Legislative developments on human rights due diligence

Sabrina Singh
Davis Polk & Wardwell, New York City
​​​​​​​ssingh@jd20.law.harvard.edu

* This article is correct as of May 2021.

In the absence of mandatory regulations in many jurisdictions, a variety of voluntary reporting and due diligence standards emerged in the field of business and human rights. The plethora of voluntary reporting and soft law standards have been criticised for creating a lack of uniformity and clarity in the field. This year, legislative bodies in two European jurisdictions have signalled a greater appetite for mandatory due diligence regulations that may create binding and uniform standards for many companies.

In March, Germany adopted a draft due diligence act for supply chains that outlines the due diligence duty of care owed by large corporations incorporated in Germany.[1] If passed, the new law would create obligations to conduct human rights and environmental due diligence and risk analysis and implement measures to prevent human rights violations. It also obligates companies to create an operational-level grievance mechanism, have a human rights strategy or policy and appoint a human rights corporate officer. The draft law covers companies registered in Germany or that have their principal place of business in Germany, and with at least 3,000 employees which will drop to 1,000 employees by 2024. Although the proposed act does not create a new basis for claims for civil liability, its enforcement will be driven through fines for non-compliance. 

The Netherlands similarly introduced a bill in March on ‘responsible and sustainable international business conduct’ that would govern any Dutch corporation ‘that knows or can reasonably suspect that its activities may have negative impacts on human rights, labour rights or the environment in countries outside the Netherlands’.[2] If passed, it would create similar obligations to conduct human rights due diligence and risk analysis, implement preventative measures, and put in place a remediation or grievance mechanism.

Compared to the German Act, the Dutch Bill has a lower threshold of applicability for companies under its regulatory authority. Any company exceeding at least two of the following three criteria is covered:

• having a balance sheet total of €20m;
• having net revenue of €40m or
• having an average of 250 employees during the financial year.

These developments come within a wider context of initiatives around due diligence. The French ‘duty of vigilance’ law gained considerable attention in 2017 for being one of the first national regulations to mandate large French companies to identify human rights risks and create a ‘vigilance plan’ to address them. Similarly, there has also been legislation around modern slavery in supply chains, such as through the UK’s Modern Slavery Act and California’s Transparency in Supply Chains Act. On 10 March of this year, the European Parliament voted to recommend the European Union to adopt human rights due diligence law, expected to be decided this summer.[3] It remains to be seen whether other jurisdictions or regional bodies will follow and how corporations will adapt to these changing legislative and regulatory regimes.