Human Rights Due Diligence – An Emerging Requirement in State and Federal Legislation

Two years ago, in October 2010, I published a post, Human Rights Due Diligence and the Corporate Lawyer, that addressed the need for corporate counsel to assess stakeholder expectations that companies should be accountable for identifying, and taking action to mitigate, the adverse human rights impacts of their operations. At the time, the expectation that companies should conduct human right due diligence had been put forward as a fundamental component of the “Protect, Respect, Remedy” framework released by the U.N. Special Representative on Business and Human Rights, Professor John Ruggie, in 2008.  Since then, operational guidance on this expectation has been provided in the U.N. Guiding Principles on Business and Human Rights, released in 2011.

As stated in the Guiding Principles,

In order to identify, prevent, mitigate and account for how they address their adverse human rights impacts, business enterprises should carry out human rights due diligence. The process should include assessing actual and potential human rights impacts, integrating and acting upon the findings, tracking responses, and communicating how impacts are addressed.

At the time of the earlier post, two relatively new pieces of legislation — Section 1502 of the Dodd-Frank financial reform legislation, enacted in July 2010, and the California Transparency in Supply Chains Act, enacted in September 2010 — reflected this fundamental expectation that companies should conduct due diligence to identify the human rights impacts of their operations. These new legislative provisions required companies to make public disclosures regarding their due diligence efforts.

So, two years, where are we? Specific efforts have been made to implement the legislative requirements first enacted two years ago. In August 2012, the Securities and Exchange Commission issued a final rule implementing Section 1502. Companies in many sectors are now busy assessing their internal capacity to conduct the necessary due diligence on their supply chains in order to identify whether they are supporting the ongoing conflict in the Democratic Republic of Congo through the purchase of conflict minerals. By November 30, 2012, a list of companies required to comply with the California Transparency in Supply Chains Act will be generated by the California Franchise Tax Board and provided to the State Attorney General for enforcement purposes.

In addition, new legal and regulatory developments reflect an increasing willingness by policymakers, including legislators, to utilize human rights due diligence requirements as a tool to achieve social policy goals:

  • In August 2011, Representative Carolyn Maloney (D-NY) introduced H.R. 2759, the Business Transparency on Trafficking and Slavery Act, a bill modeled after the California Transparency in Supply Chains Act.  The bill would require companies with annual worldwide gross receipts exceeding one hundred million dollars to disclose efforts to identify and address the risks of human trafficking, forced labor, slavery, and the worst forms of child labor in their supply chains.
  • In December 2011, Rep. Christopher Smith (R.-NJ) introduced H.R. 3605, the Global Online Freedom Act, a bill which includes human rights due diligence requirements for Internet communications service companies operating in countries identified by the Secretary of State as having engaged in a systematic pattern of substantial restrictions on Internet freedom. The bill’s findings include the statement that, “[h]uman rights due diligence by companies makes a difference.”
  • Finally, the new Reporting Requirements on Responsible Investment in Burma, released in July 2011, require that companies with cumulative investments in Burma exceeding $500,000 submit an annual public report to the U.S. State Department including information on the policies and procedures they have in place to manage human rights.  Companies must also submit annual information regarding the human rights risks or impacts identified in Burma during corporate due diligence processes, although this information will not be made public.

Each of these developments reflects what Professor Ruggie, now a senior advisor with Foley Hoag, has referred to as a “convergence of expectations” with regard to business responsibilities in the area of human rights.

These developments have also increasingly informed our advice to clients. As counsel, one of our primary responsibilities is to help clients anticipate, understand, and respond to emerging legislative and regulatory requirements. More and more companies are, or will be, impacted by legislation imposing human rights due diligence requirements. Even companies not impacted directly will find themselves subject to private enforcement efforts as their customers and business partners seek to comply with these new provisions.

It is therefore important for many companies to assess their internal capacity to respond to these emerging requirements. This assessment could include a review of existing policies and standards, an assessment of the relative human rights risk profile of their operations, and a gap analysis of existing management systems against the expectations set forth in the Guiding Principles. This capacity assessment can help companies develop strategies to respond to new legislation as well as to communicate with key stakeholders, including policymakers, regarding the nature of their existing efforts.

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