From ... in Environmental — Nov 9, 2020

Q & A on the Proposal for an EU Legislation on Mandatory Human Rights and Environmental Due Diligence

In June 2020, Human Rights Watch outlined key elements that should be incorporated in EU legislation governing mandatory human rights and environmental due diligence, including climate change.[1] Here, Human Rights Watch responds to a few ‘frequently asked questions’ posed by legislators and businesses and addresses some of the main arguments against robust, binding human rights due diligence. 1. How burdensome would conducting human rights and environment due diligence be for small companies? The UN Guiding Principles on Business and Human Rights (UNGPs) and OECD Guidelines for Multinational Enterprises (OECD MNE Guidelines) state that all businesses have a responsibility to conduct human rights and environmental due diligence, regardless of their size, and there are many examples of small and medium-size enterprises (SMEs) already doing so. For example, several small jewelry companies have traceable, transparent supply chains for gold that are regularly assessed for human rights concerns. In the garment industry too, many SMEs have transparent supply chains and already conduct some due diligence. In fact, some small companies are among those advocating for legislation governing mandatory human rights and environmental due diligence. Concerns about whether smaller businesses would find the administrative costs of compliance with due diligence requirements onerous can be effectively addressed in the legislation.

The UNGPs and the OECD MNE Guidelines state that though all businesses have a responsibility to respect and protect rights, their policies and practices should be commensurate with the size and nature of the human rights and environmental risks associated to their operations. A small, low-risk company would take less burdensome steps than a larger company or one with activities that are more likely to lead to human rights abuses and environmental destruction. In March 2020, the European Commission estimated that 99 percent of all businesses in the EU are SMEs and account for more than half of Europe’s GDP. An exemption for micro-enterprises and SMEs from human rights due diligence requirements would mean that EU businesses that employ 100 million people within the EU will not be required to conduct any human rights risk assessments. Many SMEs have complex global value chains impacting the lives of workers and communities outside the EU; exempting them would ignore the impact these businesses have on their lives. In Human Rights Watch’s view, EU supply chain due diligence legislation should apply to all corporations, regardless of size.

The EU should make clear that the complexity and detail of a company’s due diligence should reflect various factors, including size, sector, operational context, ownership, structure, and the severity of their adverse human rights risks and impacts. 2. What does climate change due diligence have to do with protecting human rights? Why should businesses be required to do that? In 2018, the Intergovernmental Panel on Climate Change (IPCC), the world’s authoritative source on climate science, found that governments needed to drastically ramp up their climate action to meet the goal of the Paris Agreement to hold the increase in global average temperature to 1.5 degrees Celsius above pre-industrial levels. Failure to act will result in catastrophic impacts that will dramatically impair people’s enjoyment of their human rights. One of the urgent measures governments should take is to regulate business conduct. In their joint 2019 statement on human rights and climate change, five United Nations human rights treaty bodies wrote that in fulfilling their obligation to reduce greenhouse gas emissions, states “must regulate private actors, including by holding them accountable for harm they generate both domestically and extraterritorially.” Businesses contribute to global climate change in multiple ways.

The ‘Carbon Majors’ — a group of 100 fossil fuel companies — have been the source of more than 70 per cent of the world’s greenhouse gas emissions since 1988.

These include major European companies, such as Shell and Total, as well as companies with participation from European investors. Human Rights Watch has documented the ongoing effects of a warming planet on livelihoods today, such as increased food poverty, limited access to water and forced displacement. In addition, businesses contribute to environmental destruction that endangers carbon sinks that are essential to mitigate climate change, for example through the clearing of forests for the production of agricultural commodities. Human Rights Watch has documented killings of forest defenders and harmful air pollution caused by fires that affects the health of millions in the context of illegal deforestation in the Brazilian Amazon, as well as Indigenous peoples dispossessed of their ancestral lands in the context of palm oil cultivation in Indonesia. Some businesses are looking to be part of the solution. For example, a total of 467 companies have adopted science-based targets committing to reduce their emissions in line with the goals of the Paris Agreement. Other companies have adopted zero deforestation policies. However, without robust enforcement these companies face no penalties for failing to comply with their ambitious commitments, and other companies face no obligation to adopt mitigating measures. Meanwhile, the window of opportunity to avert the most dramatic effects of climate change is narrowing, the IPCC has warned. In Human Rights Watch’s view, the EU should at least require that businesses identify, prevent, cease and mitigate climate-related risks associated with their operations. Specifically, businesses should: This approach would provide flexibility, enabling each company to adapt its business model to ensure appropriate sustainability standards.

The binding character of the regulation and transparency requirements would, however, ensure accountability for results and level the playing field between companies that have already voluntarily committed to ambitious climate action and those that are lagging behind. 3. Many businesses have already made voluntary commitments to protect human rights and the environment. Aren’t these pledges enough? Many businesses are members of industry initiatives or multistakeholder initiatives (MSIs) that seek to promote responsible business conduct.

These initiatives often have a code of conduct or similar standard, and member companies are audited and certified against this standard. In some cases, companies make voluntary social and environmental commitments independently of these initiatives, but these rarely have clear monitoring or accountability mechanisms. Such voluntary initiatives can play a role in generating dialogue and supporting companies that are ready to do more than what is legally required. But they are not fit-for-purpose to reliably detect abuses and hold corporations to account for harm, or to provide remedy to victims of corporate abuse. In fact, industry associations and MSIs are also part of calls for EU legislation requiring mandatory human rights due diligence. Human Rights Watch has researched and written about the limitations of voluntary initiatives in the context of human rights and environmental due diligence across different sectors, and found that these cannot substitute for legislation requiring such due diligence. In particular, we have found that voluntary initiatives have failed to enforce adherence to their own standards or baseline minimum requirements in human rights and environmental due diligence, resulting in companies getting certified while failing to act responsibly.

The ultimate punitive action that voluntary initiatives like MSIs can take against businesses is to cancel the company’s membership to the MSI. But decisions to cancel a company’s membership from an MSI are complex and seldom taken. Many businesses wrongly conflate their membership in MSIs or other voluntary initiatives with effective human rights and environmental due diligence. Human Rights Watch has found that voluntary initiatives vary in the human rights standards they apply, the extent of oversight they maintain over member-companies’ compliance with these standards, and whether they transparently report on how member-companies fare. Further, Human Rights Watch has shown how social audits and certifications have proven to have serious limitations.

There is growing acknowledgment from the social auditing and certifications industry that their methods are not sufficient to detect and remedy human rights abuses in global supply chains. A sectorial overview of existing MSIs shows the following: Other organizations have expressed similar concerns about MSIs. In July 2020, MSI Integrity, a nongovernmental organization, produced a report where it analyzed 40 standard-setting MSIs including agriculture, forestry, fishing, mining and energy, consumer goods, technology, and consumer services, many of them over a ten-year span. It concluded that MSIs were not effective tools for holding corporations accountable for abuses or providing survivors and victims with access to remedy. 4. Should businesses be penalized for not complying with due diligence obligations? The proposed EU legislation can only level the playing field over time if it consistently draws a distinction between businesses that invest resources to conduct effective human rights and environment due diligence, including on climate change, and those that do not.

The 2020 report on due diligence requirements through the supply chain, commissioned by the European Commission, found that over 70 percent of business survey respondents agreed that “EU regulation on mandatory due diligence may benefit to business by creating a level playing field.”[2] Businesses whose actions or omissions cause human rights and environmental harm, as well as those that fail to make good faith efforts to conduct the required due diligence, should face penalties. Penalties should be commensurate with the size, sector, operational context, ownership, and structure; be dissuasive in nature, taking into account the nature and severity of the regulatory non-compliance; and include a range of measures, including fines. Repeated non-compliance with the proposed legislation should result in escalating procedures and additional consequences. If the proposed legislation fails to carry penalties, businesses will continue to voluntarily choose how and when to conduct human rights and environment due diligence, without consequences for failing to adhere to minimum processes. This will only result in more of the same because existing voluntary initiatives have failed to check free ridership. 5. Should victims of corporate abuses be able to seek justice in EU courts? Shouldn’t they just appeal to the courts in their own countries? In 2019, the European Parliament’s DROI Committee commissioned a study to examine access to legal remedies for victims of corporate human rights abuses in third countries.

The report documented a series of barriers and challenges in access to justice in these countries, and recommended, among other things, that victims also have access to EU member states courts for civil remedies. In Human Rights Watch’s experience, many victims of corporate abuses are unable to seek justice because of the extreme retaliation they face in third countries. For instance, in Thailand, activists have repeatedly faced persecution by companies through the use of criminal defamation and Computer-Related Crime Act. In Brazil, Human Rights Watch has documented how forest defenders who stand up to illegal logging – which is largely motivated by commercial interests to extract valuable timber and clear land for cattle grazing – face threats, attacks and killings with near total impunity. In South Africa, our research has exposed lack of accountability for killings, attacks, threats and harassment of residents of mining-affected communities who stand up for their right to a healthy environment. Furthermore, in many countries, there are serious concerns about the independence of the local judiciary and the possibility for local civil society and affected individuals and communities to seek effective remedies for possible violations. In Ecuador, for example, Human Rights Watch documented in 2018 how the government employed abusive criminal prosecutions against environmental defenders who opposed mining and oil exploration in the Amazon. In order to facilitate access to an effective remedy, the legislation should create a duty of care on undertakings to conduct effective human rights due diligence. It should give the right to any victim or group of victims to bring a civil action against an undertaking that does business in the EU, for persistent or irreversible human rights, labour rights, or environmental harms caused by, or substantially contributed to, by the undertaking through its own operations or its global value chain.

The victim or group of victims bringing the civil action need not be citizens of, or ordinarily resident within, EU Member States.

The legislation should recognize the power imbalance between victims and businesses in procedures during such civil actions.

Therefore, in any civil action brought by victims or a group of victims under the proposed legislation, once the claimant has established a prima facie case of harms linked to an undertaking’s operations or global value chain, the burden of proof should shift to the defendant undertaking to disprove causality and liability. Businesses that conduct effective human rights and environmental due diligence will have adequate opportunities to defend themselves. Where an undertaking establishes that they have carried out due diligence in compliance with the requirements set out in the proposed legislation, the due diligence should be factored into any determination of civil liability. However, the mere fact that a company conducted due diligence should not bestow legal immunity.

The burden of proof rests with the undertaking to demonstrate their human rights and environmental due diligence efforts were effective.

The legislation should require EU Member States to designate courts to exercise original jurisdiction for any civil action brought under this article.

The legislation should also ensure that any limitation period for civil action is reasonable, with the discretion to waive the limitation period under extraordinary circumstances. Typically, victims of egregious human rights harms or environmental harms suffer immense trauma and need a reasonable window of time before they are able to bring civil actions. 6. Is it realistic to expect companies to be aware of the practices of all their business partners throughout the supply chain? Isn’t that too complicated and costly? Businesses should prioritize conducting human rights due diligence based on an assessment and severity of human rights risks in their own operations and their value chains, rather than take an approach that is restricted to the first layer of their suppliers. Some companies are already doing this—for example, the jewelry company Tiffany has traceability for all its mined gold. Apparel brands and retailers are beginning to trace and disclose spinning and textile mills. Restricting scrutiny to the first-tier of a business’s value chain and turning a blind eye to other human rights and environmental risks that lurk in other tiers — for example, at the stage of sourcing raw materials — creates significant gaps in a company’s approach to due diligence.

Therefore, businesses that are serious about conducting effective due diligence should map out their global value chain, the human rights and environmental risks at each level of their value chain, and prioritize due diligence processes depending on the risks. A study commissioned by the European Commission estimated that the costs associated with due diligence obligations for large companies would not exceed 0.005 percent of their turnover.[3] 7. Should companies disclose who they obtain goods and services from, as well as the measures they are taking to ensure that their business partners are not complicit in human rights abuses? Transparency is of two kinds — a) value chain transparency and b) transparency about a company’s own due diligence processes and their outcomes. Value chain transparency, that is, publishing the names, addresses, and other relevant details of the network of suppliers a company works with — directly or indirectly — is central to effective due diligence. If a company does not even know who its business partners are across different tiers, then it cannot guarantee or provide assurances that its value chain complies with human rights, labor rights, and environmental standards. Businesses should also “show” or publish whatever they have mapped out. Publishing the names, addresses, and other relevant details about business entities that are part of a company’s value chain bolsters access to grievance redress for workers and communities. Transparency about a business’s due diligence approach and results would help businesses keep the processes dynamic and responsive to evaluations of their work. It would also give information to stakeholders about the progress that companies are making through their due diligence efforts. For example, the Bangladesh Accord on Fire and Building Safety publishes the corrective action plans for each factory as well as the overall impacts of the program on fire, building, and electrical safety.

The Danish jewelry company Pandora regularly publishes information on non-compliances found and action taken. [1] In this document, Human Rights Watch uses the phrases “due diligence” or “human rights due diligence” to mean “human rights and environmental due diligence, including climate change.” [2] British Institute of International and Comparative Law, Civic Consulting and London School of Economics, “Study on Due Diligence Requirements Through the Supply Chain” commissioned by the European Commission, January 2020, https://op.europa.eu/de/publication-detail/-/publication/8ba0a8fd-4c83-11ea-b8b7-01aa75ed71a1/language-en (accessed November 2, 2020), p. 146. (“European Commission Study on Due Diligence Requirements”). [3] European Commission Study on Due Diligence Requirements, January 2020, p. 427.

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Q & A on the Proposal for an EU Legislation on Mandatory Human Rights and Environmental Due Diligence

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