Human rights cannot be cordoned off merely as a corporate social responsibility (CSR). In fact, it forms an integral part of all business operations, from human resources to procurement, regulatory measures to legal compliance, human interaction is a key element. For instance, when purchasing land, the human rights implications involves the company to consider resettlement of local populations. When starting a new factory, competition with the local community for water and other basic resources implicates human rights. When hiring human resources, as a reputational and legal liability, the Company must ensure workplace health & safety conditions and also lay emphasis on effective management of environmental impacts. While companies are seen to recognize human rights principles as a moral imperative to operate, there is further acknowledgement that respect for human rights can also serve as a tool for improving business performance.
Businesses regardless of their operations have an impact on communities worldwide. Such impact has both positive and negative implications. Over the recent years, there have been many controversies revolving around contravention and negative impact of businesses on human rights. For instance–
– Exploitation of an individual’s right to privacy by third party organizations or failure to maintain confidentiality due to loopholes in internal data protection systems;
– Setting up of factories or other business units without proper environmental clearances, thus leading to a compromise with respect to the right to a healthy environment;
– Prevalence of forced, compulsory or child labour by way of human trafficking or coercion is one of the biggest concerns faced in the corporate markets across the globe.
2005 – Harvard professor John Ruggie was appointed to devise a framework on the human rights responsibilities of businesses
2008 – He introduced the “Protect, Respect and Remedy” framework outlining the State and companies duty to protect against business related human rights abuse
2011 – The UN Guiding Principles on Business and Human Rights, were presented to the Human Rights Council
2021 – The global standard celebrated its 10th anniversary
2022 – European Commission adopted the Corporate Sustainability Due Diligence & amendment to the Directive on the Protection of Persons who report breaches of Union law
The UN Guiding Principles on Business and Human Rights are applicable on a voluntary basis across all business enterprises, irrespective of the industry or business type or structure. The primary objective of the principles is to provide a set of comprehensive standards and practices focused on achieving tangible results in business and human rights, thus contributing to socially sustainable globalization. A significant aspect of the principles from the ESG perspective is its emphasis on the ‘S’ component that clarifies the roles and responsibilities for managing business related human rights risks and impacts.
Another crucial element of the Principles is the provision on human rights due diligence, which is the main management tool put forward for companies to execute and demonstrate respect towards human rights. While the concept of human due diligence was previously contested, it has become more widely acceptable since the last decade with countries gradually transitioning to mandating the same. The previous year i.e. 2021 witnessed countries’ new legislative mandates on companies to conduct human rights and decent due diligence work not only throughout their supply chain, but throughout all business relationships in their value chain. The two countries who have adopted new legislations on human due diligence are –
June 2021 marked the first decade anniversary of the Principles by the UN Human Rights Council. In celebration of this occasion, the UN Working Group on Business and Human Rights launched a project to further drive and scale up implementation of the Principles over the next 10 years. The main components of the project consisted –
On 23rd February, 2022, the EU Commission adopted the Draft Directive on requiring EU companies to carryout due diligence pertaining to human rights and environment related aspects. The Draft Directive submitted to the EU Parliament and the European Council for approval is set out to provide a horizontal framework to foster contribution of businesses operating in the single market by identifying potential adverse impact on human rights and environment through their activities in both own operations and through their value chains. The Draft Directive once approved shall give each EU Member State two years to formulate national laws incorporating the Directive. Some of the integral components of the Directive include –
The Draft Directive requires large EU companies and also some non-European companies, carrying out significant business in Europe, to assess their actual and potential human rights and environmental impacts throughout the operations including the supply chains. Any form of non-compliance of the process shall attract penalty and civil liability.
The concept of human rights’ due diligence can be said to have found its base in the Principles (UNGPs) along with other global standards that align with ESG parameters. Based on estimations of the Commission, the Draft Directive is expected to apply to approximately 13,000 EU companies. The due diligence process is to be conducted to identify negative impacts that occur within the business operations and accordingly, incorporate corrective actions, for mitigation of risks and to minimize the extent of those impacts.
Article 1 outlines the rules on obligations of due diligence to be adhered by companies with key focus on human rights and environmental criteria. The process shall include not only the respective company’s operations but also the operations of its value chain partners.
Articles 2 and 3 pertain to the scope of application of the Draft Directive and definitions, respectively.
Article 4 requires Member States to ensure that companies conduct the requisite process in compliance with provisions as set out under Articles 5 to 11 of the Draft Directive.
Article 5 Implementing a due diligence policy and also ensuring integration of the same in corporate policies
Article 6 Identification of actual or potential risks and adverse impact in both own and supply chain operations
Article 7 Ensuring companies devise appropriate measures to curb adverse impact identified under the due diligence process
Article 8 Take appropriate measures to end the identified adverse impact as per the due diligence process
Article 9 Provide possibility to submit complaints in case of legitimate concerns associated with the value chain partners
Article 10 Assess effective implementation of the due diligence process
Article 11 Ensure publication of annual statement on official website including details pertaining to the outcome of due diligence process
Article 12 Sets out obligations on the Commission to adopt guidance to help companies comply with the provisions to combat the identified adverse impacts
Article 13 provides support on how companies should fulfil their due diligence obligations; whereas
Article 14 provides accompanying measures to companies in the scope of this Draft Directive including operation of dedicated websites, portals or platforms to financially support SMEs and so on.
Article 15 encapsulates measures to adopt business models and strategies compatible with transitioning to a sustainable economy with limiting global warming to 1.5 °C in line with the Paris Agreement.
The subsequent Articles 16 to 18 make provisions for authorized representatives to exercise powers for enforcement of certain obligations.
Article 19 establishes the right to raise an alarm against any company which is believed to be non-compliant with the obligations of the Draft Directive.
Article 20 Lays down rules on sanctions applicable to infringement of national provisions adopted in pursuant to this Draft Directive
Article 21 Entails details of establishing a European Network of Supervisory Authorities
Article 22 Provides for civil liability on account of non-compliance
Article 23 Facilitates reporting of breach and ensuring protection of reporting person
Article 24 Companies seeking public support to certify no sanction imposed against them for non-compliance
Article 25 Director’s duty of care wrt to decisions pertaining to sustainability matters
Article 26 Director’s responsibility to set up and oversee the due diligence process
Article 26 Amendment by adding Sustainabiltiy Due Diligence and amending Directive (EU) 2019/1937
The Draft Directive is formulated in alignment with provisions of the UN Guiding Principles on Business and Human Rights. Accordingly, it extends to the due diligence obligation across all levels of the supply chain. If integrated effectively, the regulation has the potential to lay down the groundwork required to help companies curb adverse risks and proactively manage potential as well as actual impacts identified under the human due diligence mechanism.
Tags: Dhir & Dhir Associates
www.grandmasters.in | 8 Years & Counting
www.rcls.in | 8 Years & Counting
www.itlegalsummit.com | 8 Years & Counting
www.bfls.in | 8 Years & Counting
www.maels.in | 8 Years & Counting
www.plcs.co.in | 8 Years & Counting
Copyright © 2020 Lex Witness - India's 1st Magazine on Legal & Corporate Affairs Rights of Admission Reserved
