When done responsibly, business can be a driving force for prosperity and inclusive economic development. Yet, far too often, companies in many different sectors harm people and planet in their operations or value chains.
Referencing the widely-accepted UN Guiding Principles on Business and Human Rights (UNGP), a growing number of investors are telling portfolio companies that they have a responsibility to respect human rights. They say the process of continuously conducting human rights due diligence is a core requirement for companies to fulfill that responsibility. The UNGP define human rights due diligence as an ongoing and iterative process to identify, prevent, mitigate, and account for how companies – and investors – address the most severe risks to people in connection with business activities.
Companies understand the concept of due diligence because this investigative process helps them identify financial risks associated with business transactions. Human rights due diligence builds on established risk management processes and shifts the focus of risk to people, recognizing that the most severe human rights risks inevitably carry with them material risks to business, including reputational harm, financial loss, and legal liabilities.
Unfortunately, studies show that voluntary corporate measures to implement due diligence do not sufficiently address abuse and remedy harm. The investment community is starting to understand that rigorous due diligence is good for businesses, investors, the economy, and the people it serves as detailed in The Investor Case for Mandated Human Rights Due Diligence. Investors representing over $6.3 trillion in assets under management and advisement signed a statement supporting mandatory human rights and environmental due diligence (mHREDD) legislation, which EU countries are now considering.
Investors and civil society groups worry that the proposed EU legislation will not require mHREDD throughout the entire corporate value chain even though evidence shows the worst social and environmental harm occurs close to production and raw materials sourcing. Although some government and business representatives argue mHREDD for the entire value chain is not feasible and would be too expensive, the Responsible Minerals Initiative (RMI) shows this argument is false. Companies can affordably implement due diligence with RMI’s responsible mineral sourcing tools and assurance programs. Similarly, home goods and clothing brands can participate in the YESS initiative, which is based on the OECD due diligence guidance and has taken lessons from RMI.
Investors are engaging with companies, so they will implement robust due diligence strategies. Shareholders have already begun to file resolutions asking their portfolio companies to undertake human rights due diligence, and human rights impact assessments are a first step in that process. Companies should heed the call. This will not only give them a head start to comply with looming mHREDD laws, but they also will contribute to global sustainability by preventing and mitigating the worst human rights and environmental harms.
Patricia Jurewicz
Founder and Chief Executive Officer, Responsible Sourcing Network
Rebecca DeWinter-Schmitt
Associate Program Director, Investor Alliance for Human Rights