In a blog article before the November 2024
election, our GBHR Practice discussed how the pushback on ESG will
not stop the tide towards higher human rights standards for
companies. Notwithstanding an accelerated effort this year by the
current U.S. Government and some of its allies to end such
initiatives, our views regarding the trajectory towards greater
corporate responsibility remain largely unchanged.
It is important to keep in mind that governments have historically
lagged in imposing requirements on companies to uphold
internationally-recognized human rights principles. There has been
some upward change in this area, with several new corporate human
rights obligations codified into law and regulations over the last
several years.
Notable examples include the U.S. Uyghur Forced Labor Prevention
Act, the E.U. Corporate Sustainability Due Diligence Directive, and
the E.U. Forced Labor Regulation that will set the world's most
stringent regulatory regime for prohibiting forced labor.
Additionally, Canada and Mexico have implemented new laws leading
to heightened scrutiny of labor practices in supply chains, in the
interest of forming a coordinated approach against modern slavery
in North American supply chains.
Despite gains over time, the human rights community has often
cautioned that corporate responsibilities to human rights can be
undone or effectively neutered if expectations are not sustained
and progress is not closely monitored.
Recent developments in the United States have compelled some
countries in Europe and other regions to enter a "race to the
bottom" towards corporate deregulation. This includes efforts
to weaken laws, rules, and policies that ensure business
enterprises are upholding rights and taking meaningful steps to
remediate and prevent adverse impacts to rightsholders –
particularly vulnerable communities at greatest risk of being
harmed.
Multinationals have been steadily building up their human rights
programs. This has given them competitive advantages that include
more effective ways to manage human rights risks and resolve
related challenges that have hindered their operations. These
commitments have also helped strengthen the social license to
operate, which relies on a strong trust relationship between a
company and the local community in which it operates. Gaining a
social license to operate is especially important in settings where
communities have been historically distrustful of corporate
intentions.
While ESG and CSR are devolving into bitterly partisan terms, what
they broadly seek to engender in corporate behavior are standards
drawn from universal conceptions of human rights and premised on
internationally-recognized human rights frameworks, chiefly the
U.N. Guiding Principles on Business and Human Rights.
The U.N. Global Compact – which today counts as participants
over 20,000 small/medium enterprises and some of the world's
largest multinationals – additionally calls on companies to
take preemptive measures to address environmental challenges,
promote greater social responsibility, and encourage the
development and diffusion of cutting-edge sustainability practices.
The Global Compact seeks to energize corporate commitments to the
U.N. Sustainable Development Goals, which intersect with a host of
social and human rights objectives. Over time, the Global
Compact's sustainability framework has expanded to account for
corporate impacts on inclusive and equitable social development,
and has become a global standard-bearer for ESG principles.
The industry's own standards presage the Global Compact and
UNGPs by decades, as embodied in the OECD's Guidelines for Multinational Enterprises
on Responsible Business Conduct. The OECD Guidelines were first
developed in 1976, when environmental protection was entering the
mainstream in tandem with an array of movements for the rights of
historically marginalized groups. The Guidelines are in large part
the global business world's response to such changes, and have
been continuously updated to remain fit for purpose in light of
societal challenges and the evolving context for international
business.
The 2023 update to the Guidelines reflects over
a decade of observations on global corporate activity since the
Guidelines were last revised in 2011. Recommendations in the 2023
update accordingly set specific expectations for companies that
develop digital technologies and respect for environmental and
human rights defenders. The recommendations also give attention to
expectations for the public disclosure and discussion of due
diligence – a glaring weak spot in the current state of
corporate human rights due diligence. The 2023 update also aims to
strengthen the effectiveness of governments in promoting the OECD
Guidelines and making non-judicial remedies available to harmed
rightsholders.
To round this out, in 2019 – a year before the George Floyd
protests would make DEI and racial justice into household concepts
– the Business Roundtable issued a new Statement on the Purpose of a Corporation
signed by over 180 CEOs that marked a radical departure from the
orthodoxy that had dominated the U.S. business agenda for decades,
if not centuries. The new Statement outlined a bold vision for U.S.
multinationals in which the prevailing interests of shareholders
are superseded by the interests of all stakeholders –
including customers, employees, suppliers, affected communities,
and shareholders. The Statement placed these companies, which
collectively form the backbone of American industry, on course to a
new, higher standard for sustainable and responsible business
practices.
In integrating the UNGPs and OECD Guidelines into their practices,
today's multinationals must look at the salient harms and
adverse impacts that could stem from their operations through a
transnational lens that implicates every upstream and downstream
segment of their global supply chains. They must also fully
understand both the environmental and human rights impacts of their
activities, and how the two interrelate to affect rightsholders and
their attainment of rights.
A highly diverse set of forces and actors are continuing to place
strong pressures on companies to not only maintain their
commitments to rights, but to do more. Whether it be due to the
influence of social media, deeper supply chain interconnectivity,
the reach of civil society advocacy, or increased commitments to
key social responsibility standards by companies themselves, the
average consumers of today are highly aware of the link between the
products they consume and the human inputs that produced it. More
than ever, consumers are expecting if not demanding that the
companies they buy from take meaningful steps to ensure supply
chains are free of modern slavery and that their operations are
driving equitable social development in affected communities.
As part of this, consumer advocates have started taking companies
to court over their professed human rights commitments using
relatively novel legal strategies that draw from false claims and
consumer protection laws. Starbucks, for instance, is being sued in D.C. Superior Court by the National
Consumers League, which alleges in a January 2024 lawsuit that
the company made false claims when it stated that its coffee is
"100% ethically sourced."
According to the NCL's complaint, investigations by journalists
and human rights organizations have uncovered systemic problems
with the company's third-party certification programs, which
Starbucks relies on to verify that fundamental worker freedoms and
other human rights are being implemented on the farms responsible
for the company's tea, cocoa, and coffee supply. The legal
challenge seeks to enjoin Starbucks from using the ethical sourcing
moniker, or take immediate steps to institute reforms that satisfy
a "reasonable consumer's understanding" of
sustainable and responsible business practices.
As reported by the Wall Street
Journal in March of this year, U.S. and international
companies that had previously established extensive operations in
the Xinjiang region of China are rapidly pulling out due to
mounting pressure from a wide range of stakeholders over the heavy
presence of forced labor by Uyghurs and other persecuted Chinese
majorities in Xinjiang. Such companies includes Volkswagen, which
is still suffering reputationally after a forced labor audit the
company commissioned was publicly leaked and raised serious
questions about the quality of the due diligence. The Volkswagen
incident, coupled with Chinese Government interference that has
made independent human rights impact assessments in Xinjiang
seemingly impossible, led last year to an investigatory hearing on the matter by the
bipartisan U.S. Congressional-Executive Commission on
China.
While there is no doubt that the Uyghur Forced Labor Prevention Act
is featuring prominently in the exodus from Xinjiang, it
doesn't tell the whole story. Less attention has been given to
the academic researchers, Uyghur dissidents, human rights
defenders, and sustainability-minded consumer groups helping to
shine a brighter spotlight on forced labor abuses in the Xinjiang
region and the companies operating there.
Civil society organizations, shareholder activists, and worker
rights groups also persist in calling for increased corporate
accountability to the rightsholder groups and local communities
that companies impact. Recently, we conducted several human rights
impact assessments projects brought into being by shareholder
resolutions or proposals to file a resolution.
A chorus of business leaders, board directors, and shareholders
have also expressed concerns over the prospects of the standards
that they helped built being hollowed out or capriciously
implemented, and have been vocal in opposing government action that
would further this.
Several multinationals have publicly criticized E.U. plans to
revise and potentially weaken requirements to regularly report on
ESG implementation – a new obligation for companies that is
foundational to the E.U. Sustainability Due Diligence Directive. In
February, these companies – which include Nestlé,
Mars, L'Occitane, Unilever, and Dubai-based DP World –
joined hands with human rights organizations such as the Global
Network Initiative and the Ethical Trading Initiative, as well as
socially-responsible investment firms in a letter to the leadership
of the European Commission. At the very outset of the letter, they
stressed that "Investment and competitiveness are founded on
policy certainty and legal predictability. The announcement that
the European Commission will bring forward a legislative initiative
that could include revisiting existing legislation risks
undermining both of these."
Elsewhere, U.S. trade associations and their members have been
spearheading advocacy before Congress and the Trump Administration,
in opposition to the White House's decision to terminate all of
the U.S. International Labor Affairs Bureau's international
partnerships.
As one of the primary U.S. agencies monitoring other
governments' enforcement of the International Labor
Organization's Conventions on worker rights, the ILAB contracts
focused on projects in regions where the severest labor risks are
most prevalent. To borrow from one of the trade association's
policy statements: "American businesses rely heavily on
ILAD's programs to help enforce the worker rights commitments
of America's trading partners and combat child labor and human
trafficking. American workers should not have to face the unfair
competition, in a race the bottom, of labor markets whose
profitability depends on forced labor or other abuses."
Yes, we are in a new political landscape in which many governments
around the world are turning away from human rights and actively
devaluing the corporate responsibility to respect rights –
responsibilities that took decades to establish as best practice.
Yet amidst anemic government support for binding standards or even
general policy, companies will find significant advantages in a
robust human rights program that looks beyond immediate political
interests to anticipate and address the evolving expectations from
the many other groups holding companies to higher standards.
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