Corporate Human Rights Due Diligence in times of COVID-19

The lockdown measures imposed following the COVID-19 outbreak have generated novel and significant challenges for businesses.  As firms redouble their efforts to ensure business continuity and redirect supply chains – and, in some jurisdictions, transition back to normal operating conditions – there is heightened risk of adverse human rights impacts materialising throughout the value chain, where such risk might previously have been mitigated or prevented altogether. 

In navigating this new operating landscape, businesses are under an increased burden to continue to conduct tailored due diligence in line with the UN Guiding Principles on Business and Human Rights (“UNGPs”) with a view to identifying, preventing and mitigating adverse human rights impacts across their value chain.

The UNGPs – the Corporate Obligation to Respect Human Rights

The UNGPs, promulgated in 2011, introduced a “three pillar” framework: “Pillar I” is the state duty to guard against human rights abuses by businesses; “Pillar II” is the corporate responsibility to respect human rights; and “Pillar III” is the need to provide access to effective remedies for victims of human rights abuses.

Pillar II establishes an independent and multi-faceted responsibility on businesses to: (i) avoid causing or contributing to human rights violations, (ii) address adverse impacts when they occur, and (iii) prevent and mitigate adverse impacts directly linked to their operations, products or services, and through their business relationships. 

The corporate responsibility to respect human rights applies irrespective of whether states fulfil their own human rights obligations.  Moreover, it extends to all internationally recognised human rights, understood to include, at a minimum, the rights expressed in the Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights, the International Covenant on Economic, Social and Cultural Rights, and the International Labour Organization (“ILO”) Core Conventions.  

In practice, the responsibility to respect under Pillar II requires:

1. Tailored policies and procedures, including a policy commitment to respect human rights that reflects the specific risks faced by a business, its size and its operations;
2. A human rights due diligence process to (i) assess actual and potential rights impacts throughout the value chain, (ii) integrate and respond to that assessment, (iii) track the effectiveness of responses to rights impact, and (iv) publicly communicate how adverse impacts are addressed; and
3. Effective remedies for adverse human rights impacts.

Pillar III of the UNGPs requires states to take steps to ensure both access to remedies for affected rights holders through judicial, administrative, or legislative means and that businesses establish or participate in effective grievance mechanisms.

COVID-19 & Due Diligence

The pandemic has given rise to unique human rights challenges for businesses.  These include the health impacts associated with conditions of work, as well as a wider range of human rights impacts, particularly in relation to labour rights, resulting from the disruption to supply chains.  Specific examples include:

1. unsafe working conditions, particularly in labour-intensive industries where social distancing and the use of personal protective equipment may be more difficult;
2. termination of work or employment as a result of stalled demand, cancelled contracts and the follow-on consequences, such as loss of income, housing, and access to healthcare; and
3. heightened risk of trafficking and forced labour.

The emergence of these risks has prompted international bodies to publish guidance on effective corporate due diligence.  On 10 April 2020, the UN Development Programme published a COVID-19 Rapid Self-Assessment tool which allows businesses to survey the human rights impacts of their operations.  In line with the inclusive approach under the UNGPs, the UNDP’s tool is informed by the rights recognised across UN human rights treaties, the ILO Fundamental Conventions and the UNGPs themselves.

Similarly, on 16 April 2020, the OECD’s Centre for Responsible Business Conduct published a COVID-19 policy paper, which advocates the use of due diligence to mitigate the adverse impacts of post-pandemic recovery efforts.  The emphasis on due diligence as a feature of responsible business is aligned with the OCED’s Guidelines for Multinational Enterprises, which expressly state that business must respect human rights.

The spread of  guidance on due diligence from authoritative international sources is instructive for businesses operating across multiple jurisdictions, where disparities between COVID-19 responses at the national level increases the burden on companies to identify the points in their value chains at which the risk of adverse human rights consequences is greatest.  This burden will only intensify as states either struggle to contain the spread of COVID-19 or begin to ease lockdown measures in an attempt to spur economic growth.  Indeed, under the UNGP framework, businesses are expected to respect international human rights law over and above their requirements to comply with obligations under local law.

Mandatory Human Rights Due Diligence

Although non-binding, the UNGPs are the authoritative standard on business and human rights and compliance with them provides a critical risk-management tool for businesses. 

However, the law of business and human rights continues to expand and “harden”.  This progressive hardening is taking place through: (i) the introduction of legislation encouraging (or mandating) human rights due diligence and reporting; (ii) the adaptation of conventional accountability mechanisms (under domestic and international law) to business and human rights; and (iii) the ongoing negotiations for the creation of a binding business and human rights treaty.

The EU stands at the vanguard of this process.  On 29 April 2020, the European Justice Commissioner, Didier Reynders, announced that the European Commission is committed to introducing new rules on mandatory corporate, environmental and human rights due diligence (“mHRDD”).  In June 2020, the European Parliament published briefings on the proposed mHRDD legislation and on the related efforts to monitor, enforce and ensure access to justice for victims.  Later that same month, as a response to these developments, the Office of the UN High Commissioner for Human Rights published a list of “key considerations” for mHRDD initiatives.  The list expressly acknowledges the need for due diligence  as a result of the pandemic and its potential role in aiding recovery.  These international strides towards mHRDD have been matched by various national legislative proposals, as discussed further below.

The European Parliament’s briefings reveal the ambitious scope of the proposed mHRDD regime.  Among other things, the European Parliament has proposed that the new law should apply (i) to all companies that are domiciled in a Member State or that sell products or services into the internal market; (ii) to a company’s own activities as well as those of its contractual counterparties and suppliers along the value chain; and (iii) as with the UNGPs, to all recognised human rights.

With respect to monitoring, enforcement and access to justice, the European Parliament’s briefing outlines 17 separate recommendations at the company, Member State and EU levels.  For companies, the recommendations include ensuring that relevant stakeholders, including employees, participate in the design and oversight of due diligence processes and that due diligence efforts be elevated to the board level.  At the Member State and EU levels, the recommendations include the creation of public registers to record the companies subject to the law and details of their monitoring efforts, the powers to enforce due diligence requirements and penalise breaches, and the formation of independent national supervisory bodies. 

For companies reconsidering their due diligence practices in the wake of the pandemic, these briefings provide a timely indicator of the likely features of the new mHRDD regime and of the increasingly rigorous measures expected from companies.  Moreover, although the grounds for corporate liability are limited at present, if introduced mHRDD laws will provide a new source of enforceable obligations.

COVID-19 & Corporate Liability

The risk of legal liability for the adverse human rights impacts of post-pandemic recovery efforts cannot be understated given the overall trajectory of business and human rights law.  In this regard the prospect of parent company accountability, following the UK Supreme Court’s decision in Vendanta, and of national mHRDD laws present the most immediate sources of liability.

In Vendanta the UK Supreme Court held that the English Courts had jurisdiction over a claim brought by Zambian farmers against Vedanta Resources PLC, a UK-domiciled parent company, for alleged business and human rights violations in Zambia by its Zambian subsidiary.  The decision established that parent companies may be found liable for the operations of foreign subsidiaries where (i) there was a “real issue” to be tried against the parent company, (ii) there was a “real risk” that justice would be denied in the local jurisdiction, and (iii) the parent company owes an independent and direct “duty of care”.  The Vendanta ruling marks a watershed moment in the expansion of the jurisdictional reach of the UK Courts for business and human rights disputes.

In parallel, a number of states, including Switzerland, Norway and the Netherlands, have expressed commitments to implementing mHRDD laws. In November 2019, Norway published the draft text of its proposed mHRDD law, which introduces due diligence and disclosure requirements on companies as well as monitoring and enforcement powers for state entities.  In Switzerland, proposals for the Responsible Business Initiative, a mHRDD law, were debated in March 2020 and will continue once the parliamentary session resumes.  In both instances, the mHRDD obligations extend to foreign companies operating in those jurisdictions.

These twin developments – of potential parent company liability for rights violations by foreign subsidiaries and of new and enforceable due diligence obligations in developed markets – significantly narrows the scope for businesses to treat human rights due diligence as a voluntary exercise.  Firms that adopt a proactive and rigorous approach to due diligence will therefore not only be better placed to comply with any further legislative developments in this area, but also ameliorate the heightened risk of adverse human rights outcomes stemming from COVID-19.