Duties and functions

94 investors representing over $ 6 trillion from AUM Voice Support for mandatory human rights and environmental due diligence

“… We renew our call to all governments to develop, implement and enforce mandatory human rights and environmental due diligence requirements for companies headquartered or operating in their own jurisdictions or, where appropriate, to further strengthen these regulatory regimes where they already exist.”- a statement from 94 investors representing more than $ 6.3 trillion in assets under management

On October 7, 2021, 94 investors representing more than $ 6.3 trillion in assets under management and advice sent a statement to European Commissioners and the European Parliament expressing their support for human rights due diligence and environment (mHREDD) (the “DeclarationThe statement was sent in light of the European Commission’s forthcoming legislative proposal on sustainable corporate governance. The proposal would require companies to consider their human rights and environmental impacts , which would allow them to better manage sustainability issues in their value chains and overall operations.

This statement adds to the growing support of mHREDD and follows the recent announcement that the Global Reporting Initiative (GRI) updated its Universal Standards to emphasize and demand more transparency in reporting on human rights impacts and due diligence obligations (see our previous blog post). The investment community has previously said strong due diligence legislation is a good thing among others for businesses, investors, the economy and the people it serves (see here). While the EU’s proposed mHREDD law (see our previous blog post) has been delayed, there have been a number of developments at the national level, for example the adoption of a German TV channel law. supply in June 2021 (see our previous blog post). It remains to be seen whether this statement of investor support will influence the publication of the European mHREDD law, but in any event, this is yet another example of collective support for action, to which companies must respond.

The overall message is clear: companies cannot wait for mHREDD laws to act – in order to meet the expectations of investors (and other stakeholders), companies should already design and implement policies and procedures to identify and mitigate negative impacts on human rights and the environment.

Why is it obligatory is human rights and environmental due diligence necessary?

Investors recognize that it is no longer enough to rely on the voluntary actions of companies to meet their human rights and environmental obligations. Research has shown that nearly half of the 230 largest publicly traded companies in high-risk industries scored zero on five human rights due diligence indicators.

What recommendations does the Declaration offer?

The statement included specific recommendations for mHREDD legislation from an investor perspective, such as to whom the legislation should apply and the need for rigorous enforcement. Some key recommendations included:

  • Scope – all businesses, public and private, domiciled or based in, operating or offering a product or service within the EU, should fall within the scope of the legislation, regardless of their size – encompassing all businesses that are part of the same value chain.
  • Alignment with international frameworks – legislation should align with international frameworks such as the United Nations guidelines and the OECD guidelines. These frameworks require companies to identify, prevent, mitigate and report on how they address potential and actual impacts on human rights and the environment through an ongoing process of due diligence on human rights and the environment. human and environmental rights. A key element of this is meaningful engagement with the stakeholders actually and potentially affected or their designated representatives.
  • Remedies and Liability – MHREDD legislation should ensure liability for damages that businesses cause or contribute to and should allow and support the provision of adequate and effective remedies. Companies should also be held accountable through appropriate administrative and civil liability legislation for human rights and negative environmental impacts within their operations and throughout their business chains. global value.
  • Enforcement – EU Member States should ensure rigorous application of all obligations and guarantee the right to an effective remedy. Any obstacles that prevent affected rights holders from accessing a remedy should be removed.
  • Good corporate governance – investors stressed the need for good corporate governance. For example, boards of directors should oversee and be accountable for the implementation of rigorous human rights and environmental due diligence processes; monitor, discuss and report on their development; and ensure that their results are reflected in forward-looking objectives relevant to the prevention and mitigation of risks and impacts on human rights and the environment and properly taken into account and integrated into the overall strategy of a business.

How can your organization prepare for increasing due diligence obligations?

We offer practical advice for asset managers, particularly in our full article, Asset Managers: Controlling Non-Financial Risks – The Evolution of Human Rights Due Diligence. In a previous blog post, we covered the practical steps boards should take in relation to human rights matters more generally, including due diligence.

In general, companies can position themselves for EU-wide anticipatory law and other emerging national mHRDD laws by:

  1. Integrate human rights into group policies and strategic planning processes;
  2. Disclose how human rights considerations are integrated into strategies, policies and procedures;
  3. Carry out a human rights impact assessment and take proportionate countermeasures, as well as communicate internally and externally on the measures that have been taken;
  4. Review and strengthen complaints mechanisms and advocacy programs;
  5. Ensure that the company is well equipped to deal with “crises”;
  6. Review the extent to which their board of directors is equipped to deal with supply chain risks; and
  7. Review the role, resources and expertise of the legal and compliance functions, which should play a key role in meeting these new challenges.