Corporate compliance with human rights: An overview

Evolution of human rights as a trend in corporate compliance

To talk about corporate human rights compliance, it is necessary to first briefly reference corporate social responsibility. The idea of businesses giving back to society while bolstering brand reputation can be traced back two centuries. In the late nineteenth century, “there was growing concern about worker wellbeing and productivity among industrialists.”[1] Working conditions, as well as child and women labor, were contributing to social problems. Socially responsible behavior became a focus in the shape of humanitarianism and business acumen. By 1953, Howard Bowen coined the term “corporate social responsibility” for the idea of companies taking responsibility for their impact on society.

During the 1970s and 1980s, several issues were raised regarding U.S. transnational corporations in developing countries. These problems caused corporate social responsibility to incorporate human rights, in particular, antidiscrimination and labor rights as part of an emerging discourse about the role of transnational corporations in development and investment. And then, according to Anita Ramasastry, “In the late 1990s the term ‘corporate complicity’ was termed, and businesses were advised to avoid being ‘complicit’ in the human rights violations of others.”[2]

During that same decade and early 2000s, lawsuits against companies such as Nike, Yahoo!, Walmart, and Shell—among others—spread across the U.S., Europe, China, and Japan. These lawsuits brought attention to corporate involvement in human rights violations and challenged the conduct of multinational corporations overseas related to oil extraction, conflict diamonds, workers’ health, and child labor. This led to the creation of the Kimberley Process and other measures to create transparency in supply chains.

From 2000 to 2011, attempts were made to create universal standards. In 2000, the United Nations (UN) Global Compact challenged international businesses to help the UN implement universal values in the areas of human rights, environment, and labor. The highlight of this milestone is the emergence of companies benchmarking their conduct against international law.[3]

In 2003, the UN issued for comment its Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, which aimed to establish a comprehensive set of human rights norms specifically for transnational corporations and other business enterprises.[4]

By 2011, and after extensive consultations, the UN Human Rights Council unanimously endorsed a new document, the Guiding Principles on Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework, providing a global standard for preventing and addressing the risk of adverse impacts on human rights involving business activities.[5] After 2011, states have encouraged voluntary business action by promulgating national action plans that outline their plans to implement the guiding principles.

Global landscape

In the last decades, human rights have entered the wide field of corporate social responsibilities and the subsequent standards that corporations must comply with.

In the U.S., there is a sizable number of regulations that address this subject.

• The Trafficking Victim Protection Act—enacted in 2000 and updated through 2018—requires human trafficking compliance plans for federal contractors.[6]

• The California Transparency in Supply Chains Act, enacted in 2010, requires disclosures of anti-trafficking efforts.[7]

• The Dodd-Frank Act’s conflict minerals rule was adopted by the U.S. Securities and Exchange Commission (SEC) in 2010, though parts were deactivated by the SEC in 2017 due to court rulings.[8]

• A draft bill entitled the Corporate Human Rights Risk Assessment, Prevention, and Mitigation Act of 2019 is currently under preliminary consideration by the U.S. Congress; it could become the most crucial piece of legislation enacted to date.[9] It requires all publicly listed companies that file an annual report with SEC to conduct an annual assessment of the human rights risks or impacts in their operations or value chain to rank those risks on their severity of harm to the right’s holder, and disclose in their annual report a description of their risk assessment process; the results of the assessment; and any actions the company has taken to avoid, mitigate, or remediate identified risks or impacts.

In Europe:

• The European Parliament recently passed the Corporate Sustainability Due Diligence Directive (CSDDD).[10] This regulation establishes far-reaching mandatory human rights and environmental obligations for both EU and non-EU companies operating in the EU market to identify and assess adverse human rights and environmental impacts; prevent, mitigate, and bring to an end such diverse impacts; and adopt a plan to align with the Paris Agreement’s 1.5 degrees Celsius warming limit.[11] Noncompliance with this regulation can include fines of up to 5% of the companies’ net worldwide turnover.

• Another relevant piece of legislation for the EU is the Corporate Sustainability Reporting Directive that entered into force in January 2023, making companies start their application for fiscal years beginning on or after January 1, 2024, with first reports due in 2025.[12] This regulation requires large companies to report detailed information on their environmental, social, and governance impacts; risks; policies; targets; and due diligence.

• Certain EU member states like Germany (German Supply Chain Act), France (French Duty of Vigilance Act), and Norway already have national due diligence laws in place that the CSDDD aims to harmonize.[13]

Countries in the Asia–Pacific region are taking steps toward mandatory human rights due diligence legislation for companies. South Korea has proposed the Act on Human Rights and Environmental Protection for Sustainable Management of Companies, which would require large companies to assess and address human rights and environmental risks in their operations and supply chains.[14] In 2023, the Japanese government published its Guidelines on Respecting Human Rights in Responsible Supply Chains, which underlines that all businesses– regardless of size–have a responsibility to respect human rights. It requires that businesses address the actual and potential adverse human rights impacts connected with their activities, whether inside or outside Japan.[15] According to the Modern Slavery Act 2018 in Australia, both Australian and foreign entities operating in Australia and generating at least A$100 million in consolidated revenue must annually prepare and submit a modern slavery statement. This statement should outline the risks associated with modern slavery practices within the entity’s operations and supply chains, along with other specified details.[16]

India has initiatives and regulations regarding corporate human rights compliance. The Companies Act 2013 mandates that certain companies spend a portion of their profits on corporate social responsibility activities. The National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business and the National Guidelines on Responsible Business Conduct provide a framework for businesses to respect human rights in their operations and value chains.[17] Regardless of this regulatory frame, effective implementation and enforcement by companies remain a challenge.

In an analogous situation, China has taken steps to improve corporate human rights compliance through the Human Rights Action Plan of China and other initiatives. This plan states that China will encourage public institutions and enterprises to establish permanent mechanisms for human rights training, provide training on human rights issues to human resources staff, and create a workplace culture that respects and protects human rights. It will also strengthen human rights training in Chinese enterprises operating overseas.[18] Regardless of these commitments, China has been accused on several occasions of not complying with international treatises and regulations on human rights.

As of September 2023, the African Union was expected to adopt its Business and Human Rights Policy Framework. This policy framework is designed to function as a roadmap for regulating the impact of business conduct on human rights in Africa and encourage cohesive implementation of the UN guiding principles by African states.[19]

In South America, countries like Argentina, Brazil, Chile, and Peru have enacted laws establishing corporate liability for corruption and human rights violations, often incentivizing or mandating compliance programs as mitigating factors. These regulations demonstrate South America’s growing focus on promoting ethical business conduct and human rights due diligence by companies.

Supply chain and human rights due diligence

Many of the regulations previously mentioned pay special attention to due diligence in supply chains. Global supply chains involve millions of workers/suppliers/subcontractors across multiple countries, making them a major area where human rights violations can occur.[20] The activities of business-to-business and business-to-consumer suppliers are such that it has become essential to enact laws that focus on transparency and care concerning human rights, such as human trafficking, forced labor, and child labor.

International norms expect companies to address human rights impacts linked to their operations, products, or services through business relationships, even if they have not directly caused them. It may be noted that the Guiding Principles on Business and Human Rights has been the foundational document for the standards and regulations outlined above. The UN’s guiding principles make it clear that all companies have an independent responsibility to respect human rights by exercising human rights due diligence.

According to the UN:

“Human rights due diligence is a way for enterprises to proactively manage potential and actual adverse human rights impacts with which they are involved. It involves four core components: (a) Identifying and assessing actual or potential adverse human rights impacts that the enterprise may cause or contribute to through its own activities, or which may be directly linked to its operations, products or services by its business relationships; (b) Integrating findings from impact assessments across relevant company processes and taking appropriate action according to its involvement in the impact; (c) Tracking the effectiveness of measures and processes to address adverse human rights impacts in order to know if they are working; (d) Communicating on how impacts are being addressed and showing stakeholders—in particular affected stakeholders—that there are adequate policies and processes in place.”[21]

Under this definition, human rights due diligence becomes another manifestation of a risk assessment that should be part of structuring a compliance program. Once the risk assessment has been completed, organizations are ready to move on to creating standards, processes, and procedures; providing oversight; preventing anyone who behaved illegally from obtaining a position of substantial authority; effectively communicating program policies and procedures; taking reasonable steps to monitor, detect, and report any conduct that goes against the program; enforcing the program; and reporting periodically.

Human rights due diligence requires (1) an ongoing risk management process that a reasonable and prudent company should follow; (2) an examination of the impact on people and communities; (3) meaningful engagement with affected stakeholders, human rights defenders, and civil society; (4) covering a company’s operations, its supply chain, and business relationships, and; (5) taking appropriate action.

Conclusion

The evolution of human rights as a trend in corporate compliance highlights a transformative journey from early notions of corporate social responsibility to comprehensive and mandatory human rights due diligence. Initially driven by concerns over labor conditions and social welfare, corporate social responsibility has progressively incorporated human rights, spurred by global scrutiny and legal challenges faced by multinational corporations. Establishing universal standards, such as the UN guiding principles, has provided a robust framework for businesses to prevent and mitigate human rights abuses. Modern regulations across the U.S., Europe, Asia–Pacific, and other regions mandate extensive due diligence and transparency, emphasizing the responsibility of businesses to respect human rights in their operations and supply chains. This shift underscores the critical role of human rights in shaping ethical and sustainable business practices worldwide, reflecting a growing consensus that corporate success is inextricably linked to social responsibility and the protection of fundamental human rights.

Takeaways

• Over time, corporate social responsibility expanded to include human rights. This shift emphasized the need for businesses to avoid complicity in human rights violations.

• High-profile lawsuits and international scrutiny have underscored the importance of legal accountability and ethical conduct in global business operations.

• There has been a transition from soft law (international norms) to hard law (enacted bills, regulations, etc.).

• Several laws require corporations to conduct due diligence on human rights impacts and report their findings and mitigation efforts. Many regulations emphasize the need for corporations to assess and address human rights risks within their supply chains.

• Human rights due diligence is essential for managing risks and ensuring ethical business practices across operations and supply chains.

*Felipe Sottorff Araya s an attorney licensed to practice law in Chile and currently works as a Research & Business Analyst at Robins Kaplan LLP in Minneapolis, Minnesota, USA.

1 Thomas Publishing, “A Brief History of Corporate Social Responsibility (CSR),” October 24, 2023, https://www.thomasnet.com/insights/history-of-corporate-social-responsibility/.

2 Anita Ramasastry, “Corporate Social Responsibility Versus Business and Human Rights: Bridging the Gap Between Responsibility and Accountability,” Journal of Human Rights 14, no. 2 (2015):237–259, https://digitalcommons.law.uw.edu/faculty-articles/734.

3 Ramasastry, “Corporate Social Responsibility Versus Business and Human Rights.”

4 United Nations, Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with regard to Human Rights, August 26, 2003, https://digitallibrary.un.org/record/501576?ln=en&v=pdf.

5 Office of the High Commissioner, United Nations Human Rights, Guiding Principles on Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework, January 1, 2012, https://www.ohchr.org/en/publications/reference-publications/guiding-principles-business-and-human-rights.

6 National Human Trafficking Hotline, “Federal Law,” accessed September 12, 2024, https://humantraffickinghotline.org/en/human-trafficking/federal-law.

7 State of California Department of Justice, “The California Transparency in Supply Chains Act,” accessed September 12, 2024, https://oag.ca.gov/SB657.

8 U.S. Securities and Exchange Commission, “Fact Sheet: Disclosing the Use of Conflict Minerals,” last updated June 28, 2024, https://www.sec.gov/newsroom/press-releases/2012-2012-163-related-materials.

9 International Corporate Accountability Roundtable, “Corporate Human Rights Risk Assessment, Prevention, and Mitigation Act of 2019,” June 10, 2019, https://static1.squarespace.com/static/583f3fca725e25fcd45aa446/t/5d2738f58d73de0001c531a7/1562851574384/Corporate+Human+Rights+Risk+Assessment+Bill+One+Pager.pdf.

10 European Commission, “Corporate sustainability due diligence,” accessed September 12, 2024, https://commission.europa.eu/business-economy-euro/doing-business-eu/sustainability-due-diligence-responsible-business/corporate-sustainability-due-diligence_en.

11 European Parliament, “Due diligence: MEPs adopt rules for firms on human rights and environment,” news release, April 24, 2024, https://www.europarl.europa.eu/news/en/press-room/20240419IPR20585/due-diligence-meps-adopt-rules-for-firms-on-human-rights-and-environment.

12 European Commission, “Corporate sustainability reporting,” accessed September 12, 2024, https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en.

13 Kristy Balsanek et al., “EU’s Proposed Directive on Corporate Sustainability Due Diligence: What US companies need to know,” DLA Piper, September 25, 2023, https://www.dlapiper.com/en/insights/publications/global-esg-alert/2023/eus-proposed-directive-on-corporate-sustainability-due-diligence-what-us-companies-need-to-know.

14 Michael R. Littenberg et al., “Is mandatory human rights due diligence coming to Asia?” Ropes & Gray, December 4, 2023, https://www.ropesgray.com/en/insights/viewpoints/102iu8h/is-mandatory-human-rights-due-diligence-coming-to-asia.

15 Antony Crockett et al., “Japan Publishes Guidelines on Corporate Human Rights Due Diligence,” Herbert Smith Freehills, September 20, 2022, https://www.herbertsmithfreehills.com/insights/2022-09/japan-publishes-guidelines-on-corporate-human-rights-due-diligence.

16 Mini Menon vandePol et al., “Recent regulatory and legislative enforcement trends in the Asia-Pacific region,” Global Investigations Review, August 7, 2024, https://globalinvestigationsreview.com/guide/the-guide-compliance/third-edition/article/recent-regulatory-and-legislative-enforcement-trends-in-the-asia-pacific-region.

17 Ministry of Corporate Affairs, Government of India, National Action on Business And Human Rights, Zero Draft, December 10, 2018, https://www.mca.gov.in/Ministry/pdf/ZeroDraft_11032020.pdf.

18 The State Council Information Office of the People’s Republic of China, Human Rights Action Plan of China (2021-2025), September 2021, https://www.ohchr.org/sites/default/files/documents/issues/business/workinggroupbusiness/2022-11-28/Human-Rights-Action-Plan-of-China-2021-2025.pdf.

19 Daniel Feldman, Mosa Mkhize, and Hannah Edmonds-Camara, “2023 African Forum on Business and Human Rights: What do companies need to know?” Covington, Global Policy Watch (blog), September 15, 2023, https://www.globalpolicywatch.com/2023/09/2023-african-forum-on-business-and-human-rights-what-do-companies-need-to-know/.

20 Human Rights Watch, “Human Rights in Supply Chains: A Call for a Binding Global Standard on Due Diligence,” May 30, 2016, https://www.hrw.org/report/2016/05/30/human-rights-supply-chains/call-binding-global-standard-due-diligence.

21 United Nations Human Rights Special Procedures, “Corporate human rights due diligence: emerging practices, challenges and ways forward,” October 2018, https://www.ohchr.org/sites/default/files/Documents/Issues/Business/ExecutiveSummaryA73163.pdf.