New EU Law Provides Fertile Ground for Enhanced Human Rights & Environmental due Diligence

European lawmakers are opting to tighten regulatory scrutiny of companies to protect human rights and the environment in their supply chains. The new legislative push means realigning due diligence processes and implementing ongoing adverse news monitoring to stay alert to emerging problems. The question is: How can organisations best prepare for increased regulatory and reputational risks, while also meeting ESG expectations?

A new approach to human rights due diligence in Europe

In January, the European Parliament’s legal affairs committee adopted a report that urges the European Commission - the EU’s executive branch – to set up comprehensive legislation for mandatory due diligence requirements on both human rights and environmental risks. The proposal, which the European Parliament’s full session will vote on in March, would set a new precedent for environmental and human rights due diligence since it would substantially increase legislative scrutiny over the operational impact of entities established in the EU on a global scale.

According to the report, the proposed EU law would require these companies to monitor, identify, prevent and remedy  risks related to the environment and human rights. The proposal seeks to include all operations and business activities, in particular supplier and sub-contractor relations, in the new diligence guidelines.

Civil-society groups as well as private sector alliances are speaking out in favour of the new proposal. Richard Gardiner, a senior representative at international human rights watchdog Global Witness, said that the new regulation could help “prevent environmental and human rights abuses before they happen.”

Similarly, the Nordic Business Networking for Human Rights was one of the first private sector associations to welcome the European Parliament’s efforts.

While no organisation is immune to risks related to the environment or human rights, failing to establish a robust due diligence regime can have a substantial impact. Recent headlines prove that clandestine and unethical behaviour by third parties often leads to a considerable reputational and regulatory backlash for all involved parties.

The case for holistic risk management

The proposed push for increased due diligence on human rights and the environment is no unique development. From the 2010 California Transparency in Supply Chains Act, to the forthcoming German supply chain law and the European Parliament’s upcoming legislation, regulatory bodies are tightening their grip on environmental misconduct and human rights abuses, underlining the increasing importance of environmental, social and governance (ESG) factors for investors and consumers around the world.

At the same time, employer-focused organisations have gained awareness of the substantial effect a robust due diligence can have on mitigating reputational and regulatory risks. Last September, the Business at OECD (BIAC) network and the International Organization of Employers (IOE) issued a new guide “Connecting the anti-corruption and human rights agendas: A guide for business and employers’ organizations” which underlines the overall trend towards enhanced anti-bribery and corruption (ABC) and human rights due diligence.

Record levels of corporate distrust, fuelled by a growing number of disconcerting involvements of global brands in unethical behaviour, make mitigating both regulatory and reputational risks a must. While no organisation is immune to risks related to the environment or human rights, failing to establish a robust due diligence regime can have a substantial impact.

In complement to due diligence, adverse media monitoring can improve ongoing visibility into emerging regulatory or reputational risks, including human rights misconduct, while strengthening its reputation for adhering to ESG criteria.

The bottom line is this: The maxim to “do the right thing” might not be new for businesses but recent regulatory developments point to the fact that ethical expectations are changing - fast. Is your current approach up to the task?

Explore how changing laws increase the need for companies to engage in human rights and environmental due diligence.