We are witnessing a regulatory avalanche relating to businesses’ respect for human rights. This update will keep you advised of initiatives of relevance for your business. We are also relentlessly chasing new tools for businesses to effectively address potential harm to people and environment. In the end, what protects people is also what best protects business.
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Wednesday 10 March saw a remarkable confluence of politics and jurisprudence relating to business responsibility for human rights
- First, let’s look at the politics
Last fall, much was made of the Report by the EU Parliament Committee on Legal Affairs recommending the EU Commission to regulate corporate due diligence and corporate accountability. On 10 March 2021, the European Parliament – with a robust majority across the political spectrum – leaves no doubt that it wants to see far-reaching regulation of binding “ESG” due diligence (including, notably, on bribery) – embedded into companies’ business strategies. In explaining its expectations on due diligence, it has taken on board fundamental features of the UN Guiding Principles on Business and Human Rights. In requesting stronger legal mechanisms for holding companies accountable for breaches, the EU Parliament seems to be looking for a model where demonstrating effective due diligence under certain circumstances may help companies escaping liability. The EU Parliament also wants to introduce comprehensive transparency requirements and strengthen access to remedy for victims of negative impact. When the EU Commission publishes its proposal (expected in June), we will see the extent to which the EU Parliament requests will be taken on board. We know that sentiments in EU member states may be more mixed, as we have seen in the discussion in Germany about a national due diligence law.
- Then, jurisprudence
As discussion about new legislation is heating up in the EU, an astonishing development came out of the EU’s only ex-member on the very day of the EU Parliament vote. The Court of Appeal of England and Wales, second only to the Supreme Court of the United Kingdom, delivered legal reasoning indicating that supply chain accountability might even exist under current UK tort law. A UK-based agency and shipbroking company had sold a vessel for demolition. The transaction involved a set of intermediate transactions between the company and the shipyard in Bangladesh where the vessel ultimately landed for breaking. The plaintiff was a widow of a worker who lost his life while working to demolish the vessel.
One question before the Court was whether the case should be dismissed because it lacked any realistic prospect of success. The Court dismissed this request, stating that while far-fetched, it could not be ruled out that the widow could be successful in her claim. The Court noted that the company’s knowledge mattered: “The [… ] Yard’s failure to provide any safety harnesses or any other proper equipment, and the tragic consequences of their not doing so, were entirely predictable.” Noting the inconsistency between contract language regarding safe working conditions, and commercial terms, such as price, the Court noted that such language was “no more than a fig leaf which neither party intended to be taken seriously”. Instead, the Court expressed what it had expected the company to do to ensure itself that proper working conditions were in place: “[The UK shipbroker] could, and should, have insisted on the sale to a so-called ‘green’ yard, where proper working practices were in place. The evidence was that there were a number of such yards round the world where this vessel could have been safely demolished…”. While a judgment under UK law, this is an interesting illustration of how a court may reason when presented with a case about liability for human rights impacts in supply chains.
- Potential EU ban, continued
Last week, this Update looked for signs in the EU Commission’s new trade policy review. In its 10 March decision, the EU Parliament made it clear it wants such a ban on products linked to severe human rights abuse such as forced- and child labour. It also wants to make it a pre-condition for market access that companies can meet the same due diligence standards that the new legislation will require from EU-based companies. We note that the EU Parliament specifically asked the EU Commission to review Xinjiang-based companies for the purposes of “identifying potential breaches of human rights, especially those related to the repression of Uighurs.” In this connection, we note that the Newlines Institute for Strategy and Policy in cooperation with the Raoul Wallenberg Centre for Human Rights recently issued the world’s first independent expert report arguing that the Chinese government’s treatment of the Uyghurs and other minorities in the Xinjiang province is equivalent to genocide under the UN Genocide Convention (1948). As genocide is an international crime under public international law (implemented in Swedish criminal law), it would seem difficult for governments to overlook. Companies whose supply chains touch the Xinjiang province are therefore encouraged to strengthen their human rights due diligence in line with public expectations. Not only will it help avoiding goods being stuck at a seemingly increasing number of borders. It should also mitigate the reputational risk of association with such severe forms of human rights abuse.
If you have questions or want to discuss any of these issues, you can always reach out to your existing contacts at the firm. You are also welcome to contact the members of our Corporate Sustainability and Risk Management team, some of whom are listed at the bottom of this page. |
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