Innovative remedies: an investor's role in cleaning up supply chains

Following the results of consultation with businesses, public bodies, trade unions and academics, the UK Government recently published its Transparency in Supply Chains statutory guidance (the "Guidance"), further explored in our related article on "A Decade of Insight: UK Home Office updates guidance on supply chain transparency". Amongst other things, the Guidance addresses remediation and the critical role it plays in helping address modern slavery and other human rights abuses, suggesting the need to shift from a traditional concept of remediation (which focuses on penalising the offenders), to a more victim-centric approach.

Access to remedy for victims is also a core component of the United Nations Guiding Principles on Business and Human Rights (the "UNGPs"), which draws a distinction between an investor's involvement in the harm and their obligation to remediate it:

• investors whose actions cause harm are expected to play a direct role in remediating it;
  
  
• those whose actions contribute to harm should play a direct role in remediation and are expected to use leverage to influence other stakeholders; and
  
  
• those directly linked to harm should use leverage on stakeholders to address it.

A number of legal regimes already contain the concept of a legal duty to identify and remediate actual and future harms. For example, the UK's Environmental Protection Act 1990 and the Environmental Damage (Prevention and Remediation) (England) Regulations 2015 set out the concept of the "polluter pays" principle. This dictates that those who cause or knowingly permit pollution are typically liable for environmental remediation, with the burden potentially falling on the owner or occupier if an "appropriate person" cannot be identified. This duty could be imposed on an investor that has acquired contaminated land, even if the contamination was caused by a previous owner.

In the EU, Article 12 of the EU's Corporate Sustainability Due Diligence Directive ("CSDDD") specifically addresses the obligation to provide remediation for actual adverse impacts, with the possibility of voluntary remediation even in the absence of a legally binding duty. Remediation under the CSDDD may include both financial and non-financial compensation, such as restoring the environment or providing support to locally impacted communities.

Against this complex and evolving regulatory background, investors, parent companies and shareholders should carefully consider whether it is appropriate to engage with investee/subsidiary companies in respect of modern slavery, environmental and human rights abuse issues, and if so, how that may meaningfully be done in a way that does not expose them to avoidable risk. 

This article will explore first the concept of remediation and how companies could think innovatively to remediate harm done to victims, secondly, the importance of having solid grievance mechanisms for the purpose of detecting human rights abuses, thirdly, how investors can use their leverage to effect change, and finally, the risks to which investor involvement in remediation efforts may give rise.

In the simplest terms, remediation means the act of righting an actual or identified wrong. Traditionally, this concept has been centred around either the payment of financial compensation to the victim, fines imposed on the wrongdoer, or both. Whilst undoubtedly effective in some cases, relying solely on such remedies may be too simplistic: fines may be insufficient to incentivize companies to change offending practices, and a one-off payment of damages to the victim may not adequately reflect the scale of harm or suffice to prevent further wrongdoing. Furthermore, such fines and compensatory measures are typically only imposed by regulators and courts on the offending companies, contributing to the idea that remediation is out of investors' hands or something that need only be dealt with reactively.

However in recent years, the concept of remediation has expanded significantly to capture forward-thinking remediation, by means of prevention, as well as other more creative remedies intended to address the alleged harm. This includes measures which go beyond simply addressing the immediate issue, and which are intended to help "plug the gap" left by the traditional, punitive measures which may not adequately address the need for change.

As such, while being mindful of the need to avoid inadvertently increasing their risk of liability for harm, investors would be well placed to consider exploring the concept of remediation in a more creative way, including by using their leverage to pressure the investee company to provide more adequate and tailored remedies which have a longer-term focus.

Depending on the nature of the harm in question, such remedies may include apologies, rehabilitation assistance through counselling services, immigration support, temporary housing and other bespoke measures agreed to by the relevant parties. Future harm can be prevented through the development of corrective action plans with clear timelines and enforceable targets. For example, if a company's operations have caused damage to local communities, remediation might involve not only ceasing the harmful activities in question and compensating victims, but implementing new protocols, improving systems and/or taking specific measures to help ensure the issues don't reoccur.

If a business does not know about a harm, it cannot remedy it.  Whistleblowing or "speak up" procedures play a key role in allowing for the detection and reporting of human rights abuses, and are indeed legally required under a number of different disclosure jurisdictions. For example, in the EU all organisations with over 50 employees are required to establish confidential internal reporting channels. In addition, UK financial services firms are subject to specific whistleblowing obligations under the rules of the Prudential Regulation Authority and the Financial Conduct Authority, particularly within the Senior Managers and Certification Regime. Investors typically place the onus on the investee company to establish these mechanisms independently, the benefit of which means investors may avoid assuming legal liability in respect of harm. However, greater involvement in shaping whistleblowing or speak-up policies and mechanisms offers investors more control and oversight over remediation. This may also pressure the investee company to take the plans more seriously.

Policies should be clear and accessible, and as far as possible should provide detail to the whistleblower on how the complaint will be received and handled, how an investigation might work and the protections and support available to whistleblowers. This is beneficial in many ways: if reporting is made easier, the hope is that victims and whistleblowers will more readily come forward to identify abuses, allowing companies to address any issues at an earlier stage. Codifying policies also helps companies to create processes that focus their attention on key issues, such as sexual harassment and workplace bullying, and more clearly delineate internal responsibilities for compliance and monitoring.  At the same time, care must be taken when drafting such policies in order to avoid giving rise to liability for harm on the part of investors (as explained further below).

Operational-level grievance mechanisms ("OGMs") may also be considered to help allow employees, individuals and local communities affected by an organisation's activities raise concerns and seek remediation, where appropriate. Whilst these will typically be company-led, other stakeholders (including investors) may be included in their design and implementation.  As with the drafting of policies, OGMs must be carefully designed to avoid inadvertently giving rise to liability for harm on the part of investors.

Further than just speak-up mechanisms for reporting abuses in a whistleblowing context, the Organisation for Economic Co-operation and Development (the "OECD") recommends that reporting channels are established for asset owners and managers to report any actual or potential grievances in investee companies to stakeholders and investors. Investors will need to consider carefully whether this is appropriate in the context of their own investments, given the potential risks of doing so.  However, such channels can be useful in encouraging transparent practices and honest communication between stakeholders, which are vital in the fight to remove modern slavery abuses in supply chains.

The main power that investors have to effect change in investee companies is through using their leverage to influence practices and decisions. Where appropriate, this may include playing a role in ensuring that the investee company identifies and remediates human rights abuses, whether the investor is technically expected to do so (by the UNGPs as set out above) or not.

Investors can harness their "soft power" to hold investee companies accountable, for example through voting decisions, by actively following up on their commitments to policies, raising questions at AGMs and escalating where the promised action has not happened. Another key focus for investors wishing to use their leverage is to collaborate with other stakeholders on an industry-wide level to put pressure on harmful behaviours and practices.

In addition to using such soft power, investors may also have the ability under existing legislation to sue public listed investee companies for false or misleading statements made, particularly through the UK's Financial Services and Markets Act 2000 ("FSMA"). Sections 90 and 90A of FSMA allow investors to claim compensation for losses resulting from misleading or false statements, dishonest delays in disclosing information or failures to disclose information in certain published information made by issuers of securities. A high-profile recent example is a claim brought by a group of institutional investors against Boohoo plc. The investors claim that they suffered losses of over £100 million as a result of a drop in Boohoo's share price caused by media reports concerning its allegedly unlawful and unethical labour practices.

Such legislation sits against a backdrop of a growing body of laws addressing companies making misleading claims, including vague or unsubstantiated green claims. The UK's Competition and Markets Authority ("CMA") and consumer protection laws such as the Consumer Protection from Unfair Trading Regulations 2008 (updated in April 2025) specifically address greenwashing, with the CMA's "Green Claims Code" outlining the guidelines businesses must follow when making environmental claims to prevent misleading consumers. The CMA's enforcement powers have also been strengthened to increase potential fines imposed (by up to 10% of global turnover for misleading environmental claims), and its ability to pursue legal action against offending companies.

Ultimately, the final string to an investor's bow is the ability to divest. However, as reiterated by the Guidance, this should be a last resort and only used where there are no prospects of effective remediation. This is because, through divestment, investors lose their power to influence a company's policies and decision making, with evidence suggesting that divestment's financial impact on companies is not substantial enough to bring about major changes in their behaviour. If divestment is necessary, it should be accompanied with considered reasoning for the divestment decision, to help bring the issue to light amongst the wider market and encourage action on behalf of other investors, stakeholders and governments. Where divesting, investors would be wise to consider the severity of negative human rights outcomes and the human rights consequence of divesting. Please see the UNPRI's Guidance on "Why and How Investors Should Act on Human Rights" for further considerations in respect of both investment and divestment decisions.

As outlined above, investors may be obliged in some circumstances to take steps to identify and remediate harm within their investee and portfolio companies.  Even where no such obligation arises, there may nonetheless be benefits to investors in such efforts.  However, investors should also be aware that involvement in the remediation efforts of investee and portfolio companies may give rise to substantial risks, which must be balanced against any potential benefits. 

The English Courts have recognised that parent companies domiciled in England may owe a direct duty of care to a claimant who has been harmed by the actions of a subsidiary, or the actions of an entity within the English entity's broader value chain.  Whether such a duty arises will depend on the extent to which the English entity has assumed (or held itself out as having assumed) supervision and control over the relevant activity that led to the harm.  In some cases, parent companies may assume such liability merely by promulgating group-wide policies in respect of the relevant activity.  See our related article on "Supermarket and retailer litigation risk: Claimants using novel Value Chain Liability concepts to target household names" for further information.

The duty of care in such instances arises on the basis of established principles, and is not a distinct category of negligence applying only to parent companies.  These principles are, in appropriate circumstances, equally applicable to investors in respect of the activities of their investee or portfolio companies.  It follows that an investor that assumes (or holds itself out as having assumed) control over relevant activities of its investee or portfolio companies – including in respect of efforts to prevent or remediate modern slavery or human rights abuses – may also inadvertently assume, or be taken to have conceded, liability for harm caused by those activities. 

The form of remediation efforts that is ultimately adopted – e.g. a compensation scheme or formal apology – will not be determinative of whether the investor has assumed or conceded liability for harm.  The relevant consideration is whether the investor has through its actions assumed (or held itself out as having assumed) control over the relevant activity that led to the harm.     

It is therefore important for investors to understand which actual and potential human rights and environmental harms they are connected to through their investments, and whether that may expose them to liability for that harm. This will help determine what role (if any) they should play in facilitating or supporting attempts to prevent or remediate that harm, and how that may be balanced against the risks of doing so.

Of course, remediation efforts may have substantial benefits to both investors and investees, particularly if it allows them to generate valuable goodwill or address at an early stage claims that may otherwise require protracted and costly litigation.  However, those benefits must be carefully considered against the risks posed to investors by involvement in such efforts.   

It's clear that remediation need not solely be reserved for investee companies. Yet whilst an investor's capital and ability to influence investee company decisions has the power to effect positive change, this leverage should be exercised with caution. As discussed, the more involved an investor is in its investee company's governance or operations, the higher the risk that they may also be linked to (and or found liable for) its wrongdoings.  Where investors do attempt to effect positive change, a failure to prevent and adequately remediate serious human rights impacts could result in substantial claims for compensation or even criminal penalties for the investee company, depending on the nature of the breach.

Investors who do wish to exert influence over remediation policies may choose to explore innovative and tangible ways to help support victims and address wrongdoing. Co-operation and communication between investors, stakeholders and investee companies are often key in preventing future violations. Ultimately, investors concerned with the potential wrongdoings of investee companies will need to strike a delicate balance between helping in a positive way without assuming liability for the wrongs and/or creating further potential harm through divestment.