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 business to effectively address potential harm to people and environment. In the end, what protects people is also what best protects our businesses.
The EU Commission means business on gender pay transparency. Will investor pressure necessitate implementation of the UNGPs even before it is the law? And, a new intriguing tool.
Are you ready to open up about how you pay your employees? The Economist’s glass ceiling index 2021 shows that while there has been tangible progress, a lot remains before we see full gender equality among management and board members. That is also the case for unequal pay. On 4 March, the EU Commission proposed an ambitious transparency regulation to “help expose gaps and equip women with better tools to tackle pay discrimination”. If adopted, companies will need to refrain from asking job-seekers’ about their previous salary (“to prevent [women] from inheriting inequalities from past positions”); while having to disclose relevant salary levels to job-seekers. Companies with 250 employees plus will be required to annually disclose a number of pay data; and provide further data to employees upon request. Other measures are suggested to support aggrieved individuals in seeking remedy. The EU Commission suggests “meaningful fines” for non-compliant companies. EU Parliament and Council approval remain, so story to be continued.
As investors continue unpacking the “Social” in ESG - will robust human rights due diligence become inevitable for companies even before it becomes the law? If the EU introduces mandatory due diligence, it will likely take years before any regulation enters into force. This does not mean companies can delay upping their due diligence game. An increasing number of investors we speak with contemplate making UNGPs-style due diligence part of their investor expectations sooner rather than later. This development is inevitable: one reason being that financial institutions are likely covered by future legislation and need to prepare, too. This will require unpacking the “S” in Environmental Social and Governance (ESG) investing. PRI has published guidance for investors thinking about how to respect human rights in investment activities. Blackrock is an early runner, publishing their expectations on boards and management teams to respect human rights this month.
New model supply chain clauses served to you by the American Bar Association The UNGPs expect companies to use their contracts as one means of leverage towards suppliers. But contractual obligations by themselves rarely lead to improved working conditions; and under the upcoming EU legislation we should not expect authorities or courts to accept clauses alone as evidence of sufficient due diligence. Effective due diligence requires all parties to take responsibility and action; including the buyer. Buyers performing effective due diligence help alleviate human rights impacts in their supply chain. They also mitigate a number of business risks. At the same time, engaging on human rights in the supply chain may increase other legal risks, one example is the potential creation of third party rights of workers. Many companies will need to perform this difficult balancing act as legally binding due diligence requirements draw closer. A Working Group of the American Bar Association have given it a go in their newly published Model Clauses to Protect Workers in International Supply Chains, version 2.0. They call some of their suggestions “path-breaking but necessary”. The legal considerations are different under Swedish law. Nevertheless, these clauses can serve as food for thought on future contract regulation of supply chain due diligence.
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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