On the occasion of this year’s International Human Rights Day, we want to highlight some of the recent developments with respect to corporate human rights duties and responsibilities. Engaging companies to protect human rights globally, alongside decarbonizing the global value chain, is a top priority for national and supranational legislators, for ESG investors, early adopter companies, non-governmental organizations, and certain end consumer groups.
Global trend on supply chain laws
Regulatory ESG developments in Europe are advancing rapidly, turning ESG risks from reputational risks into complex and financially significant legal risks for businesses. This holds in particular true for corporate human rights obligations throughout supply chains that are increasingly being turned from non-binding soft law instruments – such as the UN Guiding Principles on Business and Human Rights or the OECD Guidelines for Multinational Enterprises – into mandatory and sanctions heavy hard law duties including public and private enforcement mechanisms linked to it.
Currently, several European countries are establishing human rights supply chain laws, the most recent ones being Germany and Norway, adding to the existing legislation in France (French Vigilance Law), the Netherlands (Dutch Child Labor Due Diligence Act) and the UK (Modern Slavery Act).
The German Supply Chain Duty of Care Act, adopted in July 2021 and entering into force on 1 January 2023, for the first time sets out strict, detailed requirements for the organization of risk and compliance management systems and, above all, with regard to business partner compliance with human rights and certain environmental protection aspects (see our blog posts here and here). The German act can currently be considered as the strictest supply chain law in the international context, at least in terms of applicability and sanctioning mechanisms, e.g., it provides for a detailed regime on the imposition of administrative fines. Moreover, it has a certain extra-territorial scope, as large non-German companies with branch offices in Germany are captured as well. A similar expansive territorial approach holds true for the new so-called Transparency Act that was passed in Norway this summer. The law also applies to large companies not registered in Norway, provided they operate on the Norwegian market and are subject to Norwegian tax law obligations. Companies are obliged to exercise human rights due diligence and upon request by the public disclose their efforts regarding (potential) negative impacts of their business activities (special right to information and disclosure for the public). Furthermore, existing supply chain laws that focus on particular human rights risks, such as the Dutch Child Labor Due Diligence Act, are under review and give rise to discuss the broadening of their scope to holistically include human rights and environmental protection by businesses.
At the EU level, the precise wording of provisions of a draft directive on corporate due diligence in supply chains is still in debate. The publication of the draft by the EU Commission was postponed again – presumably now until February 2022. Reportedly, this is due to the projected inclusion of personal responsibility of members of management and discussions on the creation of an import ban for products which have a link to forced labor in their supply chains. Already in summer this year, the EU Commission published a non-binding guideline on forced labor risks in order to help businesses to better identify and remedy forced labor in their business relationships (see our blog post here). In the future, it may become relevant that in various legal systems – incl. for example Germany – there are (sanctionable) reporting obligations with regard to forced labor.
Trend toward legal proceedings
For some time now, there has been an increase in proceedings in which it is tried to hold globally operating companies accountable with regard to human rights impacts of their business activities (including those of their business partners). The enactment of supply chain laws further increased this development. However, the trend is irrespective of whether the supply chain laws themselves provide for specific liability regimes. To date, we see that traditional legal concepts are used for grounding corporate human rights responsibilities.
The most recent examples are criminal complaints in Germany filed with the Federal Public Prosecutor General (September 2021) accusing management of German garment and discounter companies of links to production sites using forced labor. At the core of these complaints lies a potential liability (of the management) for aiding and abetting forced labor programs, which possibly could be assessed as state-orchestrated crimes against humanity under International Criminal Law. The beginning of such criminal complaints against textile companies dates back to April this year in France. Yet, just a few days ago, further such criminal complaints against textile companies were filed in the Netherlands.
However, strategic litigation networks are exerting pressure on other sectors as well using different legal tools. With respect to chemical and agricultural companies and their downstream supply chains there is currently a serious risk of legal disputes regarding the use of the products by customers in third countries allegedly due to providing inadequate protective health and safety measures and instructions. Currently, such proceedings in Switzerland deal with the product liability of manufacturers.
Moreover, injunction claims under competition law were brought against companies for misrepresenting working conditions at suppliers or local compliance with social and labor standards. That means the so-called greenwashing – i.e. the misrepresentation of behavior or products as ESG-compliant – is gaining more importance and is not focused on ecological aspects only.
Furthermore, the possibility of import bans is being used more frequently to exclude goods from national markets that are allegedly produced in violation of human rights (e.g. most recently on rubber gloves manufacturers from the US market due to allegations of forced labor).
In addition, extrajudicial proceedings, namely the OECD NCP complaints are not outdated but still used widely to attribute responsibilities for negative human rights impacts to corporations and to prepare evidence gathering for subsequent court proceedings. A prominent recent example deals with a company’s duty to conduct human rights due diligence when disengaging from specific operations and selling the business to a questionable corporate actor that reportedly engages with totalitarian regimes.
We observe that human rights enforcement and litigation is multifaceted; currently diverse legal fields and concepts are utilized to hold corporations accountable and create public awareness to instigate holistic changes. Compliance obligations globally are becoming increasingly mandatory and companies’ compliance measures will be decisive for providing arguments to ground human rights litigation or successfully defend against such. Therefore, the protection of human rights throughout the value chain, the collection of data – group-wide and from business partners – on relevant processes, and the development of reporting and risk prevention mechanisms must be an integral part of every company’s Sustainability Transformation.