[Poorna Poovamma K.M. is a 4th-year student at Gujarat National Law University, Gandhinagar]
The onus on business entities to respect and protect human rights in the course of their operations has increased tremendously during recent years. The need for corporate human rights due diligence took a turning point through the United Nations Guiding Principles on Business and Human Rights (UNGP) of 2011 and was substantially strengthened by the presentation of the Working Group on Business and Human Rights to the United Nations General Assembly in 2018.
The concept of corporations undertaking due diligence in the field of human rights is at a very nascent stage, especially in India. With the UNGP being the only source of guidance for states, development at the domestic levels on requirement of corporate human rights due diligence has been relatively slow across jurisdictions. Corporate human rights due diligence encourage business entities to identify, prevent, and mitigate human rights violations that are linked to their operations and supply chain by businesses exhibiting enhanced accountability. In furtherance of such development, governments across the globe have attempted to incorporate this emerging aspect of due diligence requirement in their domestic operations through National Action Plans, policy frameworks and legislations. Such attempts have also largely been fuelled by an increased number of conscious investors who seek corporate entities which follow good governance practices.
The scope of the article extends to the analysis of the European Parliament’s draft directive on compulsory human rights due diligence, the effect it may have on Indian business entities, and how in furtherance of this India- where development in the aspect of human rights due diligence has been not of much consequence- can adopt a framework while drawing guidance from other jurisdictions which have a stable legislation on mandatory human rights due diligence.
In the facilitation of the UNGP at a domestic level, the government of India wielded a National Action Plan on Business and Human Rights (NAP) with a sight to promote socially responsible businesses which realize human rights obligations. The NAP also ensures that prior policy frameworks such as the National Guidelines on Responsible Business Conduct, 2018 (NGRBC) are in consonance with the UNGP in upholding the pillars of protection, respect and remedy in mitigating adverse human rights violations by businesses. For the purposes of this discussion, it is the realisation of the pillar of the ‘corporate responsibility to protect human rights’ by the NGRBC, further seconded by the NAP, that is of importance.
To elucidate, principle 5 of the NGRBC emphasizes the need for recognition of human rights due diligence by businesses across their value chains by way of identification, prevention, and mitigation of adverse human rights violations. However, there exists no elucidation as to the manner in, and extent to, which such human rights due diligence is to be espoused. Furthermore, the requirement of such human rights due diligence to be conducted by businesses is not mandatory and may, in a strict scenario, be expected to be on a ‘comply or explain’ basis with no impactful sanctions for non-compliance.
European Parliament’s draft-directive and upcoming legislation of the European Commission
In March 2021, the European Parliament (EP) adopted a legislative initiative report which provided a draft directive proffering recommendations to the European Commission (EC) on imposing mandatory human rights due diligence on companies in lieu of the EC’s upcoming legislative proposal on the mentioned subject-matter as a part of its sustainable corporate governance initiative.
The directive advocates for undertakings to adopt a risk-management approach in identifying adverse human rights violations as a part of its due diligence. Additionally, the directive stresses that the expected framework (expected in 2022) is to impose an obligation on undertakings to carry out human rights due diligence which spans across the entire value chain of the company.
Furthermore, the directive recommends that the scope of the forthcoming legislation is to extend to all undertakings that are established within the territory of the European Union (EU), and also to those undertakings established outside the EU which have a supply chain business within the EU territory. What sets this directive apart from previous governance frameworks proposed is that the upcoming legislation is directed to be mandatory as opposed to being voluntary.
Impact on India, and the need for a mandatory corporate human rights due diligence legislation
It is opined that the upcoming legislation of the EC, which is expected to incorporate the recommendations set forth in the draft directive, will have a profound impact on companies established in India which have operations within the EU. As India is the EU’s tenth largest trading partner, and the eleventh largest import partner, it is believed that in all probability trade will be negatively affected if Indian companies having supply chains in the EU do not carry out mandatory human rights due diligence. This necessitates the need for a mandatory human rights due diligence in India.
Furthermore, the draft directive recommends the prohibition of importation of goods which have a link to severe human rights violations such as forced labour or child labour. There have been concerns regarding the increased rate of child labour in India in recent years, especially in light of the Covid- 19 pandemic which has pushed many families into adverse poverty. These concerns necessitate that companies be mindful of such human rights violations that may occur in the course of their operations, and that the need for mandatory human rights due diligence is amplified. It should also be noted that child labour is just one aspect that necessitates the adoption of mandatory human rights due diligence by companies, and the list is not exhaustive. Considering these issues, it is believed that the development of Indian companies having supply chains in the EU will be negatively impacted if they do not carry out mandatory human rights due diligence, thus making it essential that India adopts a mandatory corporate human rights due diligence legislative framework.
Problems that may arise
A significant issue in the adoption of corporate human rights due diligence by countries arises from governments failing to enact a mandatory legislative framework in this regard. Though many countries have adopted NAPs and policy frameworks recommending companies to carry out such due diligence, the voluntary nature of such frameworks renders its expected effect futile. It is essential that governments take a proactive role in coordinating provisions for disclosure and due diligence requirements. This issue has also been attributed to the slow paced adoption of the UNGP principles.
A probable concern in drafting a mandatory human rights due diligence legislation would be the setting of standards in identifying, preventing and addressing human rights violations by companies across their supply chains. Failure in setting adequate benchmarks would result in companies carrying out due diligence with different measuring factors and as per their convenience, thus nullifying the intended effect of the legislation.
Lessons to be learnt
Germany, which is the largest importer of goods from India within the EU, recently enacted a legislation on corporate human rights due diligence in supply chains. Section 3 of the legislation ordains enterprises to exercise human rights due diligence by establishing risk management systems, implementing due diligence obligations on risks both at direct and indirect suppliers, establishing a complaints procedure, among other obligations. Furthermore, Section 3(2) of the legislation sets forth the standards on which due diligence obligations are to be performed. However, the legislation does not give rise to any civil liability on companies defaulting in their due diligence obligations, but instead imposes fine as penalty.
Recently in the Netherlands, the third largest EU member importer from India, a bill was proposed by the parliament on human rights due diligence applicable on companies registered in the Netherlands and also on those companies which have a supply chain in the Dutch market. An interesting provision of the bill is the compensatory measures adopted whereby, companies are mandated to provide remedy to stakeholders whose rights have been violated, and an omission to provide such remedy is considered to be a legal violation.
The above-mentioned frameworks and the EC’s draft directive, aided by the UNGP can serve as sufficient guidance to determine factors or standards that must be set in order to ensure that fulfilment of human rights due diligence legislations is relatively uniform across jurisdictions, in order to facilitate cross-border trade. Though the mode of penalty may differ, it is essential that the procedure to undertake corporate human rights due diligence, and vigilance plans to identify and mitigate the same remain consistent across countries and jurisdictions.
The interplay between business and human rights is an emerging area of discourse for policymakers across the globe, and corporate human rights due diligence is one aspect of it. It is a noted concern that voluntary human rights due diligence obligations render compliance redundant and ineffective. The EP’s draft directive on mandatory corporate human rights due diligence is expected to set a benchmark and have a profound impact not only on companies established within the EU, but also on companies established in other jurisdictions which have their supply chains in the EU. It is prudent to expect that the upcoming legislation by the EC will have an effect on Indian companies, as India has significant trade operations with the EU.
Though India has an NAP on business and human rights calling for corporate human rights due diligence, the probability that companies will comply with the same is insubstantial; hence the requirement for a mandatory legal framework arises. Legal frameworks of Germany and Netherlands, supplemented by the EP’s draft directive and UNGP can be referred to by the Indian policy makers in order to ensure comparatively similar standards in determining the course for carrying out human rights due diligence. Conclusively, it is believed that, in order to attain sustainable governance and sustain profitable trade across the globe, the adoption of a mandatory legislation on corporate human rights due diligence in India is crucial.