Freshfields hosted online panel on International Human Rights Day: “Human rights due diligence - What challenges do global companies have to face?”

On the International Human Rights Day in December 2020, our German-speaking offices hosted an online panel discussion with key executives from Daimler and Volkswagen regarding the challenges and potential advantages of corporate human rights due diligence obligations. The event took place against the backdrop of recent developments of mandatory human rights legislation in Germany, Switzerland and at the EU level. Our speakers at the event – which was moderated by Prof. Christoph H. Seibt (Partner in our Hamburg office) – were Lou-Angelina Lauer, Legal Consultant, Center of Competence Business and Human Rights, Group Compliance, Volkswagen Aktiengesellschaft and Marc-André Bürgel, Head of Social Compliance, Integrity and Legal Affairs, Daimler Aktiengesellschaft.

Key to the discussion was the impact of existing and envisaged corporate human rights regulation on multinational companies and their business activities as well as opportunities and challenges that these legal developments entail.

The experts pointed out that an increasing focus on human rights compliance has long since become a reality in the operations of many multinational corporations, irrespective of the tendency of regulators to implement “hard law”. Although being a constant process, both companies see themselves well prepared to face the increasing legal requirements, both by having implemented internal mechanisms within the group structure (e.g. via group-wide management systems) and externally towards their business partners (e.g. through supplier codes and trainings). Our speakers confirmed that the human-rights related aspects of sustainability are regularly being reported to the executive board and considered as a management topic of high priority.

However, increasing regulation will pose challenges, not only for the automotive industry, which cannot be overcome overnight. Therefore, the panellists emphasised their expectations in a thoroughly thought through legal framework which clearly defines the obligations of companies and their corresponding liabilities on a legally-secured basis. In particular, the projected German Supply Chain Due Diligence Act (Sorgfaltspflichtengesetz) should avoid imposing competitive disadvantages on German companies. On the other hand, if a patchwork of national regulations can be avoided by a unified legal framework (as on the EU-level), such legal effort may indeed level the playing field between competitors and support the establishment and implementation of compliance standards with suppliers.

In light of these fruitful discussions, many other compliance principles were discussed, which were wrapped up in seven practical “Golden Take-Aways” that became clear from the podium discussion:

1. Compliance with human rights due diligence obligations starts within the company itself and ultimate responsibility should rest with the top management in order to prevent liability risks. Delegation of tasks, however, remains possible and is commercially sensible.
2. Compliance with human rights due diligence obligations has to become an integral part of companies’ overall compliance management systems; synergies with other compliance topics should be utilised.
3. Third party due diligence is a key element of effective human rights compliance. This includes both a careful selection of business partners when initiating a business transaction as well as regular and ad hoc reviews of them.
4. Empowerment before withdrawal is a key aspect of effective corporate human rights protection.
5. To ensure the necessary transparency and awareness of potential violations - both within the company and along the supply chain - anonymous and locally accessible whistleblowing systems should be established. This can also help to achieve the necessary change of perspective in accordance with the UN Guiding Principles on Business and Human Rights, namely to focus on improving human rights on the ground.
6. Non-financial reporting requirements are to be taken seriously: On the one hand management is exposed to criminal liability risks for inaccurate representations under German law. On the other hand, non-financial reports serve as a basis for investment decisions, e.g., by institutional equity and debt investors, (and are also significant for the formation of public opinion and corporate reputation), so that misrepresentations can lead to civil liability if stakeholders reasonably trust in the accuracy of such statements.
7. Infringing human rights due diligence obligations also carries high reputational risks.  Such risks in the area of business and human rights do not only arise as a result of legal proceedings, but also in extrajudicial OECD complaint procedures. Good corporate reputation management has to include human rights compliance.