Human rights as the S in ESG

Tuesday 25 October 2022
Social responsibility

The scope of human rights covered by the "S" in the ESG is quite broad. It includes 30 human rights listed in the 1948 Universal Declaration of Human Rights (such as the right to life, liberty and security, the right to equality before the law, the prohibition of torture and slavery, the prohibition of forced labor, the prohibition of discrimination, etc.) In addition, human rights are clearly defined in the Convention on Civil and Political Rights (1966) and the International Covenant on Economic, Social and Cultural Rights (1966). The 9 UN treaties that deal with, among other things: the rights of the child, the prohibition of discrimination against women, or the rights of migrant workers, should not be overlooked either.

UN and human rights

However, with regard to respecting human rights in business activities, the most important source is the UN Guiding Principles on Business and Human Rights, adopted in 2011 by the UN Human Rights Council. They were developed by a team of experts led by Professor John Ruggie. They represent an important step by the international community toward reducing the risk of human rights violations related to business activities. They primarily take into account the obligations of states to ensure the protection of individual rights against violations by businesses. The guidelines also emphasize the role of businesses in the realization and protection of human rights under both domestic regulations and international obligations. An important place in these guidelines is given to the issue of ensuring that states provide effective mechanisms, both judicial and non-judicial, for handling complaints of human rights violations in connection with business activities. According to these guidelines, victims should be guaranteed access to remedies and the opportunity to seek redress for the harm they have suffered.

In addition, there are various sectoral guidelines, guidelines from the International Labor Organization (ILO) and the OECD. The OECD guidelines for multinational enterprises (MNEs) view due diligence as an ongoing process of systematically and proactively identifying risks and potentially negative consequences for corporate social responsibility. It also includes the monitoring of a company's business relationships, so this notion of due diligence goes beyond a single initial investigation toward preventing reputational, financial or legal damage to the company itself.

Whether we have to or want to

The aforementioned guidelines can currently only be applied by companies on a voluntary basis. However, an academic survey of supply chain due diligence requirements conducted in January 2020 found that voluntariness has not led to the necessary changes in corporate behavior. Therefore, work has begun on mandatory regulations in this area.

On January 1, 2021, the Regulation on Responsible Trade in Minerals from High-Risk or Conflict-Affected Areas came into force. The regulation requires importers in the EU of tin, tantalum and tungsten, relevant ores and gold from certain conflict zones to apply due diligence in their supply chain.

On February 23, 2022. The European Commission has adopted a proposal for a directive on corporate sustainability due diligence. The goal of the proposal is to promote sustainable and responsible corporate behavior in global value chains. There will be an obligation for companies to perform sustainability due diligence to address non-compliance with human rights and negative environmental impacts.

The new due diligence regulations will cover:

  • all EU companies with limited liability, significant size and economic power (with more than 500 employees and a global net turnover of more than €150 million),

  • other limited liability companies in defined high-impact sectors that do not meet the criteria for Group 1, but have more than 250 employees and a global net turnover of more than €40 million (for these companies, the rules will begin to apply 2 years later than for Group 1 companies).

  • Non-EU companies operating in the EU, with turnover generated in the EU corresponding to the thresholds for Groups 1 and 2.

The proposal applies to the company's own operations, as well as its subsidiaries and value chains (direct and indirect business counterparties).

In order to fulfill their due diligence obligations, companies must:

  • include due diligence in their policies,

  • identify actual and potential negative impacts on human rights and the environment,

  • prevent or mitigate potential impacts,

  • eliminate or minimize actual impacts,

  • establish and maintain a complaints procedure,

  • monitor the effectiveness of due diligence policies and measures,

  • publicly report on due diligence.

National administrative authorities designated by member states will be responsible for enforcing the new regulations - they will be able to impose penalties in case of non-compliance.

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