Companies are increasingly exposed to the financial risks associated with abusing human rights. With mandatory due diligence on the rise, it is time for a robust approach to upholding human rights. Many global companies have faced allegations of abusing human rights, either directly or indirectly. But even in cases where their role appears obvious, holding companies legally responsible is challenging.
Moving from reactive to proactive
Modern approaches to regional legislation are taking a new perspective on corporate accountability for human rights, with a focus on mandatory due diligence and disclosures for human rights. If rigorously enforced, we believe these laws could be proactive steps in upholding human rights, rather than just focusing on backward-looking assessments of liability. Companies can avoid regulatory action, costs, and reputational damage by establishing a robust approach to human rights in advance of these regulations. They can also enjoy the benefits of more efficient operations (particularly amid increasingly complex environments), higher supply chain productivity and enhanced brand value.
Why do we need change?
Current international laws are largely ineffective in holding large multinational corporations liable for abusing human rights. Some of the main barriers to successful litigation can include:
• weak regulatory regimes where abuses occur
• jurisdictional ambiguity because of increasing globalisation
• the separation of legal liability between owners and companies (known as the ‘corporate veil’)
• victims lacking the resources to pursue lengthy legal processes.
As a result, victims of abuse can ultimately be left with no legal recourse.
In 2011, the United Nations’ (UN) Guiding Principles on Business and Human Rights (UNGPs) marked significant progress in clarifying the role of businesses and states in upholding human rights. The subsequent UN Guiding Principles Reporting Framework, which has been incorporated into prominent reporting and management standards, helped the model to work.
However, since the UNGPs and reporting standards are not legally binding, many continue to view them as discretionary. While corporate social responsibility and sustainability reporting have become relatively commonplace (93% of the largest 250 companies globally now publicly report on sustainability issues), the quality of human rights disclosures tends to be inconsistent and non-substantive. This makes it difficult for stakeholders to hold companies accountable. Companies leading the way in this space and demonstrating good reporting practices include H&M, Nestle and Anglo American plc.
Efforts to challenge these barriers and to encourage meaningful disclosures are ongoing. Regulators in the UK, the European Union (EU) and Australia are focusing on more proactive requirements for companies, aimed at stopping abuses from occurring in the first place. This includes mandatory due diligence and disclosure laws.
New legal requirements
The lack of consistent reporting has created demand for mandatory reporting requirements, with a strong focus on demonstrating sufficient due diligence processes. Laws already in place in the UK, US and EU – such as the UK Modern Slavery Act (2015), Section 1502 of the Dodd-Frank Act (2012), the EU Non-Financial Reporting Directive (2014), and the California Transparency in Supply Chains Act (2012) – have inspired some of the thinking in other countries. Some of the new laws and proposals are detailed overleaf.