Civil Law

On 28 November 2023, Baroness Young of Hornsey introduced the Commercial Organisations and Public Authorities Duty (Human Rights and Environment) Bill (the “Bill”) to the House of Lords.  If passed, the Bill would introduce mandatory human rights and environmental due diligence (“HREDD”) into UK law.

The description of “reasonable” HREDD set out in the Bill is consistent with the standards set out in the UN Guiding Principles and existing and draft legislation in other jurisdictions (including the EU Corporate Sustainability Due Diligence Directive, “CS3D”, as outlined in our previous blog here).  Companies with international footprints, including through their direct operations and supply chains, should already have in place a plan to implement enterprise HREDD processes that meet existing soft law standards and emerging hard law HREDD requirements.

While it is unclear whether the Bill would be supported by the UK Government, companies should already be taking steps to anticipate and prepare for HREDD.  The direction of travel is undoubtedly trending towards HREDD legislation and stakeholder expectations around how companies should respond continue to increase.  In particular, several jurisdictions have already adopted laws that require companies to identify, address, prevent, mitigate and remedy harms in their operations and supply chains (e.g. France, Germany, Norway, Switzerland, the Netherlands) in advance of CS3D which will directly apply to many large non-EU based companies given its broad extraterritorial application, while others are considering such laws (e.g. CS3D) (e.g., see our previous blogs here and here).

The draft Bill – core provisions

The proposed Bill would apply to all UK companies and any non-UK companies that carry on a business in the United Kingdom (“commercial organisations”).  This means that – in principle – the Bill could have extraterritorial reach in a similar way to the UK Bribery Act.

Among other things, the Bill provides that commercial organisations and public authorities:

• have a duty to prevent human rights and environmental harms “so far as is reasonably practical” with respect to their “operations, products, and services, those of their subsidiaries and throughout their value chains”.  “Reasonable” HREDD must include “informed, meaningful and safe engagement with stakeholders”;

• must take a “responsible disengagement” approach towards suspending or terminating a business relationship as a result of a due diligence assessment;

• must, to the extent their worldwide turnover exceeds a certain threshold, produce an annual report setting out the organisation’s HREDD plans for the coming year as well as an assessment of the effectiveness of its HREDD process in the previous year;

In addition, commercial organisations that fail to prevent human rights and environmental harms could be liable for civil damages or criminal sanction under the Bill.

“Reasonable” HREDD due diligence

The Bill notes that “reasonable” human rights and environmental due diligence depends on inter alia an organisation’s size, sector, operational context and countries of operation.  The Bill offers helpful guidance as to the constituent parts of an HREDD programme.  In particular, as a ‘minimum’, the Bill indicates that HREDD procedures:

• integrate human rights and environmental due diligence into policies and management systems;
• identify, assess and address actual or potential human rights and environmental harms, through prevention, mitigation and remediation;
• establish and maintain effective grievance mechanisms;
• track, verify, monitor and assess the effectiveness of measures taken and their outcomes; and
• communicate with stakeholders and reporting publicly on findings.

Notably, the Bill states that audit reports, certification schemes, and membership in “initiatives for dialogue and learning” are insufficient to fulfil the obligation to conduct due diligence (see our previous blogs on the pitfalls of social auditing here and here).

Penalties for non-compliance

The proposed Bill provides for civil penalties in the event a commercial organisation fails to take all reasonable steps to prevent human rights or environmental harms in its operations and value chains, subject to a defence of having taken “all reasonable steps” to prevent the relevant harm from occurring.  Notably, penalties could include fines of up to 10% of the company’s global turnover, compliance and restoration notices, and exclusion from public contracts for a period of up to five years.

The Bill also provides for criminal liability in the event a commercial organisation engages in certain specified conduct (e.g. certain offences under the Modern Slavery Act 2015) to obtain or retain business or an advantage in the conduct of business for the organisation.

The Bill states that board directors are collectively responsible ensuring compliance with the Bill, which places a clear emphasis on the need for good and effective governance around an organisation’s HREDD programme.  If a commercial organisation does not conduct HREDD in a financial year or provides false or incomplete information in its public reports, responsible individuals could face fines and/or up to two years’ imprisonment.

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In line with best practice, companies may wish to apply the below strategies to improve their human rights-related risk management strategies:

1. Ensuring that they have processes in place at a board level to translate human rights-related commitments into positive action;
2. Closely monitoring legislative developments relating to mandatory HREDD obligations;
3. Integrating meaningful stakeholder engagement in all steps of their HREDD process;
4. Carrying out a human rights impact assessment and taking proportionate counter-measures, as well as communicating internally and externally on what measures have already been taken;
5. Reviewing and reinforcing complaints mechanisms and speak-up programmes, and ensuring they are well-equipped to deal with human rights-related “crises”;
6. Reviewing the extent to which their board is equipped to address supply chain risks, including through training executives and seeking independent support and advice; and
7. Reviewing the role, resources and expertise of the legal and compliance functions, who should play a key part in addressing these new challenges.

Mayer Brown lawyers are available to help clients in this increasingly complex and evolving regulatory landscape.

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