Mandatory Human Rights Due Diligence: The Impact on EU Businesses

November 16, 2020 | News,

The concept of human rights due diligence was introduced by the United Nations in its Guiding Principles on Business and Human Rights (UNGP), which is regarded as the global benchmark for responsible business conduct. The UNGP describes the ongoing process that all businesses should undertake to identify, prevent, mitigate, and account for its impact on human rights.

Ramesh Panavalli explains the human rights due diligence legislation proposed by the European Parliament and what it means for businesses within the European Union.

What is human rights due diligence?

Human rights due diligence is the procedure taken by businesses to identify and act upon actual and potential risks for workers in its operations, supply chain and the services it uses. The concept of human rights due diligence was introduced by the United Nations in its Guiding Principles on Business and Human Rights (UNGP), known as the Ruggie principles, which is regarded as the global benchmark for responsible business conduct. The UNGP describes the ongoing process that all businesses should undertake to identify, prevent, mitigate, and account for its impact on human rights.

Under the UNGP, businesses have a responsibility to implement human rights due diligence, however recent reports have highlighted how the principles have often been neglected, particularly in supply chains.

UN guiding principles 3 pillars framework

How is human rights due diligence changing?

On April 29, 2020, the European Commissioner for Justice, Didier Reynders, announced that the European Union (EU) plans to develop a legislative proposal on mandatory due diligence for businesses. If adopted, the legislation will require all businesses to carry out due diligence in relation to potential human rights and environmental impacts across its operations and supply chains. The consultation is currently in the European Parliament and is expected to pass in early 2021.

The legislation will require businesses to respect human rights in line with the UN guiding principles. These guidelines define three pillars for aligning with human rights due diligence policy and encouraging socially responsible business practice:

  1. Protect: the state duty to protect against human rights abuses
  2. Respect: the corporate responsibility to respect human rights
  3. Remedy: the steps that states must take to ensure greater access by victims to an effective remedy, both judicial and non-judicial

The new EU legislation will make the requirements of the UNGP mandatory.

What will change with the new Human Rights Due Diligence Legislation proposal?

The directive will apply to all businesses governed by the law of a European Union member state or established in the territory of the Union. This is regardless of size or sector and whether it is private or state-owned. The legislation will cover social and labour rights and the environment, including climate change, across all business activities and relationships throughout the value chain.

According to the UNGP, to meet this responsibility businesses should be expected to:

  • Embed respect for human rights into all policies and systems
  • Undertake ongoing human rights due diligence processes
  • Assess actual and potential adverse impacts in its operations and value chain
  • Act on the findings, which include preventing, mitigating, and remediating the impacts of issues found
  • Track effectiveness through monitoring and evaluation
  • Communicate the efforts
  • Implement effective grievance mechanisms and address them through remedy

What does this mean for brands, retailers, and investors?

When the legislation is adopted, businesses operating in the EU will be required to identify, prevent, and mitigate the adverse human rights and environmental impacts of its operations and value chain. This includes impacts that take place outside of Europe and will require businesses to make necessary efforts to identify all suppliers. To be fully effective, due diligence should not be limited to the first tier downstream and upstream in the supply chain but should encompass all suppliers and sub-contractors, particularly those that have been identified during the due diligence process as posing major risks.

The key point to highlight about the proposed legislation is that it contains a clause on penalties and civil liabilities. EU Member States will be required to ensure that penalties for non-compliance are “effective, proportionate and dissuasive” and repeat violations when committed intentionally or with serious negligence will be punishable by effective, proportionate, and dissuasive criminal penalties.

The UK Modern Slavery Act and United Nations Sustainable Development Goals (SDGs) are closely connected with human rights due diligence. A clear overlap exists between human rights due diligence and Sustainable Development Goal 8.7, which aims to end child labour, forced labour, modern slavery and human trafficking.

With investors already calling for this legislation, businesses who have committed to and have experience with responsible business conduct, including implementing the UNGP, SDGs and other human rights frameworks, will find themselves in a comfortable position once the above legislation is adopted.

How Anthesis can help

Our Anthesis Activator Journey empowers multi-expert teams to design and deploy solutions that grow productive, resilient organisations, ecosystems, cities, communities, and people. By working closely with supply chains, Anthesis can support businesses in developing strategy and direction towards human rights due diligence with a focus on transparency and traceability in supply chains. Using our in-house tools, we can identify and rank where the key human rights and salient risks are located within your business, both geographically and within Environmental, Social and Governance (ESG) parameters.

We can also support you with:

  • Benchmarking to understand where you stand in relation to regulatory compliance compared to various indices and competitors.
  • Developing detailed human rights risk assessments for raw materials used in products that have been identified during a materiality assessment.
  • Policy research, conducting human rights impact assessments, and reviewing reports against existing policy commitments, international standards or industry best practice.
  • Building capacity within your organisation, including training and development on ethical trade, human rights, gender equality, modern slavery and creating grievance mechanisms and worker representation models for global supply chains.

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