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Human Rights Due Diligence in 2021

The year is 1948. The United Nations’ (UN) Universal Declaration of Human Rights just went into effect. While traditional human rights obligations were designed to be enforced by states, the increasingly pivotal role that global companies played in securing these rights was undeniable. As showcased by more recent developments, namely the UN's Guiding Principles on Business and Human Rights (UNGPs), issued in 2011, as well as recent legal developments such as the EU's Mandatory Human Rights Due Diligence draft law, human rights is an essential priority for global companies in the 21st century.

Human rights are an essential guarantee to ensure that every human being has their basic needs met, to protect vulnerable groups from abuse, to allow freedom of expression, and much more. As company’s global operations become increasingly fragmented, they continue to struggle with issues such as supply chain traceability and transparency. In other words, companies have been criticized for being complicit in human rights abuses such as failing to prevent modern slavery from happening in their supply chains, or by failing to secure adequate working conditions across their supply chains. Public awareness of businesses' sometimes obscure operations has skyrocketed, as showcased by public opinions on scandals such as the Rana Plaza collapse in 2013. Public awareness has not only led to industry-level voluntary ethical commitments such as the Organization of Economic Economic Co-operation and Development's (OECD) Minerals Guidance in the mineral industry but has prompted governments around the world to begin drafting laws that legally bind companies to conduct extended oversight of human rights issues in their supply chains.

So, what does the current human rights framework look like for businesses, and what developments can we expect in the future? Let’s dive into some of the main trends from the past years and a look into what 2021 will look like for human rights in business.

What is human rights due diligence?

While due diligence broadly refers to a deep dive investigation into a certain topic, organization, or person, according to Human Rights Watch, human rights due diligence is 'the process by which companies carry out to identify, prevent, mitigate and account for how they address actual and potential adverse human rights impacts in their own operations, their supply chain, and other business relationships.' In this sense, human rights due diligence is different from traditional due diligence in that it concerns managing the risks 'by' the company 'to' society rather than how a company manages risks caused by external factors in society.

Both, the United Nations (UN) and the OECD have provided influential non-binding practical guidance for organizations on how to conduct due diligence in the human rights field. Among the principles in both guides, which highlight that human rights due diligence should be conducted as an ongoing exercise rather than a static box-ticking practice, are the following six principles:

  1. Policy Formulation: Human rights commitments and responsible business practices must be codified into written policies to implement them in the organization.
  2. Assessment and Identification: Organizations should commit to assessing and identifying the potential and actual human rights impacts of their operations.
  3. Act: Organizations should act in accordance with their policies to cease, prevent, and mitigate potential and actual human rights violations risks in their operations.
  4. Tracking: Implementation of these processes across the organization.
  5. Communication: Internal and external communications on how the organization addresses human rights impacts.
  6. Remediation: Ensuring the right remediation mechanisms to affected stakeholders when appropriate.

While the latter principles summarize both the UN's and the OECD's non-binding recommendations, their importance has been signaled by their influence in new legal proposals such as the EU's new human rights due diligence draft law which is explicitly aligned with the UN Guiding Principles on Business and Human Rights (UN Guiding Principles).

Current Human Rights Due Diligence Framework

So what do the human rights due diligence frameworks look like today? Besides the previously delineated non-binding instruments at the international level (UNGP, OECD Guidance, etc), companies face different legal requirements depending on the country they operate in or are listed on. Among the most important existing laws in the field are the UK and Australia’s Modern Slavery Acts, the EU's, and the U.S's laws to regulate conflict minerals, as well as France’s Due Diligence law and the Netherland's law on preventing child labor in supply chains.

The modern slavery laws in the UK and Australia and other jurisdictions, which apply to most large in some regard, require companies to publish an annual report disclosing modern slavery risks in their operations and to delineate steps the company took to respond to those risks. Conflict mineral laws such as the Dodd-Frank Act (2014) and EU's Conflict Mineral Regulation (2021) seek to promote transparency and impose due diligence requirements on companies sourcing minerals that are traditionally associated with human rights conflicts. The French Due Diligence Law (2018) asks companies to disclose an annual vigilance plan on human rights, human trafficking, and forced labor risks in the supply chain, similar to the Dutch Child Labor Due Diligence Law.

Human Rights Due Diligence Trends 2021

The year ahead awaits a defining period in the future of the global legal framework for human rights and business. Following 2020's developments in the human rights due diligence field including the EU's announcement of a new draft law, and Switzerland’s rejected referendum on mandatory human rights due diligence, compliance professionals should be watching how things continue to play out.

This year started off with the U.K. and Canada announcing new due diligence measures specifically directed towards companies operating in China's Xinjiang region amid growing allegations of human rights abuses against Uygur Muslims in the region. On January 27th, the EU Parliament's legal affairs committee voted to adopt a similar initiative, the EU Commission's legislative initiative for mandatory human rights due diligence.

The proposed law, which marks the biggest milestone in this field, would require companies to establish due diligence systems to prevent, mitigate and account for adverse impacts in the areas of labor rights, human rights, and environment. A 2020 report published by the EU on due diligence requirements through the supply chain indicated that 70% of surveyed companies stated that this law would help businesses by leveling the playing field of the currently fragmented legal framework on this issue. Considering that companies are subject to different legal obligations depending on which European country they work in, companies have incorporated human rights risk assessments into their compliance procedures at different levels. The new rules could not only help countries harmonize their legal frameworks, but also ensure that all European companies can guarantee a minimum level of human rights oversight across their supply chains. While it is still being debated which companies would have to comply with the law, the proposal forms part of the EU's Action Plan 2020-2024 for Human Rights Promotion under which the recent Magnitsky-style human rights sanctions were created in December 2020.

While it is also unclear whether the EU's law would impose sanctions on companies that fail to comply with the law, Germany has gone ahead and recently published a plan for the creation of the German Due Diligence Act which would not only require companies to conduct due diligence but would also be backed up by severe fines for non-compliance, differing from most existing laws.

Prediction: Human Rights Become a Priority

As shown in recent trends, the business and human rights field is experiencing a shift from softer, non-binding instruments to harder, legal instruments as indicated by the legal developments in the past 10 years. In support of this new direction, the EU and Germany's new draft laws showcase the momentum that this type of legislation is gaining throughout the globe. While many of these changes are yet to be enforced, companies should evaluate how well their current risk mitigation and due diligence systems fall in relation to best-practice recommendations from the UN which undeniably impact legal future developments worldwide. 
As the business and human rights framework continues to develop, companies should continue to consider ways in which they can start enhancing their due diligence processes through the adoption of technologies. If you are interested in learning more about how technology can help you streamline your due diligence process, see how GAN's integrated compliance management system can empower you to comply with current and future laws.

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