The EU’s Proposed Mandatory Human Rights Due Diligence Law – What You Need to Know

The European Commission has committed to tabling an EU-wide human rights due diligence law by June 2021.

There are strong indications that the proposed law will have a wide scope (with the potential to apply to non-EU domiciled companies) and contain sanctions for non-compliance.

But what is human rights due diligence, and how can companies prepare for the proposed EU law?

Human rights due diligence – the core principles

The ultimate objective of human rights due diligence (HRDD) is to prevent adverse impacts on people.

According to the United Nations Guiding Principles on Business and Human Rights (UNGPs) – the globally recognised framework for the duties of businesses to prevent adverse impacts on people – HRDD involves four key components:

1. Identifying and assessing actual or potential adverse human rights impacts that a business may cause or contribute to through its own activities, or which may be directly linked to its operations, products or services by its business relationships;
2. Taking appropriate action on findings from impact assessments;
3. Tracking the effectiveness of measures taken to address adverse human rights impacts; and
4. Communicating how impacts are being addressed and showing stakeholders – in particular, affected stakeholders – that adequate policies and processes are in place.

In recent years, there has been a trend at the domestic level to introduce legislation incorporating elements of the UNGPs. For example, the UNGPs are reflected in mandatory HRDD legislation in France and the Netherlands. There are national movements for similar legislation in other countries such as Germany and Switzerland. (Read more on these national developments here).

These domestic developments have increased pressure on the European Commission to introduce an EU-wide mandatory human rights due diligence law – which it is now on track to do.

The proposed EU-wide law – three key points to note

Whilst the law remains to be drafted, there are indications – in particular from a draft report published by the European Parliament Committee on Legal Affairs – that the proposed law would:

1. Apply to all EU companies and any non-EU company selling goods or providing services in the EU –  meaning, for example, that the law could impact a US business with EU operations;
2. Require companies to implement human rights due diligence in line with the processes provided in the UNGPs to prevent adverse impacts on people, as well as in relation to mitigating environmental and governance risks; and
3. Contain sanctions for non-compliance – which could include criminal measures.

How can your organisation prepare for increasing due diligence obligations?

We offer practical guidance for asset managers, specifically, in our comprehensive article, Asset Managers: Mastering Non-Financial Risk – The Evolution of Human Rights Due Diligence. In a Blog Post, we cover practical steps for boards to consider with respect to human rights issues more broadly, including due diligence.

Generally, businesses can position themselves for the proposed EU-wide law and other HRDD laws emerging at the domestic level by:

1. Integrating human rights into group policies and strategic planning processes;
2. Disclosing how human rights considerations are integrated into strategies, policies and procedures;
3. Carrying out a human rights impact assessment and taking proportionate counter-measures, as well as communicating internally and externally on what measures have been taken;
4. Reviewing and reinforcing complaints mechanisms and speak-up programmes;
5. Ensuring the business is well equipped to deal with ‘crises’;
6. Reviewing the extent to which their board is equipped to address supply chain risks; and
7. Reviewing the role, resources and expertise of the legal and compliance functions, who should play a key part in addressing these new challenges.

Read more of our Business and Human Rights perspectives.

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