The importance of Human Rights Due Diligence in an evolving regulatory landscape

Multiple pieces of legislation are currently being implemented both on the EU level and the individual country level for making human rights due diligence a mandatory process. We will dive into the various regulations that involve human rights due diligence.

Companies have a responsibility to respect human rights, and to do so, they are required to exercise human rights with due diligence. Not only does a due diligence system support a company in detecting human rights risks, but a properly implemented and regularly updated process can also help companies to enhance their positive impact.

The EU Taxonomy minimum safeguards

The EU Taxonomy provides companies, investors, and policymakers with clear definitions of economic activities that can be considered environmentally sustainable. It has been set up as a so-called green classification system. Companies that will have to report under the EU Taxonomy alignment must comply with the Minimum Safeguard criteria – including human rights due diligence.

The Corporate Sustainability Reporting Directive

Under the Corporate Sustainability Reporting Directive, companies must report on sustainability due diligence under ESRS 1 Standard, chapter 4. The CSRD defines sustainability due diligence as the process by which undertakings identify, prevent, mitigate, and account for how they address the actual and potential negative impacts on the environment and people connected with their business. Moreover, the CSRD will require social information for ESRS S1-S4. This will include its workforce, value chain workers, affected communities, and consumers and end-users. Human Rights due diligence will also be required for each of these groups.

The Directive on corporate sustainability due diligence

The upcoming Directive on corporate sustainability due diligence is a proposed EU directive that aims to strengthen corporate accountability for environmental and social impacts and enhance transparency concerning sustainability matters. The directive will require companies to conduct due diligence on the environmental and social risks and impacts associated with their operations and supply chains.

Moreover, companies will have to disclose information on those risks and impacts to their shareholders and the public. The directive will also establish a framework for companies to manage and mitigate those risks and impacts, and to report on their progress in doing so. The directive is expected to affect a wide range of companies, including large companies and groups, as well as companies in specific sectors such as extractive industries, and companies operating in high-risk countries.

The Social Taxonomy

Another important development in the regulatory landscape is the Social Taxonomy. The Social Taxonomy is a set of criteria that classifies economic activities as environmentally sustainable based on their social impact.

The intention of the Social Taxonomy is to help investors and companies identify and select investments that align with the EU’s social sustainability objectives. The Social Taxonomy is used to identify activities that contribute positively to the SDGs and EU social policy objectives, and to exclude activities that have negative social impacts or that do not contribute positively to these objectives. Among the core requirements in the social taxonomy is that companies must conduct due diligence on their activities and suppliers.

The Dutch Bill on Responsible and Sustainable International Business Conduct

The Dutch Bill on Responsible and Sustainable International Business Conduct is a proposed legislation in the Netherlands, requiring companies operating in the Netherlands to conduct due diligence on human rights risks in their global supply chains. It also requires from these companies to report on any identified risks and the measures they have taken to address them. The bill will apply to large companies and groups, and to companies in specific sectors such as the extractive industries, and companies operating in high-risk countries.

The bill is part of a broader effort by the Dutch government to promote responsible business conduct and to contribute to the UN Sustainable Development Goals.

Do you need help on implementing Human Rights Due Diligence?

With all these regulations set in place, companies are now bound to incorporate human rights in their business strategy. The list of legislation can seem overwhelming, but many of the laws are based on the UN Guiding Principles and the OECD guidelines for responsible business conduct.

We are here to help. Our consultants from Sustainalize/ERM have a vast experience with the implementation of Human Rights due diligence under these frameworks. Don’t hesitate to contact Morganne Kroon from our Human Rights team for more information.

Authors
Morganne Kroon

Morganne Kroon

Consultant, Sustainalize

Don’t hesitate to reach out to our colleagues if you need any help or assistance in the process.

Published on: 19 januari 2023

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