“… we renew our call on all governments to develop, implement, and enforce mandatory human rights and environmental due diligence requirements for businesses headquartered or operating within their own jurisdictions or, where appropriate, to further strengthen these regulatory regimes where they already exist.” – a statement from 94 investors representing over $6.3 trillion in AUM
On 7 October 2021, 94 investors representing over $6.3 trillion in assets under management and advisement, sent a statement to European Commissioners and the European Parliament, voicing their support for mandated human rights and environmental due diligence (mHREDD) (the “Statement“). The Statement was sent in light of the upcoming European Commission legislative proposal on Sustainable Corporate Governance. The proposal would require companies to consider their human rights and environmental impacts, allowing them to better manage sustainability related matters in their value chains and overall operations.
This Statement adds to the growing body of support for mHREDD and follows the recent announcement that the Global Reporting Initiative (GRI) has updated their Universal Standards to emphasize and require more transparency in reporting on human rights impacts and due diligence obligations (see our previous Blog Post). The investment community has stated previously that rigorous due diligence legislation is good inter alia for businesses, investors, the economy and the people it serves (see here). While the EU’s proposed mHREDD law (see our previous Blog Post) has been delayed, there have been a number of developments at a national level, for example the passing of a German supply chain law in June 2021 (see our previous Blog Post). It remains to be seen whether this investor statement of support will influence the publication of the EU mHREDD law, but in any event, it represents yet another instance of collective support for action, which companies must respond to.
The overall message is clear: companies cannot wait for mHREDD laws to act – in order to meet investor (and other stakeholder) expectations, companies should already be designing and implementing policies and procedures to identify and mitigate adverse human rights and environmental impacts.
Why is mandatory human rights and environmental due diligence needed?
Investors recognise that relying on the voluntary actions of companies to fulfil their human rights and environmental duties is no longer adequate. Research has shown that nearly half of the 230 largest publicly traded companies in high-risk sectors received a score of zero when measured against five human rights due diligence indicators.
What recommendations did the Statement propose?
The Statement included specific recommendations for mHREDD legislation from an investor standpoint, such as who the legislation should apply to, and the need for robust enforcement. Some key recommendations included:
- Scope – all businesses, public and private, domiciled or based in, operating, or offering a product or service within the EU, should come within the scope of the legislation, irrespective of size – encompassing all companies that fall within the same value chain.
- Alignment with international frameworks – legislation should align with international frameworks such as UN Guiding Principles and OECD Guidelines. These frameworks require businesses to identify, prevent, mitigate and account for how they address potential and actual human rights and environmental impacts through an ongoing human rights and environmental due diligence process. A key element of this is meaningful engagement with actually and potentially affected stakeholders or their appointed representatives.
- Remedy and accountability – mHREDD legislation should ensure accountability for harms which businesses cause or contribute to and should enable and support the provision of adequate and effective remedy. Businesses should also be held accountable through appropriate administrative and civil liability legislative provisions for human rights and environmental adverse impacts within their operations and throughout their global value chains.
- Enforcement – EU Member States should ensure robust enforcement of all obligations and provide the right to an effective remedy. Any barriers that inhibit affected rights-holders from accessing remedy should be removed.
- Good corporate governance – the investors highlighted the need for good corporate governance. For example, corporate boards should oversee and be accountable for the implementation of rigorous human rights and environmental due diligence processes; monitor, discuss, and report on their development; and ensure their results are reflected in forward-looking targets relevant for the prevention and mitigation of human rights and environmental risks and impacts and adequately considered and integrated in a company’s overall strategy.
How can your organisation prepare for increasing due diligence obligations?
We offer practical guidance for asset managers, specifically, in our comprehensive article, Asset Managers: Mastering Non-Financial Risk – The Evolution of Human Rights Due Diligence. In a previous Blog Post, we cover practical steps for boards to consider with respect to human rights issues more broadly, including due diligence.
Generally, businesses can position themselves for the anticipated EU-wide law and other mHRDD laws emerging at the domestic level by:
- Integrating human rights into group policies and strategic planning processes;
- Disclosing how human rights considerations are integrated into strategies, policies and procedures;
- Carrying out a human rights impact assessment and taking proportionate counter-measures, as well as communicating internally and externally on what measures have been taken;
- Reviewing and reinforcing complaints mechanisms and speak-up programmes;
- Ensuring the business is well equipped to deal with ‘crises’;
- Reviewing the extent to which their board is equipped to address supply chain risks; and
- Reviewing the role, resources and expertise of the legal and compliance functions, who should play a key part in addressing these new challenges.
Read more of our Business and Human Rights perspectives here.