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Business and human rights – why we will see more regulation

Posted: 13/12/2016

As business has increasingly operated cross-border, corporate social responsibility and human rights have become more important aspects of business strategies. In recent times we have seen voluntary, “soft law” corporate social responsibility initiatives evolve into international “hard law”, such as the UK’s Modern Slavery Act 2015, because we are more aware than ever before of the scale of human rights abuses in the world today. This trend will continue. We explain why.

The acceptance that the primary duty to protect human rights lies with national governments, with businesses instead having a separate responsibility to respect human rights in their operations, has developed over many years. Some historically argued that human rights standards were only applicable to governments; they were not the concern of private sector businesses. Business only had to respect the national laws in the countries in which they operated. This argument was framed in a context where national laws and practices often failed to meet international human rights standards. In addition, the lack of any global mechanism for human rights victims to bring complaints against businesses, as an alternative to often sub-standard national complaints processes, meant business was perceived to be paying lip service to its human rights responsibilities.

In response, non-governmental organisations (NGOs), local community groups, and advocates across the world have challenged the contentious argument that human rights standards were only applicable to governments. They have monitored the human rights conduct of businesses, publicised abuses, and sought more accountability. Consequently, private sector businesses have been viewed negatively in this regard. This has led to businesses wanting to engage, in part to better protect their brand and reputation. Some civil society groups have worked with some of the more enlightened companies on projects to promote human rights. Both sides have found common ground albeit coming from very different starting positions.

This pressure and dialogue led to a number of soft law/guiding materials being developed. For instance, the UN launched the UN Global Compact. The Global Compact is a voluntary initiative based on CEO commitments to implement 10 universal sustainability principles and to take steps to support UN goals. The Compact enjoys the support of the United Nations General Assembly and now more than 9000 companies have signed up to its framework. However, the Global Compact is not legally binding.

Separately, the Organisation for Economic Co-operation and Development (OECD) developed Guidelines for Multinational Enterprises, which are recommendations for responsible business conduct. The Guidelines apply to multinational firms operating in or from the 34 OECD participating countries and 10 non-member countries. Governments, like the UK, which adhere to the Guidelines, have set up a National Contact Point (NCP) that helps businesses and their stakeholders. They provide a confidential mediation and conciliation platform.

However, since 2011, the UN Guiding Principles on Business and Human Rights have become the recognised primary source of non-binding guidance, not least because they enjoyed universal adoption by UN member states. The Guiding Principles are a set of guidelines for national governments and businesses to protect, respect and remedy human rights abuses committed in business operations. Guiding Principle 11 states: "Business enterprises should respect human rights.  This means that they should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved."

Yet, whilst the development of voluntary human rights initiatives has been welcomed, as awareness of the multi-faceted issues has increased, the limitations of these voluntary initiatives have come to the fore. Undeniably good progress has been made, especially in some sectorial initiatives like the Accord on Fire & Building Safety in Bangladesh and the Kimberley Process, yet the scale of this progress does pale into insignificance when compared with the sheer scale of human rights abuses in the world today. The 2016 Global Slavery Index estimates that 45.8 million people are subject to some form of modern slavery.  Several of those countries with the highest absolute numbers of people in modern slavery also provide the low-cost labour that produces consumer goods for markets in Western Europe, Japan, North America and Australia.

The fact is that human rights abuses have been found in the supply chains of those enlightened businesses that have voluntarily signed up to initiatives like the Guiding Principles. The view has formed and hardened that voluntary approaches will never meaningfully address human rights abuses either in business operations or in their supply chains. At the same time recognition of the lack of capacity many national governments have to effectively address human rights abuses in their countries has led to calls for cross-border corporate liability for human rights abuses. Indeed, in 2014, the UN Human Rights Council established "an open-ended intergovernmental working group with the mandate to elaborate an international legally binding instrument on transnational corporations and other business enterprises with respect to human rights."

Within the International Labour Organisation (ILO), which is a UN agency that promotes social justice globally, there is increasing pressure for a groundbreaking ILO convention to improve human rights in global supply chains. Within these discussions, cross-border legal liability is a particularly hot topic – this would mean that companies could be held accountable for serious human rights abuses throughout their supply chains. Further, France is considering a draft law obligating any company with its head office in France, employing at least 5000 employees in France, or 10,000 employees in total to create and implement a “diligence plan” to prevent damages arising from the company’s activities as well as its sub-contractor and supplier activities. Failure to do so could result in a court ordering the company to implement such a plan and a fine of up to 30 million euros. 

The problem for private sector business is making the case for less human rights regulation when there has been a failure in more widespread engagement in voluntary initiatives, coupled with greater awareness of the scale of the abuses. Many in the private sector do not appreciate the value of adopting these voluntary approaches to avoid more restrictive regulations that make operating cross-border more onerous as well as to avoid populist national governments diverting attention away from their own failures to protect the human rights of their citizens with effective labour inspection and labour rights. Many do not realise that turning the other cheek is a short-term solution only because it will be business, not national governments, that will be required to do more. Despite the social, legal and political difficulties this will create, we will see more regulation. This is despite supply chains themselves not being the inherent problem. The problem is too many citizens are having their human rights abused despite the current human rights framework and the existing national laws and practices.

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Penningtons Manches Cooper LLP

Penningtons Manches Cooper LLP is a limited liability partnership registered in England and Wales with registered number OC311575 and is authorised and regulated by the Solicitors Regulation Authority under number 419867.

Penningtons Manches Cooper LLP