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EU law will be game changer for human rights
Mandatory due diligence presents alternative to self-regulation of corporate conduct
9 Feb 2021 | Denise Young

Last year was big for the “S” of environmental, social and governance (ESG) trends – the people who we depended on for survival and safety during the pandemic were the most vulnerable in society.

And while tech companies were all big winners in 2020 because so much of the physical world went virtual, this failed to translate into a well-being dividend for workers in those tech companies.

Most recently the case of a 22-year-old employee at Pinduoduo who collapsed and died after working long hours shone a light on the brutal 996 culture in Chinese tech companies – working 9am to 9pm, six days a week – and highlighted that white-collar workers are also at risk.

A new law coming this year in the European Union is expected to raise the bar significantly on human rights reporting in business.

Currently, most attention in the EU is focused on the "E" trends – a raft of new EU legislation is anticipated in 2021 – but less trumpeted is a law on human rights in business which could make it compulsory to do due diligence on human rights, with sanctions for failure to do so.

This could be a game changer in the same way that European GDPR legislation changed the playing field for data privacy globally, and meant that companies had to formulate and make public their compliant data policies.

The EU law is part of a growing movement towards mandated social reporting requirements as an alternative to self-regulation of corporate conduct.

It could set an important precedent that imposes a legal duty to carry out human rights due diligence, with sanctions involved for breach of that duty.

In 2017, France became the first country to pass a law making human rights due diligence mandatory for large companies and there have since been calls for similar law reforms elsewhere, including in Germany, Kenya, Norway, Switzerland, Thailand, the United Kingdom and the United States.

But for the most part existing legislation is toothless. Take the UK's Modern Slavery Act (2015), which obliges large firms to publish a statement describing their efforts to prevent modern slavery from entering their supply chains.

While firms have discretion over what to report, guidance documentation recommends that they include information on policies, risk assessment, due diligence, risk management, performance reporting and training.

Modern slavery is an informal umbrella term referring to established legal categories of human trafficking, slavery and slavery-like practices such as servitude, forced labour and debt bondage.

The UK legislation assumes that exposing firms to public scrutiny will pressure them into taking a proactive stance in their supply chain management. However, there is neither legal onus to implement specific measures like onsite auditing nor is there any regulatory mechanism for disclosure.

In Australia, in 2018, two parliaments – the Parliament of Australia and the Parliament of New South Wales – passed complementary statutes requiring large entities to report annually on measures they have taken to detect and respond to modern slavery in their operations and supply chains.

While the mandated disclosure content is identical under the two Australian statutes for the distinct group of entities to which each applies, the statutes adopt significantly different models of regulation through mandatory reporting.

As with their UK model, both statutes rely primarily on market sanctions for their efficacy.

The statutes assume that consumers, investors, civil society, and the media will actively monitor business operations and relationships, and thereby reinforce business incentives to protect reputation.

This could be a watershed moment for corporate accountability, and one that raises the bar significantly worldwide.