I. Introduction
During the past year there were widespread developments around mandatory human rights due diligence legislation across Europe. These range from the implementation of laws which have already been introduced, such as the French Duty of Vigilance LawFootnote 1 and the Dutch Child Labour Due Diligence law,Footnote 2 to legislative proposals at various stages of advancement, such as those in SwitzerlandFootnote 3 and Norway.Footnote 4 Some governments have committed to introducing laws, such as in FinlandFootnote 5 and Germany.Footnote 6 Civil society groups are calling for mandatory due diligence laws which cover human rights and environmental harms in Belgium,Footnote 7 Denmark,Footnote 8 Italy,Footnote 9 the UK,Footnote 10 and at European Union (EU) level.Footnote 11
All these developments in one way or another aim to establish legal liability for companies that fail to undertake due diligence to identify, prevent, mitigate and address adverse human rights impacts in their own operations and their supply or value chains. In this way, they aim to turn into ‘hard law’ the concept of human rights due diligence which was first introduced by the UN Guiding Principles on Business and Human Rights (UNGPs).Footnote 12
These most recent calls for legal reform have increasingly been accompanied by support from large multi-national companies. This has taken the form of public statements by individual companies,Footnote 13 and has been confirmed by studies setting out findings on the collective views of business.
This piece considers these business views on the introduction of mandatory human rights due diligence legislation with particular reference to findings from two recent studies led by the British Institute of International and Comparative Law (BIICL). Both studies were published in February 2020 and included surveys with similar questions for business respondents:
One study was undertaken for the European Commission (EC) on regulatory options for mandatory due diligence for human rights and environmental harms (the EC study).Footnote 14
The other study, which was undertaken in conjunction with lawyers from the global law firm Quinn Emanuel Urquhart & Sullivan LLP, considered the feasibility of introducing a statutory duty to prevent corporate human rights harms in the UK (the UK study).Footnote 15 It followed a 2017 recommendation by the UK Joint Committee on Human Rights that such a provision might be modelled on the equivalent failure to prevent mechanism in the UK Bribery Act.Footnote 16
The findings of these studies will be compared and analysed with respect to business’ views on the current legal landscape, the anticipated benefits of potential regulation, and the nuances within the business community – in particular, contradictions or alignments between the views of individual companies and industry organizations.
II. Business Views on Potential Regulation
A. Sample of Business Respondents
This piece uses the following findings as the basis for analysis of business views:
The EC study’s 334 individual company responses to the business survey across the EU, as well as the 65 industry organization responses to the general stakeholders survey (21.89 per cent of 297 general stakeholder respondents).Footnote 17 In addition, the views expressed in interview quotes and the analysis of the EC study will be taken into account where relevant.
The UK study’s 40 business survey responses from individual companies, as well as the analysis relating to the views expressed during roundtable consultations.Footnote 18 Just under two-thirds (62.5 per cent) of the business respondents in this survey were ‘primarily based or headquartered’ in the UK, with operations spanning all regions of the world.Footnote 19
In both studies, the majority of business survey respondents were from large multi-national companies.Footnote 20
B. Shortcomings of the Existing Legal Landscape
Business survey respondents in both studies were asked about their views on the existing legal landscape. In the EC study, the question was framed as to whether respondents viewed existing laws on due diligence requirements for human rights and the environment to be effective, efficient and coherent, which are criteria set out in the EU Better Regulation Guidelines.Footnote 21 The majority of business respondents (52.55 per cent) viewed existing laws as not being effective, efficient and coherent. Less than half of this number (25.55 per cent) were of the opinion that existing laws do meet these criteria.Footnote 22 Interviewees elaborated on these findings by stating that existing due diligence expectations are often fragmented according to certain issues, sectors or commodities,Footnote 23 which can create legal uncertainty for businesses having to comply with different standards.
In the UK study, survey respondents were asked whether existing law provides business with clarity and legal certainty about what corporate human rights obligations are. Over three-quarters of respondents (75.86 per cent) indicated that existing law does not provide clarity, and over two-thirds (68.97 per cent) that the law does not provide legal certainty in this respect. Only 13.79 per cent viewed existing law as providing clarity, and even fewer (6.9 per cent) that it provides legal certainty.Footnote 24
Figure 1 Business views on existing legal landscape.
These findings were gathered before the UK Supreme Court’s judgement in Lungowe v Vedanta,Footnote 25 which held, without limitation to other circumstances, that a duty of care may arise, according to established principles of negligence, where: in published materials, a parent holds itself out as exercising a degree of supervision and control of its subsidiaries, even if it does not in fact do so; and, where a parent company takes active steps, by training, supervision and enforcement, to see that a group policy is implemented by subsidiaries. Insofar as this is being interpreted by some as meaning that public commitments towards meeting the expectations of the UNGPs may expose UK-domiciled companies to legal liability, this finding may have further contributed to the lack of legal certainty and clarity that multi-national UK companies reported in the study.Footnote 26
C. Incentives for Undertaking Due Diligence
In the EC study, survey respondents were asked what the primary incentives for undertaking human rights due diligence are, or have been in the past. Here, respondents from individual companies and industry organizations selected the same top three incentives in the same order: (i) reputational risks; (ii) investors requiring a high standard; and (iii) and consumers requiring a high standard.Footnote 27 The study concludes from this that ‘despite some divergence in views … between these two groups’ relating to other aspects of regulation, these responses seem to demonstrate that ‘industry organisations have a real understanding of the risks and incentives which drive business to undertake due diligence’.Footnote 28
Similarly, the least selected incentives by both groups are those related to legal requirements, including regulation which imposes sanctions or provides for judicial oversight, and risks of litigation. In contrast to these views, civil society respondents ranked regulatory and legal requirements as the highest incentives for business to undertake due diligence.
This contradiction may be explained by the way the question was phrased: ‘In your opinion, what are/will become [companies’] main incentives to conduct due diligence for these impacts through the supply chain?’.Footnote 29 Given the current lack of regulation or legal standard, business stakeholders may have responded with reference to current incentives. In turn, many civil society organizations are currently campaigning for mandatory due diligence laws and may have responded with reference to possible future incentives.Footnote 30
D. Benefits for Business of Potential Regulation
The findings from both studies demonstrate that business respondents foresee benefits from potential new regulation in the area. The majority of business respondents in both the EC study (66.42 per cent)Footnote 31 and the UK study (74.07 per cent)Footnote 32 anticipated that regulation in this area would benefit business through levelling the playing field.
Figure 2 Anticipated benefits of regulation: Levelling the playing field
Survey respondents also indicated that regulation may benefit business by contributing to legal certainty. In the EC study, over two-thirds of business respondents (66.42 per cent) were of this view,Footnote 33 and in the UK study the vast majority (82.14 per cent)Footnote 34 anticipated that additional regulation would improve legal certainty.
Only half (50 per cent) of industry organization respondents in the EC study agreed about these benefits of legal certainty, with almost as many (45.83 per cent) disagreeing that regulation would improve legal certainty.Footnote 35 This suggests some disagreement within industry organizations about the potential impacts and benefits of new regulation, and how this would affect their business members.
Figure 3 Anticipated benefits of regulation: Legal certainty
The majority of business respondents in both studies (61.19 per centFootnote 36 in the EC study and 75 per centFootnote 37 in the UK study) also agreed that the new regulation would improve or facilitate leverage with third parties by introducing a non-negotiable standard.
The EC study also revealed that industry organizations are generally less favourable to regulatory reforms than individual business respondents. For example, in contrast to business respondents, most industry organization respondents (45.83 per cent) were of the view that that new regulation would not be beneficial to business by introducing a non-negotiable standard. This number was followed, however, by almost as many (41.67 per cent) who did believe that a non-negotiable standard would be beneficial.Footnote 38
Figure 4 Anticipated benefits of regulation: Facilitation of leverage through non-negotiable standard
In addition, a large majority (75.37 per cent) of business respondents in the EC study also indicated that any EU-level regulation would benefit business through providing a ‘single, harmonised EU-level standard (as opposed to a mosaic of different measures at domestic and industry level)’.Footnote 39
E. Lessons Learnt from Experiences with the UK Bribery Act
Respondents in the UK study were asked whether they have experience with the UK Bribery Act. Section 7 of this Act introduced a criminal offence for the failure to prevent bribery, accompanied by a defence of ‘adequate procedures’. Respondents with experience with this provision indicated that it had led to similar benefits as those anticipated from the introduction of human rights due diligence regulation:
Over two-thirds (64.71 per cent) indicated that this mechanism has provided legal certainty relating to corruption avoidance, and zero respondents disagreed with this proposition.Footnote 40
Half of respondents agreed that the Bribery Act has levelled the playing field by ‘holding competitors and suppliers to the same standards’.Footnote 41
More than half (52.94 per cent) indicated that the Bribery Act has facilitated leverage with third-party businesses by setting a non-negotiable standard.Footnote 42
The majority indicated that the Bribery Act has generally not impacted their companies’ decisions to invest in high-risk countries or sectors.Footnote 43
Three-quarters of respondents indicated that the Bribery Act has not impacted their competitiveness. A small number of respondents (12.5 per cent) felt that the Bribery Act has placed their company at a disadvantage to foreign competitors, while the same number (12.5 per cent) felt that it has instead given them a competitive advantage.Footnote 44
Insofar as the Bribery Act has already been in place for ten years, these findings are significant in that they suggest that the benefits expected by business stakeholders in connection with a potential statutory duty to prevent human rights are not unrealistic.
F. Legal Duty, Liability and Enforcement
The above findings highlight a broad dissatisfaction on the part of business with the current legal landscape with respect to business and human rights, and that business stakeholders recognize the potential of new regulation to close these gaps. The survey in the EC study presented respondents with a range of regulatory options, and found that amongst business there is a preference for the most robust option, namely mandatory due diligence as a legal standard of care. Interviewees expanded on this reasoning by indicating that there is already enough voluntary guidance, and that reporting requirements on their own have been ineffective in incentivizing substantive due diligence.
It was highlighted that any new legal duty should be a ‘general, context-specific’Footnote 45 standard of care rather than a ‘tick-box’ process.Footnote 46 The UK study, for this reason, concluded with a model legal provision which provides for a defence of having undertaken due diligence ‘reasonable in all the circumstances’:Footnote 47
It is accordingly clear that a pure procedural ‘check box’ or ‘safe harbour’ provision that would shield a company completely from liability if any kind of human rights due diligence was performed, would not be aligned with the concept of due diligence contained in the UNGPs. […] Rather than promote a ‘check box approach’, if businesses know that they will ultimately have to stand behind the quality of their due diligence in order to extinguish liability, this could encourage a much more meaningful and substantive engagement with human rights due diligence. This is an advantage over, for example, a mandatory due diligence mechanism where the quality of a statement must somehow be monitored and regulated in the abstract.
Nevertheless, both studies found that even those companies which generally support the introduction of new regulation, do not agree regarding the form which legal liability should take.Footnote 48
Moreover, whereas interviewees from individual companies in the EC study indicated that there is a need for mandatory regulation which imposes legal liability,Footnote 49 industry organization respondents seem generally opposed to any type of new regulation in the area. Unlike individual survey respondents, which were mostly from multi-national companies, industry organizations represent a large portion of business, including small- and medium-sized enterprises. Insofar as it can be assumed that many of the large companies that responded to the survey would also be members of industry organizations, these findings suggest some current incoherence within these organizations in terms of representing their broad membership base.Footnote 50
III. Conclusion
The above findings confirm that business stakeholders overall are dissatisfied with the existing legal landscape regarding their human rights due diligence obligations. They find that it is not efficient, effective and coherent, and that it lacks legal certainty and clarity.
Moreover, business seems to anticipate that the introduction of new legal duties relating to human rights due diligence could potentially be in their interests. Benefits cited include the potential for regulation to level the playing field; the leverage that a non-negotiable standard will afford companies in their global operations; the usefulness of a single harmonized standard (particularly at EU-level); and the power of the collective standard to address systemic issues that individual companies are unable to solve by themselves.
Experience with the UK Bribery Act shows that these benefits have indeed manifested themselves when a comparable due diligence standard (‘adequate procedures’) was introduced as a defence to a failure to prevent mechanism in the bribery context.
In the past, the corporate lobby has opposed comparable regulatory measures, such as the UK Bribery Act and the French Duty of Vigilance Law.Footnote 51 The fact that individual large companies are now supporting and even calling for such regulation, accompanied by lucid business-centred reasons, is a significant change. These voices will be increasingly important within industry organizations internally, as well as with regulators in consultations regarding the drafting of appropriate and smart regulation in the business and human rights field.
