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Human Rights Due Diligence in the Modern Era

Respecting and protecting human rights have become an integral part of sustainable and responsible business. Growing stakeholder interest and new regulatory demands set an expectation that companies acknowledge the human rights impacts of both their own operations and supply chain. Businesses are now expected by their stakeholders take steps to proactively identify, mitigate and prevent negative human rights impacts and outcomes that may stem from their operations. In short, commitment to human rights rarely moves beyond “blue washing” if a company doesn’t look inward to understand and act on the implications of its actions.

Human rights risk management

Every day, the operations of a business organisation and its value chain impact individuals’ human rights. These impacts might relate to issues including forced and child labour, privacy, freedom of speech, equality, discrimination and occupational safety, among others. The industry and business model of each company determines which impacts pose salient risks. For example, a crucial risk for a textile company is typically forced labour during garment manufacturing, while telecom companies’ highest concerns relate to freedom of speech and privacy. It’s also important to note that a company’s operations have human rights impacts around the world not just in the countries they operate in, or in areas already considered high-risk. Even grave negative impacts such as human trafficking are on the rise in Europe, for example.

Conducting due diligence

The UN Guiding Principles on Business and Human Rights sets a process that helps companies identify, act on and prevent human abuses resulting from business operations through a due-diligence process. Compliance with the principles and guidelines is voluntary, but many companies have already embraced human rights due diligence. As such, companies commit themselves to follow human rights, carry out risk and impact assessments of their human rights impacts, offer remedies to affected stakeholders and communicate their actions to those stakeholders. At the heart of the process is the understanding that a company cannot really commit to respecting and promoting human rights without having full transparency of its human rights impacts.

Respecting human rights starts with a clear commitment towards human rights. Management should be the role model from top down by publicly pledging to uphold human rights in all operations. Companies should be transparent towards their stakeholders in not just their commitment, but their due diligence process as well.

To achieve a well-functioning due-diligence process, cooperation and a wide range of expertise within the company are needed. Similarly, a lack of synergy (internally and among key third parties) can often cause delays in setting up a company’s human rights due diligence process This requires a clear formal process and organisational chart of ownership and accountability. Importantly, due-diligence requirements can be fulfilled without compromising a company's business priorities. Initial investments are often needed to create clear processes and above all, a change in organisational thinking toward human rights.

Although many businesses are already taking positive actions and have key elements in place, they don’t often know how to integrate existing processes as part of the company’s human rights work. For example, a company’s code of conduct and the supplier code of conduct often contain human rights clauses. However, ethical guidelines are of minor practical importance unless they allow the company to terminate the contract for alleged or suspected human rights problems if deemed necessary.

Conducting human rights impact assessments

Setting up a functioning human rights due diligence process is not easy as there is no one-size-fits-all assessment or laboratory test to determine the cascading effects and human rights impacts. The field of human rights is also wide and includes a variety of involved and overlapping issues. Therefore, conducting a human rights impact assessment usually requires the help and support of a human rights expert.

Human rights impact assessments typically always deliver some surprises. That’s because in a rapidly changing world, risks evolve rapidly. In addition, complex and global supply chains require careful consideration to identify and assess human rights impacts and risks, which are also affected by the company’s countries of operation, industry and various actors operating in the value chain. Well-executed third-party assessments enable companies to manage human rights impacts, along with operational and supply chain risks simultaneously.

Looking forward with legislation

In addition, simply taking voluntary actions related to human rights due diligence will soon no longer be possible. In March 2021, the European Parliament adopted by a clear majority ¾ the recommendations for a proposal for a directive to strengthen the EU Corporate Responsibility Regulation. Although the proposal is based specifically on human rights due diligence, the obligation will also apply to environmental and good governance issues.

In February 2022, the European Commission released a proposal, which would, for the first time, require EU companies (at certain revenue and employee thresholds) to carry out due diligence on environmental and human rights risks. It will require effective protection of human rights in international business, regardless of whether the company is a member of the EU. Importantly, company directors will have to oversee due-diligence actions and consider consequences of their decisions. EU member states will also be responsible for determining companies’ obligations to set up due-diligence processes to identify, prevent and end their adverse impacts on human rights and the environment. The proposal will be next presented to the European Parliament and the Council, and if approved, its provisions will come into force in 2026 or 2028, depending on the industry.

Future legislation will likely create more and new pressure for companies to follow human rights due diligence. If human rights still sound foreign to a company’s management, or the company’s human rights impacts are unknown, it’s time to get to work. The coming years will significantly change what a company’s human rights risk management process looks like, with safeguarding human rights more deeply embedded within the company’s strategy and practices. As a result, responsible businesses are looking forward and looking inward today to set human rights as a vital component of their strategy and sustainability agenda.

Bio: Lia Heasman works in the ESG M&A team in Sydney, Australia and acts as the Leader of the Deloitte Global Human Rights Community of Practice. Lia is a Doctor of Law and her research focusses on the human rights obligations of multinational companiess and human rights due diligence. She was also the country expert for the study on mandatory due diligence in supply chains for the European Commission.

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