Growing amounts of legislation are being proposed in the EU as well as in individual EU member states on Human Rights Due Diligence in value chains, suggesting that very soon it will become mandatory to not only publish a well-meaning policy on non-discrimination but to demonstrate how workers’ rights are respected beyond the borders of the EU. This mandate will extend to investors as well and will have a profound, spillover effect in countries where suppliers are located.

The trend means that the main concern of responsible business can no longer be only about mitigating the negative externalities of business practices but, rather, how to find ways in which businesses can anticipate and prevent negative impacts in the first place. A failure to do so will result in clear, legal repercussions. This turn to proactivity means going beyond symbolic efforts and taking on significantly more responsibility, resulting in a major change to the standard practices of business in general. Concepts like “accountability”, “transparency”, “redress”, and “effective control” rise to the foreground.

Very soon it will become mandatory to not only publish a well-meaning policy on non-discrimination but to demonstrate how workers’ rights are respected beyond one’s borders.

These concepts have been developed extensively in the context of international public law. They provide guidance to private entities and are now being used as a basis for regulations aimed at private actors with power over other individuals and groups.

The concept of human rights due diligence is understood in proposed EU regulations as being in line with the United Nations’ Guiding Principles on Business and Human Rights (UNGPs), which describe it as a process aimed at operationalizing corporate responsibility to respect human rights. The UNGPs’ approach, which dictates that business enterprises – irrespective of their size and sector – should have in place “a human rights due diligence process to identify, prevent, mitigate, and account for how they address their impacts on human rights” (UNGPs Principle 15, Principle 17 and the commentary to it), has been subsequently reinforced by other international organisations and, importantly, will have a direct impact on individual investors, asset managers, and companies.

An ever-present concern these days, when so many are turning toward “sustainability” and “ESG”, is that very few people in the investment sector actually have any professional training and experience in what the extra-financial implications and complexities are when an investment is made based on “sustainability concerns”. Advisers and asset managers lack guidance on how to realize, be faithful to, or even how to start thinking about their clients’ impact objectives. These concerns increase when considering that human rights, and rights derived from other relevant branches of law, are by no means a professional competence integrated into the senior teams of most asset managers or investees. In order to do due diligence on human rights issues and to set strategic objectives and report on them, it is crucial to understand what human rights are all about, where they stem from, what effective and meaningful implementation means, including in complex sectors and settings.

The main concern of responsible business can no longer be only about how to mitigate negative externalities of business practices but, rather, how to find ways in which businesses can anticipate and prevent negative impacts in the first place.

If future human rights due diligence regulation is formed, as per current proposals, it will require companies to actively engage in analysing, mitigating, and remedying any adverse impacts on human rights, based on and connected with their own activities in business relations. This will influence not only the effects of exploitation of labour in supply chains, but also other human rights. The rights to health, education, decent standard of living, housing, participation and non-discrimination will also have to be considered.

What does it mean to do human rights due diligence?

The first task when embarking on a human rights due diligence is to identify specific, actual, or potential adverse impacts related to an enterprise’s activities or its business relationships. The steps after identification will depend upon the adverse impacts (or risks of adverse impacts) identified. So, in essence, the first step is identification. This means that if, for example, you are studying the effects of waste management, you will have to review the impacts on health, children’s rights, and livelihoods (i.e. rural sectors of land and property rights of surrounding communities). In essence, the goal is understanding what is affecting the realization of specific human rights.

Getting started means coming up with a list of adverse impacts that should be considered first. The good news is that this step should not be difficult. Most of the risks of adverse impacts associated with an enterprise’s activities are already well known – either because of the geographical area of operations or the sector. What you DO need is someone with knowledge of human rights instruments as well as jurisprudence and effective implementation.

Human Rights Due Diligence (HRDD) is closely connected to your stakeholder engagement, to internal grievance mechanisms that address when things go wrong, and to social indicators more generally.

In order to do due diligence on human rights issues and to set strategic objectives and report on them, it is crucial to understand what human rights are all about, where they stem from, what effective and meaningful implementation means, including in complex sectors and settings.

An example linked to avoiding exploitation

Due Diligence

• Speak with appropriate management personnel about employment policies and examine copies of these policies.
• Check national law and employment contracts, and consider provisions on notice periods for terminating both indefinite and fixed duration contracts.
• Speak with workers about their rights and responsibilities under the law to determine whether they have entered into and can leave employment freely, without suffering any threat or consequence.
• Discuss with employers the company policy on violence, harassment and intimidation in the workplace, and examine copies of such policy.
• Examine legal records for any evidence of outstanding complaints or actions taken against the company — for example, in a labour tribunal — to determine whether there have been past allegations of the use or threat of physical or sexual violence, harassment or intimidation against workers and their families.
• Examine wage slips to determine whether coercion has been used at any time in the payment or non-payment of wages, or whether there is evidence of unlawful or unexplained deductions. In examining wage records, consider whether workers paid at piece-rate receive the legal minimum wage.
• Speak with workers about wage payment practices (i.e., whether wages are paid on time and calculated correctly, taking into consideration overtime and legal deductions); how they were recruited; and whether or not they were required to lodge a deposit or pay a recruitment fee, either to the employer or to a third party.
• Ensure that a representative cross-section of workers is interviewed; for example, those on indefinite and fixed duration contracts as well as those paid hourly and piece-rate wages.
• Speak with managers and human resource personnel about recruitment and payment policies and practices.
• Determine whether the sale of company goods, tools, or uniforms is used as a means to create a state of dependency of the worker on the employer.
• Examine financial records relating to wage advances and loans, if applicable.
• Review a random selection of payroll and other wage-related records to consider whether there is evidence of malpractice. Take appropriate measures to ensure that the company is not using a double set of “books” to mislead auditors.
• Consider whether special attention should be paid to the rights of indigenous and tribal peoples and/or migrant workers and take appropriate measures to determine whether the company subcontracts to informal workshops where the risk of bonded labour and debt bondage might be higher.
• If the employer uses a private employment agency to hire workers, speak with management about policies related to this. Where possible, meet with representatives of such employment agencies to discuss recruitment policies and procedures.
• Cross check information provided by management and workers to determine validity.