fragmented legal obligations to report and/or carry out due diligence on human rights related issues, and in some instances environmental issues

Newer legislative initiatives broaden corporate obligations significantly. Businesses are increasingly required to carry out due diligence in relation to actual and potential adverse human rights-related impacts and, in some instances, negative environmental impacts. The French Loi de Vigilance requires that certain corporate entities report steps taken pursuant to a vigilance plan in relation to human rights and fundamental freedoms, health and security and protection of the environment.4 Germany, the Netherlands and Norway have passed laws which require due diligence in relation to actual or potential adverse human rights impacts (and in some instances, adverse environmental impacts).5 Also, the EU has proposed revisions to the EU's Non-Financial Reporting Directive (NFRD). Under the proposal, the Corporate Sustainability Reporting Directive (CSRD), more companies would be required to disclose information on policies and due diligence processes in their supply chains in relation to 'sustainability matters', which refers to environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters, and governance....

  1. Civil litigation seeking accountability for human rights harms is likely to increase.

Efforts to legalise aspects of the UNGP carry potential risks to businesses, as the risk of litigation and enforcement for non-compliance with legislation regulating corporate conduct in connection with adverse human rights impacts increases. Two trends are notable. First, legislation providing for corporate action on human rights related issues includes (to varying degrees) consequences for non-compliance...

Second, climate change litigation increasingly relies on or incorporates claims related to adverse human rights impacts or abuses. 40 human rights-based cases on climate change were initiated between 2015 and mid-2020,13 and this phenomenon is likely to increase...

  1. The growing regulation of sustainability issues including on ESG and sustainable finance will drive attention towards the implementation of responsible business frameworks, including the UNGP.

The growing trend for states and regulatory authorities to require businesses to understand and address their environmental as well as their human rights impacts reflects a broader trend to take a holistic approach to responsible business conduct. This is consistent with the objective articulated in the roadmap of the UN Working Group on Business and Human Rights to improve the connections between different UN agendas, for example, to highlight the urgency of tackling the climate crisis on the one hand, and to push for better management of businesses' involvement with adverse human rights impacts on the other...

  1. Alongside human rights due diligence requirements, states are using a wider range of legal and policy approaches to strengthen businesses' respect for human rights and ensure other responsible business practices are followed.

A range of measures are now used by states to impose pressure on businesses to identify and take action in relation to actual or potential adverse human rights impacts in their operations and value chains. Three types of measures are gaining prominence: First, economic sanctions have been imposed to address and punish association with gross human rights abuses or corruption...Second, procurement-related requirements have been used to prohibit human trafficking and forced labour...Third, trade-related restrictions can be used to control the import of goods that may be connected with forced labour...

  1. Businesses need to remain focused on effective implementation of the corporate responsibility to respect under the UNGP to achieve meaningful outcomes for people.

Business should continue to focus on the UNGP which continue to reflect internationally accepted standards of business conduct in connection with human rights. The UNGP can allow businesses to address proliferating legal obligations on similar issues coherently. However, consistent, effective and meaningful implementation of international standards is key to success in this regard...

....As laws and regulation on human rights and environmental issues proliferate, there is a risk of fragmentation and multiplicity of due diligence and reporting requirements. Businesses will need to engage in longer-term thinking to ensure that they adequately address risks to people and to the planet in their efforts to comply with other legislative initiatives tackling adverse human rights and environmental impacts. The need for coherent corporate governance and coordination internally is key. Achieving this may include efforts to de-silo social and environmental teams and integrating these agendas with anti-corruption and other work that intersects with ESG risk within businesses. However, drives by business to manage environmental, social and governance factors coherently should not override or ignore the different approaches called for to manage the risks posed by each factor effectively. The goals of human rights due diligence and environmental due diligence will often diverge. Responding to legislation that requires businesses to integrate the two calls for business to take a detailed approach to each issue at hand, so as not to lose sight of the purpose of such legislation: to improve businesses' approaches to preventing, mitigating and remedying the negative impacts that they have on society and the environment.