Businesses and investors have been given a clear signal as to the direction of travel of the new European Parliament and Commission on business and human rights at a conference on 2 December 2019, co-organized by Shift and the Finnish Presidency of the Council of the EU.

Key takeaways

  • Policy signals: were sent by the Finnish Presidency that it would seek to develop a Joint Action Plan on Business and Human Rights. Proposals include measures for greater alignment with the UN Guiding Principles on Business and Human Rights (UNGP) in regulation, state financing and public procurement, judicial remedies, and free trade agreements.
  • Mandatory human rights due diligence: continues to be discussed by governments and supported by businesses, investors and civil society. Coming years will see regulation increase but will also see different forms of regulation emerge based on a "smart mix of measures", that is, a mixture of public and private, domestic and international and hard and soft instruments.
  • Access to remedy: needs to be part of embedding respect for human rights throughout an entire value chain. This means exercising leverage in new ways and innovative thinking about remediation, including alternative methods of dispute resolution such as mediation.

Exploring what this means for your business

Regulation and disclosure on human rights policies, processes and performance, including mandatory human rights due diligence is set to increase in the EU – it is no longer a matter of if, but when. Risk mitigation strategies will need to ensure they are able to effectively utilise leverage as and when necessary. This requires forward planning and may include a mix of smart contracting solutions and working with foreign governments and trade associations to ensure best practice solutions are viable and make business sense all along the value chain.

The EU Action Plan on Business and Human Rights will also help to re-balance the focus of environmental, social and governance (ESG) investing and sustainable finance to include greater attention on "social" issues, which are all about human rights. This will be a welcome development as investors and asset managers are increasingly asking for better data and more consistent standards and frameworks to assess human rights performance.

Whilst these proposals will take many years to crystallise businesses might start to get ahead by considering:

  • their own corporate-wide as well as project and transaction specific human rights due diligence measures to ensure they align with regulatory trends;
  • a holistic approach to sustainable finance and climate risk mitigation that also considers business and human rights issues as part of a just transition;
  • their liability profile by stress testing different forms of regulation and sanction;
  • financial exposure to investor and public financier requirements that may harden screening in line with the UNGP;
  • developing a culture and procedures around early-intervention for dispute resolution, for example, by developing Effective grievance mechanisms and establishing processes for alternative dispute resolution; and
  • action in relation to these developments in a legal context to ensure any issues uncovered are not automatically open to regulatory investigations, enforcement actions and/or litigation in the future.

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