Why do we need a new corporate accountability law?
Negative human rights and environmental impacts are embedded in the supply chains of UK businesses in multiple sectors, public procurement and the value chains of the UK financial sector. These impacts include harms to workers, including dangerous working conditions and the repression of trade unions, impacts on women, indigenous peoples, human rights defenders and local communities – such as land and resource grabs, violent attacks and discrimination – and a wide range of environmental and climate harms, including toxic pollution, deforestation and biodiversity loss.
People and communities affected by corporate abuse often face long and difficult struggles for justice, exacerbated by the political and economic power wielded by corporations, bad purchasing practices and complex corporate structures that enable companies to evade accountability. Victims of corporate abuse deserve access to justice in the countries where companies and financial institutions are incorporated, and where profits are mostly distributed.
Voluntary “CSR” initiatives fail to prevent harm – without strong laws, only a minority of very well-intentioned companies, or those facing consumer scrutiny, decide to invest in improving their performance. There are no laws in the UK to hold companies accountable for their supply chain impacts (both in the UK and overseas) – which disproportionally affect people in the Global South.
What are we calling for?
We are calling for UK legislation to create a “failure to prevent” mechanism for corporate human rights abuses, modelled on the duties to prevent tax evasion and bribery found in the Criminal Finances Act 2017 and the Bribery Act 2010. This model has been found legally feasible by the British Institute of International and Comparative Law.
A “failure to prevent” law would incentivise companies to take action to prevent abuse from happening, and hold companies accountable if they failed to do so.
Our coalition has released the principle elements of the law we are calling for in the UK.
What would companies have to do?
Under this law, companies would have to take action to prevent human rights abuses and environmental harm in, or arising from, their global products, services, operations, investments, and value chain – through carrying out human rights and environmental due diligence and achieving positive outcomes.
This would include adopting policies and procedures to identify and assess impacts and potential impacts, putting in place measures to address them (including actions such as prevention, mitigation and remedy for victims), monitoring these actions to ensure they are effective and communicating these to rightsholders and the general public.
Due diligence should take into account all internationally recognised human rights, as set out in international human rights law, and account for specific impacts on particular groups, including women, children, indigenous peoples, migrants, smallholders and land, human rights and environmental defenders.
What would happen if a company failed to prevent harms?
Companies could be held liable in a UK court for harm, loss and damage arising from their failure to prevent harmful impacts. Evidence that they’d put in place due diligence to mitigate and prevent harm could form part of their defence.
The law would help to alleviate some of the obstacles faced by victims when they seek remedy (such as compensation), as it would make it more straightforward to establish a UK company’s liability, and that of subsidiaries and suppliers, for human rights abuses and environmental damage which they have caused, contributed or are directly linked to.
There could also be criminal penalties for corporate involvement in gross human rights abuses.
Who would the law apply to?
The new law should cover companies in all sectors and of all sizes carrying out business in the UK. SMEs would be in scope because they also produce and source commodities that result in human rights and environmental harms, through their obligations may be proportionate according to their size, sector and the severity of impacts.
Those who actively receive material benefit from abuses should be captured by the legislation. The law could include financial institutions who facilitate human rights abuses as well as investors.
The requirement to conduct due diligence should include public sector bodies (including government departments, local authorities, and bodies such as export credit agencies).
We already have the Modern Slavery Act – do we need a new corporate accountability law?
The S.54 Transparency in Supply Chains (TISC) provision of the Modern Slavery Act is limited to “modern slavery” and doesn’t require businesses to take action to address risks and impacts; nor does it hold businesses accountable when they fail to prevent abuse from happening.
While many companies report on their risks and impacts on human rights, few are actually taking action to address them. The independent review of the Act recognised that an estimated 40% of eligible companies are not complying with the legislation at all. Those who do, are offering little substance and detail.
UK company Boohoo had abusive working conditions in its supply chain, but the company was fully compliant with the Modern Slavery Act – even though it may have breached the UN Guiding Principles on Business and Human Rights. Under our proposed law, which would give the UNGPs “force of law” in the UK, Boohoo could have been found liable for the abusive working conditions in their supply chain. This has been confirmed in a legal review by Blackstone Chambers.
The Business, Human Rights and Environment Act our coalition is calling for is a broader and better approach covering all human rights abuses and negative environmental impacts, as set out in the OECD Guidelines for Multinational Enterprises.
The Government has introduced mandatory due diligence for deforestation risk commodities – why do we still need a new law?
Schedule 17 of the UK’s Environment Act covers the use of forest risk commodities in commercial activities. It sets out ‘environmental due diligence’ to tackle ‘illegal’ deforestation.
To strengthen the Environment Act, it would be necessary to recognise that human rights and the environment are inextricably linked and need to be addressed simultaneously. Our coalition has consistently called for all internationally recognised human rights, including those of indigenous peoples and other forest-dependent communities to be included, as well as inclusion of a wider spectrum of environmental impacts, including ‘legal’ deforestation, in primary and secondary legislation.
Our coalition is calling for a stronger law that is more aligned with the UN Guiding Principles on Business and Human Rights which covers all negative human rights impacts in all sectors and which makes clear that businesses, financial institutions and public bodies must respect human rights as well as environmental harms. Such a law would require companies and financial institutions to undertake a combined human rights and environmental due diligence approach which is aligned with the recommendation by The Global Resource Initiative Taskforce, a multi-stakeholder group including NGOs, businesses and investors, convened by the UK Government.
Who supports legislation in the UK?
In 2017 the UK’s Joint Committee on Human Rights called for legislation that placed a duty of care on companies to respect human rights across their supply chains. Both the Labour Party and the Liberal Democrats supported provisions on mandatory due diligence in their 2019 General Election manifestos.
The Global Resource Initiative Taskforce has recommended the “urgent introduction” of a mandatory due diligence obligation covering both human rights and environmental risks and impacts.
Tens of thousands of people across the UK have signed the petition to call for a new law that will protect people’s human rights and the environment.
Many businesses support new legislation due to anticipated benefits including legal certainty and a level playing field. Businesses, including those operating in the UK (including Tesco, John Lewis, Microsoft, Nestlé, ASOS and Primark) support the introduction of human rights and environmental due diligence legislation in the UK and in Europe. International investors worth more than $6 trillion in assets have reaffirmed their call for mandatory due diligence legislation in Europe.
Corporate accountability legislation has been introduced in France (‘The Corporate Duty of Vigilance’), in Switzerland (‘Human Rights Due Diligence Legislation’) in Germany (‘The Supply Chain Due Diligence Act’) and in Norway (‘The Transparency Act’). Similar laws are on the agenda in several other countries – including the Netherlands, Belgium, Austria, Finland and Luxembourg– and in the EU itself.
The EU has tabled similar legislation – what does this mean for a post-Brexit UK?
The European Commission’s legislative proposal (‘The Corporate Sustainability Due Diligence Directive’) applies to companies in scope operating in the single market – this includes certain UK businesses, regardless of whether there is a trade agreement in place.
UK companies that fall into scope are those with €150 million turnover generated in the Union (Group 1) and those from high-risk sectors with €40 million turnover generated in the EU (Group 2).
High-risk sectors have been based on the existence of sectoral OECD guidance and includes the following sectors: garment and footwear, minerals, agriculture and extractives.
Failure to keep step with the EU on this issue puts UK business operating on the EU’s single market at a competitive disadvantage and creates a confusing patchwork of requirements – as not all UK companies will be covered by the EU law.
Failure to keep step also puts the UK on the back foot on business and human rights. But by moving ahead with a new law, the UK could help to shape global requirements for companies.