What Human Rights Due Diligence Laws Mean for Business Worldwide

Category Business

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The European Union is soon planning to implement a law that requires thousands of large companies in the region to actively look for and reduce human rights and environmental abuses in their supply chain. This would be the most stringent effort by any jurisdiction to legally mandate human rights due diligence yet, with significant implications for human rights and businesses across the world.

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The European Union will soon require thousands of large companies to actively look for and reduce human rights abuses and environmental damage in their supply chains. And although it’s an EU law, it will also cover foreign businesses – including American ones – that have operations in the region. The European Parliament approved a draft of the new rules in June 2023, and now EU member states and the European Commission will negotiate to finalize the law, which is expected to begin rolling out in phases a few years from now.We study the impacts of human rights disclosure and due diligence laws on businesses. In the past, governments have generally asked only that companies voluntarily comply with efforts to advance human rights. The EU law would be the biggest attempt yet to legally mandate compliance – with major implications for human rights and businesses around the world.

The law would require companies with operations in the EU to actively seek out and mitigate instances of human rights and environmental abuses in their supply chain.

Human rights and big business .

Human rights are those fundamental rights that all individuals hold simply by virtue of being human, such as rights to life and freedom of thought. Human rights usually inform laws that limit what governments can do – for example, by obliging them to refrain from torturing people. Increasingly, however, they are also informing business regulations, because powerful companies can have serious impacts on individuals’ human rights. Businesses have a long history of human rights abuses, from the British East India Co.’s pivotal role in the slave trade and IBM’s complicity in the Holocaust to more recent deadly environmental disasters involving oil and mining companies.

The law is intended to go beyond simply obeying human rights laws, and would require companies to go an extra step and apply proactive procedures and tangible efforts to comply with human rights standards in their operations.

More contemporary examples of this are children in the Democratic Republic of Congo mining cobalt destined for cellphones or forced labor being used in the production of cotton in China’s heavily Muslim Xinjiang region. In 2011, the United Nations Human Rights Council took a step toward policing these abuses by unanimously adopting "guiding principles" on business and human rights. These principles urge governments to compel companies in their jurisdictions to respect human rights wherever they operate. Such an approach stands in contrast to more common voluntary standards, such as supplier codes of conduct, which some observers have suggested have been ineffective.

The law is meant to help communities affected by corporate abuse to have a stronger voice when it comes to demanding justice for past wrongdoings.

In 2017, France became the first country to actually mandate that companies police their supply chains for human rights abuses.

The EU’s human rights due diligence law, first drafted in 2022, builds on the French version – but goes a few steps further.

Doing your due diligence .

Human rights due diligence is a process by which companies are meant to map out, understand and address all potential human rights abuses that occur throughout their operations. The term "due diligence" is borrowed from the common business practice of financial due diligence, wherein financial risks are investigated before any large investment. So just as businesses evaluate financial risks, human rights advocates argue companies should put similar effort into investigating the risk that an activity might violate someone’s human rights.

The law is meant to help limit the ability of companies to hide from their responsibility for any human rights and environmential abuses in their supply chain.

The EU law would mandate that all large companies that operate in the bock actively perform human rights due diligence. For companies that don’t have any employees in the EU, the law would apply when most or all of its revenues come the region.

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