| We are witnessing a legal avalanche relating to business and 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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It’s been a hot summer – and the heat is also on when it comes to legislative and normative initiatives – as evidenced by a first EU outline of a social taxonomy and new US and EU human rights guidance for business.
The EU calls for informal feedback on its first draft report on a social taxonomy by 27 August 2021.
On 12 July, the Platform on Sustainable Finance established under the Taxonomy Regulation published its first draft report on a social taxonomy.
The report outlines a model similar to the environmental taxonomy, adapted to accommodate the different nature of social needs. By way of example, where the environmental taxonomy is based on scientific criteria, the report proposes a social taxonomy with criteria based on internationally recognised human rights instruments (for example, the International Bill of Human Rights, the Declaration of the ILO on Fundamental Principles and Rights at Work) and recognised human rights due diligence standards (such as the UNGPs and the OECD Guidelines for multinational enterprises), and draws on other established international norms (such as the SDGs) and other authoritative standards (for instance, the IFC Performance Standards). Put simply, the report establishes human rights as the standard for defining whether companies “Do No Significant Harm” (by upholding human rights) and to serve as the benchmark for measuring whether companies provide “Substantial Contribution”, by going beyond human rights. A possible structure for a two-dimensioned social taxonomy is outlined:
- One dimension more focussed on “what” companies do (in terms of products and services) that may imply a “Substantial (positive) Contribution” to people (without causing harm): i.e. economic activities that promote “adequate living standards defined in human rights instruments”. Proposed sub-objectives include whether economic activities improve accessibility of products and services that (i) meet basic human needs and (ii) provide basic economic infrastructure; and
- One dimension more focussed on “how” companies are run and economic activities carried out so that negative impacts on affected stakeholders are avoided or addressed (and/or “Substantially Contribute” to better outcomes for people). The report proposes a stakeholder-centred, full value chain approach for identifying objectives: (i) workers (ensuring decent work), (ii) consumers (promoting consumer interests) and (iii) communities (enabling inclusive and sustainable communities). It is proposed that the generic “Do No Significant Harm” criteria are aligned with the UNGPs and the OECD Guidelines.
An additional aspect of “how” companies conduct their businesses is governance, in relation to which the report discusses two potential objectives: (i) good sustainable corporate governance (such as, but not limited to, diversity in the highest governance body and senior management and anti-bribery and corruption); and (ii) transparent and non-aggressive tax planning.
The report also discusses a potential category of “harmful” economic activities, inherently opposed to the objectives of the social taxonomy, as well as ways to combine a social taxonomy with the environmental taxonomy. The EU Commission is expected to publish its proposal for a social taxonomy by the end of 2021.
In July, the EU and the US published new or updated human rights guidance for business. Both can be read in the context of the EU and US policies on trade and forced labour, previously addressed by this Update.
- On 13 July, the EU Commission and the European External Action Service, referring to the EU trade strategy published in February (discussed in a previous Update), published a “Guidance on due diligence for EU companies to address the risk of forced labour in their operations and supply chains”. The purpose of the Guidance, said to “bridge the gap until legislation on Sustainable Corporate Governance is in place”, is to provide practical advice and references on due diligence pursuant to the UNGPs and the OECD Guidelines. It contains forced labour red-flags lists, advice on what to consider when performing due diligence, including in relation to responsible exit, gender-sensitive and non-discriminatory due diligence, and raw materials of unknown/high-risk origin.
- On the same day, US governmental bodies issued an updated “Xinjiang Supply Chain Business Advisory”, aimed at providing substantive information (including red flag overviews) that businesses may consider when performing due diligence in relation to risks of exposure to human rights abuses linked to Xinjiang, China. The advice “urges [businesses] to undertake heightened human rights due diligence” in line with standards such as the UNGPs and the OECD Guidelines, to identify potential links to entities operating in Xinjiang or using Uyghur or other ethnic and Muslim minorities from the region, and refers specifically to the guidance contained in these standards on appropriate action to address risks, as well as on when and how to responsibly end business relationships.
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