GLOBAL CAMPAIGN

The Global Campaign considers that human rights due diligence is a preventive mechanism, necessary but not sufficient to adequately protect the human rights of individuals and communities against the adverse impacts of activities of transnational corporations (TNCs).

Human rights due diligence has become a central element in the current debate on how to respond to the issue of human rights violations committed by TNCs. Despite its current popularity, there is still no evidence about the effectiveness of this mechanism in reducing the growing impact on human rights of the activities of TNCs and their global value chains; on the contrary, violations continue happening without effective responses.

Due diligence as a concept originates in the field of financial risk management, where it is an internal business process. It establishes a process, “a mean”, but does not establish an outcome, “a result”.  Financial Due Diligence has been applied analogously to to the prevention of the risk of violating human rights and damaging the environment. An internal business process for assessing  potential economic losses – risks for the companies – are now being applied to assess risks external to the business but caused by the business -. These external risks include poor working conditions, modern slavery, environmental damage and other harmful impacts on human life and nature and include those caused by parent or subsidiary companies.  The Global Campaign names these “corporate crimes”.

The first to apply corporate due diligence to the field of human rights was the late John Ruggie, former Special Representative of the UN Secretary-General for Business and Human Rights. The Second Pillar of the United Nations Guiding Principles on Business and Human Rights (“UNGPs”) focused on establishing guidelines for conduct that businesses should follow. In Ruggie’s words, the due diligence process was chosen because it was known to corporations, and as such it was not going to be alien to them. Even before the UNGPs, regulations such as California’s Transparency in Supply Chains Act, had adopted part of the due diligence process (the disclosure of information) with little impact in preventing harm. This standard was not only of little use in identifying corporate activities that are contrary to human rights, but it also allowed some companies to avoid responsibility for violations by alleging compliance with these provisions.

Other later rules, such as the United Kingdom’s Modern Slavery Act, integrated similar mechanisms of non financial reporting, but did not obtain  results. Then came other initiatives such as the Child labour law in the Netherlands, although they are moving forward in drafting a new law on due diligence, and more recently adopted legislations in Germany and Norway, which in addition to reporting included obligations for companies.

In France in 2017, the law on the duty of vigilance of parent and outsourcing companies was adopted. This law goes further than due diligence as besides the due diligence obligations, which are simply obligations to put processes in place, it includes a duty to effectively implement the prevention measures and to evaluate their effectiveness. More importantly, through this law, parent and outsourcing companies can be held liable in a French court for the activities of their subsidiaries, subcontractors and providers worldwide, and be obliged to repair the damages and provide compensation to the affected people.

Despite these outcomes, the European Union has focused on bringing forward a “sustainable corporate governance” directive with due diligence as a core element. The public consultation undertaken in the process of drawing up the future directive leaves no doubt about the support that exists among non-governmental organizations, but the majority of them ask for an inclusion of liability mechanisms as well as provisions to improve access to justice. Even some businesses and investors have shown support for this initiative or some national laws in Europe, but much of this so-called business support can be revealed as a strategy to ensure new laws are weak and devoid of meaningful obligations. In general, more debate is needed in Europe about the limitations of due diligence.

Last week the first draft of the European directive on due diligence was published. The proposal has several loopholes and controversial issues. In general, the proposal does not improve access to justice and reparation for victims, does not significantly increase the liability of companies, nor is it possible to classify it as a regulation aimed at protecting human rights and the environment. On the contrary, it is a frightening text, drafted to protect companies from more ambitious initiatives. In this sense, a sentence of the explanatory text is of great concern, which indicates that the Directive is aimed at preventing and removing obstacles to the free movement of companies and distortions of competition, that is, to the protection of the internal market.

Also disturbing is a phrase included in its preamble stating that “the Directive does not require companies to guarantee in all circumstances that adverse effects will not occur or that they will be stopped” because it only includes obligations of means and not of results. In fact, the door is opened to the continuation of the business activity, even though it is verified that it causes a negative impact on human rights and the environment.

For all that, it is important to note that due diligence does not in itself allow reparation for violations, but rather tries to prevent them from occurring through the development of unilateral internal company processes for assessing and orientating the company’s behavior, without external direction. On many occasions, the norms that regulate these mechanisms use terms such as “mitigation” of harm that are not compatible with a human rights perspective.

We also find that rules are not adequately complied with due to the lack of effective monitoring and enforcement mechanisms, thus acting as escape routes for corporations not willing to prevent violations. Other failures related to a too narrow scope of application that does not cover the whole global value chain, leaving out links in the chain where there are the greatest risks. Likewise, a focus on due diligence obligations risks allows companies to avoid the responsibility to remediate by claiming they have complied with the due diligence processes.

In the framework of initiatives willing to regulate the activities of transnational corporations, for example, the UN Binding Treaty on TNCs and human rights, due diligence must not be a central concept, but rather an auxiliary obligation, linked to prevention and established as a direct obligation for transnational companies. Regardless, any future legal framework, at the national, regional or international level,  must establish obligations of result for companies, strong enforcement mechanisms, and ensure legal consequences for non-compliance (civil and criminal liability and administrative sanctions).

The centrality assumed in the international debate by the duty to prevent risks through diligent behavior on the part of corporations tends to weaken or put in second place the obligation of effective compliance that companies and States have in the area of human rights.

The consecration of a duty that is exhausted at this primary level of the mere obligation of means, and its safe expansion to the field of the normativity of specialized bodies such as the International Labor Organization, can generate in the immediate future a transformation of the type of obligation and control that can be expected in labor relations. In concrete terms, many governments, stubbornly non-compliant with workers’ rights, will be able to take the easy path of absolving themselves of all responsibility by claiming that companies have done their due diligence and that the inspection mechanisms of their countries have verified this, thus exempting companies and governments from responding to, respecting and even less promoting human rights.

Taking all this into account, the Global Campaign considers that the UN Binding Treaty and any other initiative to regulate TNCs should integrate due diligence to achieve a similar level of obligation in all States, thus universalizing measures to protect human rights. However, these measures must be aligned with the final objective of the Binding Treaty: to include in international law obligations to respect human rights and the environment for transnational companies and adequate mechanisms to ensure access to justice for affected people and effectively punish violations and corporate crimes.

Lastly, following the proposals made previously by the Global Campaign in the elaboration of a UN binding instrument, we consider important that any future initiative based on due diligence:

  • Broadens its scope and title beyond due diligence to encompass the whole set of obligations that States need to impose on transnational corporations to make sure human rights and the environment are protected.
  • Covers corporate legal responsibility along the entire value chain of transnational corporations, including solidary responsibility (joint and several liabilities) among its entities.
  • Includes clear sanctions and administrative, civil and criminal liability regimes when transnational corporations do not comply with their obligation to prevent human rights violations and when violations actually occur, both within the EU and outside it
  • Covers all human rights and environmental violations. Due diligence, on the other hand, can in no case weaken or replace the responsibility of companies in the effective accomplishment of human rights, putting in its place an obligation that is limited to the mere prevention of harmful consequences.
  • Ensures the primacy of human rights reaffirming the hierarchical superiority of human rights norms over trade and investment treaties, developing specific state obligations in this regard, such as the cancellation of ISDS clauses.
  • Provides for specific obligations, separated and independent from those of States, for TNCs and international financial institutions involved in violations.
  • Includes provisions to improve access to justice, among which the reversal of the burden of the proof, choice of the applicable law by the plaintiffs, enhanced access to information, and funds for affected people’s legal expenses.
  • Establishes a multi-party body (State, unions, human and social rights organizations) that is responsible for receiving complaints from individuals, legal entities, and communities that have been affected by the violation of their human rights and, on the other hand, accompanies the processes of administrative, civil and criminal sanction.
  • Enables complaints from communities and natural and legal persons related to human rights violations committed by European transnational corporations, both inside and outside the EU, to be heard by the relevant European courts.