In the past few years there have been a range of national legislation and proposed legislation seeking to create corporate accountability for the human rights impacts of their activities. This has included the French Duty of Vigilance Act 2017 and the Dutch Child Labour Due Diligence Act 2019, as well as the proposed Swiss Responsible Business Initiative. In addition, there has been actions at the European Union and United Nations levels towards creating binding legal instruments in this area.

 

What is evident so far is that each of the national regulatory activity in this area have adopted different methods for creating corporate accountability. For example, the Dutch Child Labour Due Diligence Act adopts a consumer protection approach with a statutory regulator and with both civil and criminal liability possible, while the French Duty of Vigilance Act requires annual corporate reporting, with civil liability where a victim can successfully show a breach of the duty. In contrast, the draft Swiss law proposes a strict vicarious liability approach based on control by the parent company, with a possible defence of human rights due diligence. In addition, the recent extensive study for the European Commission of due diligence regulation across many EU Member States has shown that, while the terminology may vary, the same aim of having a legal obligation on a company to create and apply a human rights and environmental impact assessment to consider the risk to stakeholders is found in these States. It concluded that the use of the term “due diligence” in relation to human rights and the environment in any EU legislation would not appear to be a problem for harmonisation.

 

In relation to the UK, there has been significant criticism of the Modern Slavery Act 2015, including for its lack of any monitoring mechanisms and enforceability, no inclusion of public bodies, and no clarity as to exactly which companies are to be included. Most of these shortcomings were sought to be remedied by the Modern Slavery Act (Transparency) Bill 2016 brought by Baroness Lola Young but it was not passed. There has also been concerted pressure by civil society for the UK government to bring in legislation to cover all human rights impacted by corporate activities.

 

The UK Parliament’s Joint Committee on Human Rights undertook a thorough inquiry into corporate accountability for the human rights impacts of their activities, publishing a report in 2017 on Human Rights and Business 2017: Promoting Responsibility and Ensuring Accountability (of which the author was a Special Advisor). After considering all the evidence, including from business, one of its recommendations was [para 193]:

We recommend that the Government should bring forward legislation to impose a duty on all companies to prevent human rights abuses, as well as an offence of failure to prevent human rights abuses for all companies, including parent companies, along the lines of the relevant provisions of the Bribery Act 2010. This would require all companies to put in place effective human rights due diligence processes (as recommended by the UN Guiding Principles), both for their subsidiaries and across their whole supply chain. The legislation should enable remedies against the parent company and other companies when abuses do occur, so civil remedies (as well as criminal remedies) must be provided. It should include a defence for companies where they had conducted effective human rights due diligence, and the burden of proof should fall on companies to demonstrate that this has been done.

This was an innovative approach and one which relied on existing UK legislation – the Bribery Act 2010 – to propose a way to create corporate accountability for human rights impacts.

A recent study has taken up this suggestion by the Joint Committee on Human Rights. This study, by the British Institute of International and Comparative Law and Quinn Emanuel, offers a coherent and thoughtful analysis of how such an approach could be adopted into legislation, in a manner which is consistent with existing UK law. This study recommended that there be legislation which created a duty on corporations to prevent human rights harms in the entity’s own activities and those of its business relationships. “Harms” is used by the study as it more commonly used in UK law, though the preferred international legal term used is “impacts”, which is broader in coverage.

The study recommends that a company would be expected to undertake human rights due diligence in relation to the actual and potential human rights impacts of their actions, as well as the actions of their subsidiaries and those with whom they have a business relationship. Human rights due diligence processes, which are set out in the United Nations Guiding Principles on Business and Human Rights 2011 (UNGPs) and other international instruments such as the OECD Guidelines on Responsible Business Conduct 2018 (OECD Guidelines), include:

• conducting a human rights impact assessment;
• taking action to operationalise the assessment throughout the business (including using leverage with those in its value chain);
• tracking the effectiveness of responses to the impacts; and
• communicating to others how their actual and potential human rights impacts have been acted upon.

Human rights due diligence is now the core aspect of the development of legislation in this area, as seen in the Dutch Child Labour Due Diligence Act. Interestingly, the proposal does not take the route of the French Duty of Vigilance Act or the Modern Slavery Act by requiring an annual report by a company on its activities relevant to the legislation (such as a human rights due diligence plan). Instead, it – like the Bribery Act – creates a duty to prevent with a defence which implicitly requires regular action by a company (see below), and does not introduce a statutory regulator (like the Dutch Law) to monitor compliance. It might, though, be wise to explicate – in guidance to any legislation – that the human rights due diligence process take into account specific risks to women, and to vulnerable and marginalised people, as was recommended by the UN Working Group on Business and Human Rights, and the need to have prompt, effective and inclusive consultations with communities.

The study recommended that there be civil liability for breaches of this duty where a company domiciled in the UK failed to prevent human rights impacts in their business relationships. This would enable victims of these impacts to bring a claim before a UK court without the current very slow process of victims being required to show there is a duty before a claim could proceed to its merits (see Vedanta v Lungowe before the UK Supreme Court). It would also shift the onus of proof to the company to show that it did not fail to prevent the human rights impact, which is of enormous benefit to victims and should assist companies which have good processes. It would need to be made clear that, as with the Bribery Act, civil liability applied to those companies which caused or contributed to the human rights impact by their own actions or contributed it to by the actions of others (as such a difference arises in the UNGPs).

The study did not focus on criminal liability, not least as criminal liability does not usually provide a remedy to the victims. Yet there is an argument that criminal liability – which is in the Bribery Act – could have a strong deterrent effect, especially if it includes liability by the senior management and the directors of a company. This could be combined with a reminder to prosecutors that they can seek compensation to victims in a criminal case and, possibly, assisted by an appropriate statutory regulator. Interestingly, under the Sanctions and Anti-Money Laundering Act 2018 and the Proceeds of Crime Act 2002, money generated from activities that breach human rights are treated as proceeds of crime.

The duty on companies to prevent human rights harms, the study recommends, would also have a human rights due diligence defence. This would enable a company to avoid liability if it showed that it has put in place processes which are reasonable in all the circumstances. The court would determine this on the facts, and might consider that there are some rare circumstances, perhaps such as complicity by a company in a crime against humanity, which could not give rise to a defence.  Having a defence could be a very effective incentive to companies to act on this duty and to provide evidence to the courts of doing more than merely reporting on what they claim they have done. It also assists companies to put into practice their public statements about human rights, especially as many of these statements on human rights and the environment are required by the Companies Act 2006 (especially by sections 172 and 414A-C). Thus, the defence is the incentive for a company to undertake human rights due diligence by more than tick-box exercise.

In relation to the scope of this duty, the report recommends that it apply to all companies – the terminology of the Bribery Act is “commercial organisations” – of whatever size and sector, which are registered, incorporated, carrying on business or otherwise domiciled in the UK. It might be thought worthwhile expressly to include the financial sector in the definition, which would also place pressure on all companies to prevent human rights harms. In fact, many investors are required to consider environmental, social and governance issues under the Stewardship Code 2020, and yet the human rights aspect of “social” is too often overlooked. The other sector which should be included is the public sector, which includes government departments, local authorities, schools, universities, export credit agencies and all others undertaking public procurement, not least as most such public bodies are subject to the Human Rights Act 1998 and government departments are expressly included in the Australian Modern Slavery Act 2018.

Despite this potential wide scope, the study recommends that there could be different procedures for undertaking human right due diligence for companies depending on their size. This is consistent with the UNGPs and the OECD Guidelines, as well as the Bribery Act Guidance. It seems an appropriate method to balance the difficulties that some small and medium sized companies may face, though many of them are in a much larger company’s supply chain, where the larger company’s process is likely to include them. The threshold could be based on the number of employees (as in the French Duty of Vigilance Act) or the turnover (as in the Modern Slavery Act 2015).

The scope of the companies included within the proposal in the study would mean that it, like the Bribery Act, would extend across all a company’s business activities wherever they are located. Thus the duty on a company domiciled in the UK would apply regardless of where the impact took place. This would include impacts which occurred outside the UK. Like the Bribery Act, the argument is that this approach avoids issues of transnational jurisdiction (which can give rise to claims of intervention in the sovereignty of other States) by focussing on the reporting requirement of the company domiciled in the UK in relation to its subsidiaries and business relationships, rather than providing any direct requirements on, for example, a subsidiary incorporated in another State. In a world of transnational corporations, it seems sensible for the national law to have such transnational effect when appropriate.

In addition, the rights for which companies would have a duty, the study argues, include all internationally recognised human rights, not just those to which the UK has directly incorporated into UK legislation (the latter being the proposed Swiss law approach). This extent of applicable human rights, which would include those human rights which are part of customary international law, such as the prohibition on torture and the right to self-determination, is consistent with the recent decision by the Canadian Supreme Court in Nevsun v Araya.  In addition, the French Duty of Vigilance Act and most of the current national law proposals include environmental impacts within their scope, and any proposed UK law should do this. Indeed, as occurred in the Vedanta v Lungowe case, environmental damage often happens together with  human rights impacts. It could, perhaps, be extended to climate change impacts, where the necessary causation could be shown.

Interestingly, to support their analysis, the authors undertook a survey of some UK businesses as to the effectiveness of the Bribery Act for them and their responses to any legislation on corporate responsibility for failure to prevent human rights impacts. This indicated that about 65% of businesses stated that the Bribery Act provided legal certainty in their business relationships, and about 75% indicated that the Bribery Act has not had any impact on their competitiveness with foreign companies and had not affected their investment decisions in high risk sectors. In relation to the introduction of legislation on corporate accountability for human rights, the vast majority of respondents – over 80% – indicated that this would provide benefits in terms of legal accountability. 75% of the respondents agreed that it could “level the playing field” with competitors and suppliers,  and facilitate leverage with third parties. These latter statements are consistent with the statements by corporations to the Joint Committee on Human Rights and the increasing support for regulation in this field by corporations across the globe. This support by companies of clear and coherent legislation in relation to corporate accountability for the human rights impacts of their activities is helpful, as governments can too often assume that regulation may not be in the best interests of companies.

An adoption by the UK Parliament of the approach recommended by this study, by which companies have a duty to prevent human rights (and environmental) impacts with liability if they fail in this duty, would be a powerful acknowledgement of the need to make companies accountable for these impacts, which affect millions in the UK and worldwide. It would also be consistent with both developments at the regional and international levels, and with existing UK law and the UK legal system.

 

Robert McCorquodale is Professor of International Law and Human Rights at the University of Nottingham, barrister at Brick Court Chambers, London, and Founder of Inclusive Law, a business and human rights consultancy (https://www.inclusivelaw.com).

Editor’s note: the topic human rights due diligence and related national and international laws has been covered in several Business and Human Rights Journal articles. Björn Fasterling explored ambiguities within the UNGPs framing of human rights due diligence and Catie Shavin studied the concept within the OECD Guidance on Responsible Business Conduct. McCorquodale et al. published an empirical study of the business practice of human rights due diligence, Karin Buhmann looked at human rights due diligence and non-financial disclosures, and Kendyl Salcito and Mark Wielga wrote on how it applies to business relationships. Olga Martin-Ortega looked at human rights due diligence in public procurement in the electronics industry and Maria Anne van Dijk et al. covered the topic in relation to banking. Daria Palombo explored the various national laws in the area, Amy Sinclair and Justine Nolan studied the Australian Modern Slavery Act, and Sandra Cossart et al. studied the French Law. The latest issue of the journal is available here.