| We are witnessing a legal avalanche relating to businesses’ respect for human rights. Our Business and Human Rights Updates will keep you advised of initiatives of relevance to your business. We are also constantly chasing new tools to enable businesses to identify and effectively address potential harm to people and the environment. Ultimately, what protects people (and the planet) is also what best protects businesses. |
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Last week saw not one – but two – national Parliaments adopt human rights due diligence legislation. A tool for those looking to track effectiveness of their efforts and another for investors wanting to unpack companies' social performance. ILO and UNICEF published new “desperate” child labour numbers for companies to consider.
On 11 June, the German Parliament (Bundestag) approved the Supply Chain Act (Lieferkettengesetz)
This Update has already reported on the Norwegian Act on mandatory human rights due diligence and transparency obligations (Åpenhetsloven), now adopted by the Norwegian Parliament on 10 June. The very day after, the German Parliament approved the German Supply Chain Act. The Act introduces a general obligation for companies to observe a defined set of internationally recognised human rights and certain environmental standards (excluding climate) in both their own activities and those of their supply chains, including: the obligation to monitor the risk of human rights violations in their own operations and in their supply chains; to adopt preventative measures; measure their effectiveness; and to annually report on their efforts.
Rooted in the UNGPs, the Act differs in several ways. The Act is, for instance, limited to companies’ own operations and those of their supply chains. It differentiates between direct and indirect suppliers. Companies have more extensive and ongoing obligations in relation to their own businesses and direct suppliers. Ad hoc obligations apply in relation to indirect suppliers, triggered when a company has substantiated knowledge of potential human rights violations. This may therefore require that companies act on information published by civil society and other external actors.
Non-compliant companies may temporarily be excluded from public procurement and receive fines equivalent to 2% of the company’s global annual revenue. German NGOs and trade unions may initiate court proceedings against companies for alleged violations.
The Act will enter into force on 1 January 2023 for all companies (whether German or non-German based) with at least 3000 employees in Germany; and on 1 January 2024 for all companies with at least 1000 employees in Germany. The Act still needs to pass the vote in the German Parliament’s second chamber (Bundesrat). No further changes to the provisions are expected.
Tools to measure due diligence effectiveness and investor evaluation of companies’ “Social” Performance
A key feature of human rights due diligence as set out in e.g., the UNGPs, is the expectation that companies measure how effective their efforts are in terms of the outcome for people. As the EU Commission is signalling its intention to include this aspect in upcoming legislation (for instance in its proposal for a new Corporate Sustainability Reporting Directive), it will be important for companies to think about the “how”. Luckily, many bright minds are helping us with tools for that, including Shift’s recently published “Indicator Design Tool”.
As investors are looking for better “S” indicators to enhance their ESG investments, this Update found the new recent publication by the newly created ESG Working Group; killing common myths around the “S”, very helpful.
Check out the latest data to back companies’ continued efforts on child labour due diligence
Lawmakers are increasingly calling out child labour in relation to mandatory human rights due diligence – with good reason. Last week, the ILO and UNICEF issued the latest global figures. For the first time in 20 years, global progress in child labour is stalling. Nearly 1 in 10 children are now in child labour, with nearly half of those in hazardous work. Child labour is rising among children aged 5-11. Numbers are pre-pandemic, so are likely on the rise.
ILO and UNICEF suggest companies are important enablers of decent work for adults, so that younger family members don’t have to contribute to the family income. Companies are also encouraged to continue enhancing their due diligence efforts and, in doing so, pay special attention to “informal micro- and small enterprises operating on the lower tiers of supply chains, where child labour … is often most pronounced.” The report contains an overview of sectors where child labour is prevalent, a good indication of where companies can focus their efforts. |
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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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