“Companies are facing rising expectations on responsible business conduct”

REGULATORY DEVELOPMENTS

Click on the world map to learn more about the regulatory developments and laws on human rights due diligence in the respective country.

National Action Plans (NAP) on Business and Human Rights	NAP developing
National Action Plans (NAP) on Business and Human Rights	NAP adopted

Mandatory Due Diligence (DD) Laws	DD laws developing	Narrow or broad due diligence laws in proposal stage, not yet adopted.
	Narrow DD laws adopted	Companies in the scope of the law are required to implement restricted due diligence, covering only certain topics, human rights, or steps of DD.
	Broad DD laws adopted	Companies in the scope of the law are required to conduct extensive due diligence, covering most or all topics, human rights and steps of DD.

Map compiled by focusright, sources include www.globalnaps.org, www.bhr-law.org and the European Coalition for Corporate Justice.
©2024 focusright ltd – last updated in March 2024

DRIVERS

What are the most important reasons for companies to implement human rights due diligence (HRDD)?

For most companies, conducting business responsibly is part of their core values and a matter of common sense. But management processes that ensure a socially responsible business conduct were long considered a “nice to have”, and rather a moral than a business imperative. Over the past years, the expectations of various stakeholder groups have risen, and companies are increasingly under pressure to address their human rights risks and impacts in a systematic way.

Know more about the important trends that are influencing companies to strengthen their human rights management processes related to:

Regulators & Governments

New laws: Counter-proposal to the Responsible Business Initiative / DDTrOin Switzerland, Supply Chain Due Diligence Act (LkSG) in Germany, EU Corporate Sustainability Due Diligence Directive (CSDDD) & Co.

Responsible business conduct: dynamic regulatory environment

In Europe, the legal requirements for mandatory human rights due diligence - i.e. a duty to implement human rights due diligence processes - are rapidly evolving. Countries such as France, the UK, Netherlands, Germany, Switzerland as well as the EU have already implemented laws related to business and human rights or are in the process of adopting them. An overview of the latest regulatory developments can be found on focusright’s world map and on the Business & Human Rights Resource Centre’s Mandatory Human Rights Due Diligence Portal. For more informationen about the counter-proposal to the Responsible Business Initiative (DDTrO) in Switzerland and the Supply Chain Due Diligence Act (LkSG) in Germany, please consult our blog.

Heterogenous legal requirements for human rights due diligence

In principle, the different regulations are all based on the same international standards, including the UN Guiding Principles on Business and Human Rights or the OECD Guidelines for Multinational Enterprises. However, how exactly companies in each country are legally required to manage their human rights impacts varies in several important aspects:

Legal nature of the scheme
Scope of action: What types of obligations does the law create?
Personal scope: Which type of companies are covered?
Material scope: Which human rights are covered?

Overview of mandatory human rights due diligence in Europe (examples)

Table by focusright ltd., based on: European Coalition for Corporate Justice (March 2022), Corporate due diligence laws and legislative proposals in Europe - Comparative table

Investors

Human rights-related expectations of sustainability funds and ESG investors

Investor responsibility and fiduciary duty

Like companies, investors have a responsibility to respect human rights in their business activities and relationships. Factoring in environmental, social and governance (ESG) considerations into investment decision-making is also considered to be part of investors’ fiduciary duty. Because severe risks to people and the environment can easily turn into material risks for companies, causing reputational damage, legal liabilities, and financial losses. As human rights are part of the “S” in ESG, company’s human rights management and performance are increasingly relevant for responsible investors.

Strategies to exercise investor leverage

Investors use various strategies to integrate ESG criteria into investment decisions and exercise their leverage over investee companies:

Integration of ESG risks and opportunities into the financial analysis of investments
Screening of investment portfolios according to ESG criteria using a positive (best-in-class) or negative (exclusion) approach or screening for companies’ compliance with certain norms or standards to make investment or divestment decisions
Creation of sustainability-themed funds or focus on investments that make a specific social or environmental impact
Engagement with investee companies, requesting information on their human rights and environmental performance and enter in a dialogue to improve performance
Excercising active ownership and shareholders’ voting rights at general assemblies based on ESG considerations

Growing responsible investments

The responsible investment market has shown consistent and fast growth over the past years. A PwC report on ESG market trends in Europe (pdf) speaks of a ”paradigm shift” and predicts that by 2025, ESG fund assets could represent over 50% of total European mutual fund assets. In Switzerland, the market for sustainable investment has been growing consistently at high double-digit rates in recent years. Large investors are also increasing pressure on companies to improve their ESG performance. For example, in March 2021, BlackRock, the world’s largest asset manager, announced that it will increasingly require investee companies to disclose and improve their policies related to human rights and the environment, and that it may vote against company directors who fail to act.

B2B: Business Partners & Customers

Increasing business partner expectations of responsible supply chains: codes of conduct, EcoVadis, certificates & supply chain transparency

Rising expectations of business partners

Typically, expectations or (legal) obligations to conduct human rights due diligence not only cover a company’s own operations, but also its value chain. For this reason, a law on mandatory human rights due diligence not only affects the companies that are directly covered by it. As part of due diligence, the regulated companies will pass on expectations on human rights management to their business partners and suppliers. This occurs e.g. through Supplier Codes of Conduct, Self-Assessment Surveys and Questionnaires, and the call for participation in sustainable procurement industry initiatives.

Example: a supplier sells its products to company X, which is legally required to conduct human rights due diligence (HRDD). As part of due diligence, customer X requires its supplier to provide information on its human rights policy and impacts and requests the supplier to implement additional measures to respect human rights. This way, duties are passed on through the value chain.

As a consequence, rising legal or other expectations on human rights due diligence increase pressure on companies’ human rights management systems throughout value chains, including in international business relationships. In a B2B context, implementing a reliable human rights due diligence helps companies fulfilling the raising expectations of its business partners and customers.

Consumers & Employees

Customer and employee expectations of responsible business practices

Growing market for sustainable consumption

Consumer attitudes are shifting towards sustainability, and the demand and willingness to pay for ethical products increases. Studies show that a large share of consumers prioritise social causes and seek products and brands that align with their values. This trend is expected to increase, as younger generations with increasing purchasing power are more likely to choose brands for their ethical values. Research on younger generations’ consumer behaviour suggests that they make more shopping decisions based on sustainable practices.

Consumer activism and boycotts

As consumers seek to exert economic pressure on companies to change harmful practices, activism of ethical consumer groups can lead to company or product boycotts. Social media platforms have made it easier for consumers to hold companies publicly accountable for their suppliers’ behaviour. Online activists share company controversies and boycott calls, which negatively affects companies’ reputation and increases boycotting tendencies.

Attraction and retention of employees

In a time where the baby boomer generation is slowly leaving the workforce, McKinsey coined the term “war for talent” to describe companies’ increasingly fierce competition to attract and retain the best employees. Studies suggest that as younger generations enter the labour market, responsible business conduct represents an important competitive advantage for companies looking to hire and retain talent.

Civil Society & NGOs

Campaigning for corporate responsibility and the introduction of due diligence laws

Advocacy for mandatory human rights due diligence

Civil society alliances increasingly call for laws that introduce mandatory human rights due diligence and hold companies legally accountable for human rights violations. In December 2019, over 100 NGOs and trade unions published a joint statement (pdf) advocating for mandatory human rights due diligence at EU level. In Switzerland in 2020, over 130 NGOs supported the Responsible Business Initiative which was aimed at the same goal.

Research and campaigning against corporate abuses

NGOs such as the Business and Human Rights Resource Center research and provide a platform for vulnerable people or human rights advocates and support affected people to get companies to address human rights concerns. Other NGOs conduct in-depth investigations and expose cases of human rights violations, or run public campaigns to demand corporate respect for human rights.

Benchmarks & Ratings

Sustainability & ESG benchmarks and ratings to assess the human rights performance of companies

Ranking companies’ human rights performance

Global or regional benchmarks, ratings and indices evaluate and compare companies’ performance with regards to sustainability, social and environmental responsibility, or human rights. The yearly Corporate Human Rights Benchmark, for example, assesses and rates the human rights disclosure of 230 global companies. Their performance is evaluated on a variety of indicators, that measure the extent to which companies meet the requirements of the UN’s Guiding Principles on Business and Human Rights.

Sustainability and ESG ratings

Other sustainability rankings measure stakeholders’ perception of the sustainability performance of certain companies or brands. Environmental, social and governance (ESG) ratings, such as S&P Global ESG Scores, allow investors to factor in companies’ non-financial performance in their decision-making process. The growing number of benchmarks and ratings is indicative for stakeholders’ growing interest in company’s sustainability performance. They provide an important source of information for investors, companies and clients that want to know to what extent companies conduct business with respect for people and the environment.