December 10th is Human Rights Day and, as we approach the end of the year, recognition of this day offers a suitable moment to reflect on the extraordinary events that unfolded in 2020.
The COVID-19 pandemic and the Black Lives Matter movement have provoked significant global discourse on human rights. The current global health emergency hitting impoverished communities in challenging ways, quickly turned into broader social crises. One stark example is significant supply chain job losses and in turn, remaining employees working extra hours to meet unprecedented demands from panic buying. In Europe, corporate human rights due diligence took center stage in 2020, as legislators began to look at how to make companies liable for negative impacts of their business activities. In many ways, the pandemic flagged the importance of inclusive strategies.
Promises on Mandatory Due Diligence Legislation
Under the UN Guiding Principles on Business and Human Rights (UNGPs), companies are obliged to undertake human rights due diligence. The process, if done as the UNGPs intended, is meant to ensure that potential adverse impacts stemming from companies’ activities are identified, addressed, monitored, and remediated.
The task is complex as companies tend to understand due diligence differently. The voluntary spirit of the guidelines, perhaps inevitably, have exacerbated the uneven playing field. While many companies have invested significant time and resources into due diligence, others seemed to have evaded the most challenging issues.
A study commissioned by the European Commission earlier this year showed that only around a third of businesses that responded stated they were undertaking due diligence across all human rights and environmental impacts. Furthermore, most companies indicated that only first-tier suppliers were included in their third-party impacts.[1]
These unmanaged risks likely played a part in EU Justice Commissioner, Didier Reynder’s decision that binding rules on human rights and the environment were now needed when he announced that regulation would be put forward on this subject for next year. Civil society representatives announced this as a milestone in the way towards binding rules on corporate accountability[2]. Reynder’s proposal received backing from several companies, including Nestle, Inditex, Ericsson, Aldi, Unilever, and others, stating in a joint letter that “legislation introducing an obligation to conduct due diligence (…) is critical to bring all companies to the same standard and build on and scale progress to date”.[3]
What’s next?
A draft report with recommendations to the Commission issued in September[4] by the Committee on Legal Affairs suggested that the legislation should be aligned with the UNGPs, with a broader scope to cover environmental and governance issues. The ongoing consultation process will be closed in February 2021.
There are outstanding questions regarding the final shape of the legislation. If the legislation only covers medium and large companies, there is a concern that smaller enterprises could be created and used to avoid risks. Additionally, the sanction mechanism and the kind of penalties to be imposed could be passionately debated.
The Swiss Referendum
Another ambitious proposal that took place in Europe in 2020 was the referendum in Switzerland. It sought to make Switzerland-based companies liable for human rights and environmental violations resulting from their operations or those of their business partners in foreign countries unless proper due diligence beforehand could be proven.
The initiative was rejected, due to the cantons’ votes, but Swiss citizens voted 50.7 percent in approval. The fact that a strong legislative proposal defining corporate responsibility gained popular support shows growing momentum in favor of businesses being held accountable. The discussion is active, and there is no turning back when it comes to the global topic of Human Rights.
Sustainalytics’ Engagement Services
Sustainalytics understands the crucial role of thoroughly implementing due diligence as means to protect shareholder value, forming an integral part of our engagement dialogue with companies. In 2020, we put in place a framework to assess the alignment of companies with the UNGPs. Engagement Services evaluated 90 companies that the team engaged with on human rights. The identified gaps serve as a starting point for more detailed dialogue regarding proper due diligence and general human rights preparedness.
Get in touch to learn more about Suststainalytics’ Engagement Services.
Sources:
[1] Publications Office of the European Union “Study on due diligence requirements through the supply chain. Part I, Synthesis report” accessed (30.11.2020) at https://op.europa.eu/en/publication-detail/-/publication/291b84d3-4c82-11ea-b8b7-01aa75ed71a1/language-en/format-PDF/source-search
[2] European Coalition for Corporate justice “Commissioner Reynders announces EU corporate due diligence legislation” accessed (30.11.2020) at https://corporatejustice.org/news/16806-commissioner-reynders-announces-eu-corporate-due-diligence-legislation
[3] Support for EU framework on mandatory human rights and environmental due diligence, media.business-humanrights.org/media/documents/EU_Business_Statement_Mandatory_Due_Diligence_02092020.pdf
[4] European Parliament “Draft Report with recommendations to the Commission on corporate due diligence and corporate accountability” accessed (30.11.2020) at https://www.europarl.europa.eu/doceo/document/JURI-PR-657191_EN.pdf
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