Human rights due diligence: what should businesses do next?
I was invited to attend the International Bar Association (IBA) and OECD meeting at the OECD Global Form on Responsible Business Conduct in Paris this month. A group of lawyers, barristers, business leaders and academics met to discuss what is meant by 'human rights due diligence' and explore some case studies on how lawyers and advisors should tackle instances where human rights impacts can give rise to financial and legal risk.
What was clear from the meeting is that there is growing consensus that the increasing trend towards transparency and disclosure in a range of responsible business issues (not just human rights, but also gender and diversity, fair pay, and taxes) is encouraging companies to look at compliance as only a benchmark. However, there was an acknowledgement that the levels of understanding of what is meant by ‘human rights due diligence’ was still extremely low amongst lawyers and general counsel despite the reality that causing risk to people may well end up causing both financial and reputational loss.
I have tried to summarise some salient points on the difference between commercial legal due diligence as business and lawyers generally understand it and how ‘human rights due diligence differs from it.
What is due diligence?
Legal due diligence is a process of obtaining ‘sufficient and reliable information about a business entity with the objective of uncovering any facts, circumstances or legal risks that are likely to influence a business decision’.
The OECD also states that it is ongoing process that is both proactive and reactive.
What is due diligence in a human rights context?
The UNGPs, Guiding Principle 17 stipulates that human rights due diligence can be broken down into the following steps:
- Assessing actual and potential human rights impacts of operations and/or projects
integrating and acting on findings
- Tracking and monitoring
- Communicating on status quo and response
Why is standard Human Rights Due Diligence not sufficient?
There is increasing recognition that that human rights considerations are an essential part of any due diligence process. The recent French Vigilance law requires that parent and subsidiary companies that fall within the turnover threshold of the law has to establish and effectively implement a vigilance plan to include measures to identify and prevent human rights violations.
By the very nature of the impact of human rights in business supply chains means that standard due diligence processes might not be an appropriate means of meeting obligations under the UNGPs.
Whether a company chooses to carry out integrated due diligence or stand-alone human rights due diligence – it is important to recognise that identifying human rights is a unique process.. There is no algorithm to identify human rights risk; it’s an iterative, investigative process based on both quantitative and qualitative considerations.
How does human rights due diligence differ from an ‘ordinary’ due diligence process?
An ordinary risk assessment process will usually first look at the probability; and second at the severity of an impact on business operations.
In contrast, human rights due diligence looks at the threat to human rights presented by business operations. It also focuses foremost on the severity and the probability of a risk can then be used as a mechanism to determine priority. However, it is evident that where business operations impact on human rights, this will, in turn impact directly or indirectly on a business’ operations.
Although human rights due diligence is not currently a legal requirement it is accepted best industry practice under the UN Guiding Principles on Business and Human Rights. This table provides a useful overview of companies that are carrying out human rights due diligence.
What steps should companies take to ensure that they are carrying out adequate human rights due diligence?
There is no one-size-fits-all approach. A risk-based approach, taking into account the facts of the circumstances of each case is recommended.
- Carry out a high level human rights impact assessment – by mapping all the areas where the business will impact on the human rights
- Create a matrix to map the highest areas of risk of human rights abuses
- Determine if the company has sufficient internal expertise to review and develop the due diligence process
- Develop a human rights policy
- Consider what current company policies and procedures can be adopted to develop a robust human rights due diligence process
- Raise awareness through training key personnel on business and human rights issues
- Ensure that a checklist of questions are in place to assess the human rights risk when deciding to buy or invest into a new venture or enter into a new contract with another party
- Ensure that Key Performance Indicators (KPIs) Is are created to measure the impact of training
- Review and monitor any human rights grievances
We have recently published a more detailed note on human rights due diligence and human rights mandatory reporting LexisPSL in-house advisor and environment.
The only way is ethics: Free webinar on supply chain sustainability
Representatives from M&S, Timberland and Forum for the Future have all been confirmed as the expert speakers that will feature in edie's live webinar on 25 July, which will discuss how businesses can enhance social sustainability through ethical supply chain management.
Organisations and individuals seeking to manage risks and create positive brand value through ethical sustainability strategies can tune into the live, one-hour webinar for free on Tuesday 25 July at 11am (BST).
Colleen Theron, CLT envirolaw