The UK's Corporate Justice Coalition ("CJC"), an organisation made up of various UK and international Civil Society Organisations ("CSOs") including Anti-Slavery International, Friends of the Earth and Business Human Rights Resource Centre has recently recommended the implementation of a potentially wide-reaching corporate "failure to prevent" regime targeting negative human rights and environmental impacts. Such a regime would track similar EU proposals relating to the diligence of 'value chains' for ESG failings and malpractice. In our briefing we set out what the key proposals are and how these could impact businesses in the future.
Business & Human Rights: Proposals for a New 'Failure to Prevent' Regime
The CJC recommendation (published on 26 October 2021) builds on a number of related proposals made over the years, largely stemming from a recommendation made by the UK Parliament's Joint Committee on Human Rights in 2017 that a "failure to prevent" offence, akin to that already found in respect of bribery and the facilitation of tax evasion, could be replicated in respect of human rights. A report published on 11 February 2020 by the British Institute of International and Comparative Law ("BIICL") (the "BIICL Report") proposed a number of elements that could be incorporated into such law. These included a requirement for mandatory human rights due diligence for all companies regardless of size or sectors, and that companies must take reasonable steps to prevent human rights harms: (i) in their own activities; (ii) by their foreign subsidiary entities; and (iii) in the entire value chain, regardless of where they occur.
The CJC continues the call for legislation to hold companies to account when they fail to prevent human rights abuses and environmental harms. This so-called "Failure to Prevent" law, they say, should mandate companies to undertake 'human rights and environmental due diligence' ("mHREDD") across their supply and value chains. The law would build upon existing transparency laws such as the UK's Modern Slavery Act 2015, and as previously suggested by the BIICL, be modelled on the civil and criminal duties to prevent bribery and tax evasion (see further details on this element below).
The CJC's key recommendations, set out in a previously published "Principal Elements" overview (published earlier in October 2021) for the Failure to Prevent law include:
- An obligation on organisations to prevent human rights and environmental harm in their domestic and international operations and in their supply and value chains.
- The application of mHREDD to all sectors, including financial institutions.
- The publication by organisations of a forward-looking plan describing the procedures taken by that organisation in preventing human rights and environmental harm and an assessment of their effectiveness.
- Criminal and civil penalties and sanctions against senior managers and organisations for non-compliance.
- The ability of an organisation to discharge their duty by showing that they acted with due care to prevent human and environmental harm.
There are a number of key distinctions and developments between the previous recommendations and the CJC's proposed legislation:
Supported by a growing belief among CSOs that the binary distinction between human rights and the environment is counterproductive to the overarching goal of improving life on earth, there is increasing concern that the current due diligence framework facilitates a process by which organisations can, for example, carry out aid for the environment at the expense of human rights or vice versa. The CJC's proposals therefore go beyond the 2017 proposals by incorporating both human rights and environmental impacts in their proposed laws.
It is worth noting that this drive to recognise broader environmental and social risks and downside issues as being interconnected has been embedded in recent EU ESG regimes such as the EU's Sustainable Finance Disclosure Regulation and Taxonomy Regulation, and tracks EU sentiment most recently espoused by the Europe Commissioner for Human Rights in an intervention in the case of Agostinho v Portugal1 in which the Commissioner expressly linked human rights with climate change and environmental rights, emphasising that two rights are closely linked and cannot be thought of in isolation.
The 2020 BIICL recommendations did not have criminal sanctions attached to it, but rather suggested that a more useful remedy for those affected by human rights harms would be to provide a civil right of action supported by powers for the court to order companies to take preventative steps or stop doing certain activities. The recent CJC proposals include the potential for companies and their senior managers to be subject to criminal penalties if they fail to prevent serious human rights or environmental impacts (but does not yet set out specific figures or proposals for this). This is not a surprising development in light of the EU's current proposals (see below).
The CJC further recommends that the law be modelled on the existing civil and criminal duties to prevent tax evasion and bribery found in the Criminal Finances Act 2017 and the Bribery Act 2010 (the "Bribery Act"). Where an act of bribery has been committed by or on behalf of a commercial organisations under the Bribery Act there is a defence where the organisation can show, on the balance of probabilities, that it had in place “adequate procedures” designed to prevent bribery from occurring on its behalf. This duty can often be discharged by, amongst other measures, implementing appropriate anti-bribery and corruption policies and procedures and conducting risk assessments in line with the Ministry of Justice's corresponding guidance in this area. We can infer that a similar duty would be proposed in respect of human rights and environmental harm, and that this duty could be discharged by the implementation of adequate procedures, such as adequate mHREDD, appropriate policies and procedures as well as related ESG and human rights risk assessments.
For now these proposals remain recommendations only, subject to a number of administrative and practical hurdles. Administratively, these proposals remain in nascent stages as they have not as yet started to make their way through the UK legislative process via a Parliamentary Bill for scrutiny in the House of Commons and House of Lords. Given the potentially far-reaching implications for business, there are a number of practical considerations to be worked through as well, including whether smaller businesses would be able to cope with such onerous requirements and whether wider pressure will ultimately water down the current proposals list to a less onerous set.
That said, the CJC points to a survey by the BIICL undertaken in February 2020 which found that most of the businesses surveyed support new legislation due to anticipated benefits including legal certainty and the creation of a level playing field. Furthermore, public and investor opinion continues to be demonstrably in support of companies committing to ethical business practices. It should also be noted that these due diligence requirements will likely fit neatly alongside the recently proposed UK Green Taxonomy and Sustainable Finance Regulation (the "UK Proposals"). These UK Proposals (which have been considered in more detail in our recent sustainable investment briefing) would require sustainability-related disclosures from certain businesses and asset managers, and in respect of investment products, in respect of (among others) the entity's strategies and risk management processes in place to identify, assess and manage sustainability-related risks. A potentially persuasive factor to consider in light of the UK Proposals and the UK's wider Green Plan ambitions is that the due diligence and reporting requirements set out in CJC's proposals (as currently envisaged) would require businesses to put in place the kind of strategies and risk management processes to complement and ultimately be built in to the corporate and asset manager/ owner disclosures on integration of sustainability risks and into the other sustainability-related disclosures envisaged under the UK Proposals.
These UK developments come hot on the heels of the European Parliament's own proposals for a corporate governance directive on mandatory human rights and supply chain due diligence directive (which we have previously considered in further detail), and which is now expected to be introduced in Q4 2021, with agreement between the European Parliament, Commission and Council expected in 2022. The UK position in terms of liability and sanctions remains in development, however the CJC proposals appear to be closely aligned with the corresponding EU proposals which have set out an ambition to introduce potentially significant fines (potentially up to 10% of global turnover) and criminal offences for repeated intentional infringements. The CJC proposal also forms part of a wider picture of national movements for mandatory mHREDD across the EU, including the passing of new mHREDD legislation in Germany and the upcoming adoption of child labour due diligence legislation in the Netherlands.
While it remains to be seen how many of the CJC's recommendations will make their way onto the statute book, support for new legislation in this area is building momentum in both the EU and the UK. Recent English case law also pushes at a broader consideration of an organisation's supply and value chain (see in particular our briefing on Parent Company Liability: the Vedanta Case). Indeed, the potential application of the proposed "Failure to Prevent" law on a UK business has already been considered in respect of Boohoo's modern slavery and supply chain allegations in its Leicester operations (discussed in our July 2020 briefing). A legal review undertaken by Timothy Otty QC and Naina Patel of Blackstone Chambers (published on 23 July 2021) concluded that based on the evidence considered and conclusions reached in their review, "Boohoo could have been found liable for breaches of the Guiding Principles under mandatory human rights due diligence/UK ‘failure to prevent’ legislation in the form of the BIICL Model Legal Provision, had such legislation been in place during the relevant period of time."
The CJC's recommendations, if implemented, are therefore likely to have significant repercussions on the way businesses structure their ESG and human rights compliance programmes and level of related due diligence. As ever, those organisations that pre-empt such changes by considering what 'adequate procedures' would look like in their own operations, will not only be future proofing against these regulatory developments but will, crucially, benefit from more robust management of potential ESG-related risks in their businesses.
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Reference: 1 Third party intervention by the Council of Europe Commissioner for Human Rights under Article 36, paragraph 3, of the European Convention on Human Rights Application No. 39371/20 Cláudia DUARTE AGOSTINHO and others v. Portugal and 32 other States. Third party intervention by the Council of Europe Commissioner for Human Rights - Application No. 39371/20 Cláudia DUARTE AGOSTINHO and others v. Portugal and 32 other States (coe.int)