Unlocking the mystery of Human Rights Due Diligence: A guide for businesses

Unlocking the mystery of Human Rights Due Diligence: A guide for businesses

The importance of Human Rights Due Diligence (HRDD) cannot be overstated. However, there are many questions concerning HRDD that are posed by businesses and customers alike. Tariq Desai, Human Rights Lead at Position Green, recently offered some clarifications and answers to some of these crucial questions.

The HRDD is a construct derived from the UN Guiding Principles on Business and Human Rights. Although not a compulsory law, it acts as a directive that aids companies in establishing a management system aimed at reducing adverse social effects.

The essential elements of HRDD in practice encompass six fundamental activities, such as embedding HRDD within the organisation’s strategies and systems, identifying and assessing potential adverse effects, ensuring corrective measures for any negative impacts, tracking these measures for efficacy, public communication of remedial actions, and offering redress to affected parties.

Currently, some laws, like the Norwegian Transparency Act and the EU Taxonomy, do necessitate HRDD but do not prescribe a minimum compliance standard. Rather, they prompt firms to carry out “adequate” HRDD.

The concept of adequate HRDD hinges on two central themes: proportionality and reasonableness. To determine if a firm is conducting adequate HRDD, an examination of whether its handling of human rights issues is proportional and reasonable to its size and context is necessary. An important facet of HRDD involves conducting a high-level human rights risk (saliency) assessment of a company’s operations and supply chain. Additionally, constant improvement and awareness of emergent trends are essential to ensure effective and adequate practices.

Conducting HRDD is highly beneficial as it mitigates risks of harmful impact on people. The framework enables businesses to adhere to legal requirements, manage risks, honour ethical responsibilities, and safeguard their reputation and brand. By identifying and managing human rights risks in daily operations and supply chains, businesses can avoid harm and foster positive social outcomes, which ultimately ensures long-term sustainability and success.

Ideally, all companies should aim to conduct adequate HRDD. However, businesses falling under the ambit of laws mandating HRDD are obliged to implement it. Firms operating in high-risk sectors such as extractive industries, manufacturing and textiles, agriculture, electronics and construction, should accord priority to the implementation of this framework.

To initiate HRDD, organisations should display leadership commitment and formulate a human rights policy. Subsequently, they should conduct a high-level human rights risk (saliency) assessment across their operations and supply chains. This enables businesses to effectively manage the most pertinent human rights risks and prepares them for further development of their HRDD processes.

However, the journey towards implementing HRDD is not devoid of challenges. Deciphering what constitutes “adequate” HRDD, understanding intricate and evolving supply chains, limited data and transparency, all contribute to the difficulties in properly conducting HRDD. To overcome these obstacles, companies should prioritise stakeholder engagement, develop supplier relationships, seek collaborations and partnerships, and use data to inform decision-making.

Data plays a crucial role in managing human rights issues by aiding in risk identification and assessment, supply chain transparency, impact measurement and monitoring, and reporting. Proper utilisation of data fosters evidence-based decision-making, proactive risk management, and accountability, thereby enhancing human rights practices and outcomes.

Identifying supplier-level risks necessitates an understanding of the supply chain and the associated risks. Companies should also strive to understand how their suppliers manage risk, offer opportunities for training and assessments if required, and encourage suppliers to provide details from their own suppliers.

The connection between HRDD and the Corporate Sustainability Reporting Directive (CSRD) arises from the European Sustainability Reporting Standards (ESRS), which detail the disclosure requirements of the CSRD.

The ESRS stipulates that businesses should use due diligence to inform their materiality assessments and confirms that the due diligence process originates from the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. This implies that the implementation of HRDD is essential for proper CSRD compliance.

HRDD forms a crucial component of the EU Taxonomy Regulation, since it serves as one of the minimum safeguards that businesses must meet to align with the Taxonomy. This signifies that businesses not conducting adequate HRDD will not be considered Taxonomy-aligned, regardless of their contribution to the environmental objectives within the Taxonomy.

While what constitutes adequate HRDD depends on the company and context, the best practice is to act in good faith and always strive for improvement.

Properly integrating HRDD within the organisation, gaining a top-level commitment, training employees, and engaging with impacted or potentially impacted stakeholders regularly are essential. These practices help companies strengthen their HRDD processes, promote responsible business conduct, and contribute to positive human rights outcomes.

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