A best-practice guide to conducting effective human rights due diligence

Large, complex supply chains are fraught with risk for many businesses, not least in the area of human rights, where companies have a web of challenging issues to navigate, from potential environmental degradation and community impacts to worker exploitation and poor working conditions.

With the publication of the United Nations Guiding Principles (UNGPs) in 2011, which stated that companies have a duty to respect human rights, the UN introduced the concept of corporate human rights due diligence. According to the UN, effective due diligence helps ensure that companies properly understand the scale and scope of any potential human rights impacts in their business operations and partnerships and need to do this in order prevent, address and remedy any harms. While this has been widely accepted as responsible corporate conduct, with companies recognising the risk to business from failing to identify and prevent human rights abuses, the lack of a regulatory lever meant that abuses continued to occur.

In the ten plus years since the UNGPs were published, the regulatory landscape has changed significantly. As a result, human rights due diligence is now a requirement for many large, international companies operating within the EU. The most demanding of these new laws is perhaps the EU’s Corporate Sustainability Due Diligence Directive (CSDDD), which sets out specific requirements regarding environmental and human rights due diligence for in-scope companies. To meet these new obligations, many organisations are reviewing their human rights due diligence processes to ensure compliance.

Whether an organisation is bound by the CSDDD or not, it is clear that robust human rights due diligence, however challenging, is widely regarded as best practice and looks set to become the norm. Beyond the CSDDD, mandatory human rights due diligence has been introduced in Germany and Norway and legislation on modern slavery and forced labour is being strengthened as far afield as Canada, the US, and Australia. The discussion on a UN internationally Legally Binding Treaty is still ongoing, with the 10th round of negotiations scheduled for December 2024.

The benefits of human rights due diligence

For businesses, human rights due diligence should be seen as a key risk mitigation tool and part of good company decision-making. No organisation wants to find itself subject to a high-profile human rights scandal. Taking the necessary steps to identify, understand and address both actual and potential human rights impacts, not just in its own operations, but also in those of its partners, suppliers and associates, should be an integral part of any organisation’s risk management procedures, helping to inform the decisions a business takes.

Not only does this protect a company’s reputation, it also strengthens relationships with stakeholders, builds trust and, for most organisations, helps demonstrate a genuine commitment to their company values.

Key components of effective human rights due diligence.

GoodCorporation has been working with companies for over 20 years to help them identify and address their impacts on stakeholders. When it comes to addressing adverse impacts on human rights, due diligence is vital, so what are some of the key factors to making this process manageable and effective?

1. Review and update existing policies and procedures

Understanding what a company already has in place in terms of human rights policies and processes is a good place to start. This should involve a review of existing human rights policies, governance procedures and management processes. Ideally, this would include a gap analysis, benchmarking current policies and procedures against industry peers and recommended best practice. This enables an organisation to identify its strengths and weaknesses, which will inform the development of an effective due diligence and human rights management process.

Policies can then be amended in line with best practice, ensuring that human rights due diligence has been incorporated as appropriate. Using a framework such as GoodCorporation’s Framework on Human Rights and Environmental Due Diligence can help ensure all relevant areas are included.

2. Engage with stakeholders

Critical to the success of any human rights due diligence process is stakeholder engagement. Only by meaningfully engaging with relevant stakeholders and rightsholders can an organisation be sure it is obtaining accurate information about actual and potential impacts and how to mitigate and address them properly.

Engaging with stakeholders helps ensure that the due diligence focus is on the impacts on people rather than the business and its operations. Not only is this best practice, and the cornerstone of human rights due diligence, but it is now a legal requirement for any organisation bound by the EU CSDDD.
GoodCorporation recommends that stakeholders are consulted at each stage of the due diligence process, from the initial risk mapping stage, through to the assessment of impacts and development of any roadmap for improvement. Stakeholders should also be engaged to evaluate the effectiveness of any steps being implemented to deliver change.

It is important to scope out key stakeholders carefully, ideally via a mapping exercise, ensuring that a representative cross-section of rightsholders is included in the engagement exercise. Ensure that NGOs, worker representatives, affected stakeholders and relevant authorities are included to give an accurate picture of the issues to be addressed. Depending on the context, it may not be possible to engage affected stakeholders or get enough information from them, in which case a panel of experts can be consulted to obtain their views on the potential or actual impacts, as well as root causes and solutions.
Once key stakeholders have been identified, the scope of the consultation can be agreed and the process carried out, taking care to ensure confidentiality where necessary and that participants will not be subject to any form of retaliation.

Building relationships with stakeholders is important for driving lasting change and involving them throughout the process, to improve outcomes for all those affected by the organisation’s activities.

3. Identify and analyse actual and potential adverse human rights impacts

The next step is to map out all actual and potential human rights impacts of the business across its operations and value chain, including in the supply chain and the related activities of business partners. This involves identifying all the areas where adverse impacts might occur, their levels of severity and their likelihood.

Too many companies start by assessing the risks to the business rather than the risk of harm to people. A human rights risk mapping exercise must begin by considering how the human rights of people, be they workers, communities, or consumers, might be adversely impacted by business activities.
To do this effectively companies need to understand the inherent risks in the countries where they operate. This means obtaining accurate, up-to-date and in-depth knowledge of the types of human rights abuses that may exist in particular locations, which is why stakeholder engagement is so important, giving real insights from the perspective of rightsholders into actual and potential impacts.

It also means understanding that different activities in the same location may have very different impacts. A software development company based in a high-risk location, won’t face the same potential and actual impacts as a metal processing factory in the same jurisdiction.

To do all this accurately may mean working with third parties, such as NGOs or external specialists, who can provide additional knowledge to ensure a precise risk map is produced.

Once a detailed map of actual and potential human rights impacts has been produced, the impacts need to be analysed and evaluated to identify their scope, scale, remediability and likelihood of occurrence. This is necessary to ensure a risk-based approach is taken to any corrective plans being implemented.
In addition, human rights impact assessments (HRIAs) are vital tools for identifying and addressing the root causes of adverse human rights impacts. They are particularly recommended in scenarios such as the initiation of a new project or investment, the receipt of a grievance or alert which indicates a systemic or complex issue, or when engaging with a new partner known to have weak human rights management practices

4. Take action to address human rights risks

Once all human rights impacts have been identified and analysed, an action plan for improvement should be developed. It is highly unlikely that any company will be able to address all the issues simultaneously, so the plan should prioritise the most likely and most severe adverse impacts first. In line with the UNGPs, severity should be prioritised over likelihood.

The action plan should summarise the impacts and outline the preventive and/or corrective measures to be implemented, including clearly defined timelines, measurement metrics for tracking improvement, and, importantly, designated owners with allocated responsibilities. Ideally affected stakeholders will be informed so they know what to expect and that the intentions are serious and might also be consulted in the creation of the action plan.

Companies will need to work closely with their business partners to ensure all are aligned and have the resources and capacity to make the changes needed. Training and capacity building may be needed among business partners and contractual assurances may also be necessary, with some form of additional compliance verification, particularly in high-risk activities or jurisdictions.

There can be a tendency to place much of this financial burden on suppliers and other partners, however, it is in everyone’s interest to create sustainable supply chains, so best practice recommends that these burdens are shared. And for those in the scope of the CSDDD, there is an expectation that financial support is given to business partners whose viability would be jeopardised by meeting new and expensive requirements.

It is also increasingly expected that where possible, companies should use their leverage to raise standards in their value chains. In some sectors we are starting to see competitors working together to improve pay and conditions for workers in their supply chain, whose terms and conditions may be beyond their direct control. It is the case that more complex adverse human rights impacts are more effectively addressed via collective action.

5. Track and monitor

Supply chains are fluid, and businesses, and their various partnerships, evolve. As such effective human rights due diligence is an on-going process that will need to be monitored and repeated. It is also vital to ensure that it is not seen as a stand-alone activity, but rather integrated into all relevant areas of the business, particularly in areas where oversight and effective management of human rights issues could be critical to impact prevention such as human resources, procurement, health, safety and environment, and logistics departments.

Appropriate metrics and indicators will be needed to monitor progress over time and provide evidence of effectiveness and improvement. For many companies this information is necessary to meet reporting requirements such as the Corporate Sustainability Reporting Directive, so care is needed to make sure the data gathered is accurate and relevant.

Again, affective monitoring should involve stakeholder engagement to ensure the desired outcomes are really being achieved. Companies should monitor that which is meaningful, not what is easy to monitor. Companies will need to determine the monitoring criteria needed, including performance or progress indicators, adherence to timescales, effectiveness of corrective measures and details of any new or emerging incidents. Ideally monitoring should be conducted at least annually, with staff appropriately trained and educated on what the process entails and with input from affected stakeholders.

A speak-up system should also be in operation and publicly available to any stakeholder wishing to report an incident. Efforts should focus on ensuring grievance mechanisms are truly effective and meaningful, enabling the identification and remediation of adverse human rights impacts, rather than being mere tick-box exercises. To be properly effective, staff may need to be trained to ensure that if a relevant incident is reported, it will be properly dealt with via an appropriate triage, filter and escalation process. Experienced investigation resources will also be needed to analyse reports thoroughly so the correct response can be determined.

6. Communicate

It is in everyone’s interest to communicate how any adverse impacts will be or have been identified, mitigated and addressed. Given the complexity of modern supply chains, there will often be the risk of adverse human rights impacts occurring. Communicating awareness of these risks, and a determination to address them, is critical to eradicating abuse and demonstrating that a company understands its duty to respect human rights. Transparency in disclosing these impacts is not a negative reflection on a company; rather, it demonstrates transparency and accountability, not least towards affected stakeholders, and helps build trust.

Companies that fail to report their actual and potential impacts may signal to stakeholders that they lack proper processes to identify them or are intentionally withholding information. It is important, therefore, to shift the perception that the absence of reported impacts is a positive when in fact, it could indicate real gaps in identifying or addressing critical risks.

Moreover, clear communication of the steps being taken helps demonstrate a genuine commitment to mitigating human rights harms, it is also a cornerstone of compliance with legislation such as the CSDDD and CSRD.

In addition, many investors increasingly want to know how human rights and other ESG risks are being managed in their investee companies, creating an additional need for companies to communicate how human rights impacts are being addressed. Indeed, the effective management of such risks is often regarded by investors as an indicator of business sustainability and for some, a proxy for good corporate governance.

In summary

With businesses increasingly in the spotlight for their treatment of stakeholders, identifying, mitigating and remedying human rights impacts is widely seen not only as best practice, but as a key component of sound business management.

GoodCorporation offers a range of services to help businesses manage and mitigate their human rights risks, including risk mapping, human rights due diligence and human rights impact assessments. Contact us for more information.