Responsible business conduct soon non-optional

due diligence impact finance green & social human rights

Due diligence is here to stay. Conducting due diligence in order to 'identify, prevent or mitigate and account for how actual and potential adverse impacts are addressed' will only become more relevant in the coming years. More and more companies are starting to care and pay closer attention to the people involved or affected by their value chains. Impacted victims are looking for better access to justice. And governments are taking measures to protect victims, markets and consumers from human rights and environmental abuses happening in global value chains.

The EU is making quick progress with its Due Diligence Directive and, more recently, the European Commission proposed a Regulation to counter products linked to Forced Labour.

Creating incentives and knowledge At the recent OECD Forum on Due Diligence in the Garment and Footwear Sector, it became clear that although companies are aware of human rights violations, too many still lack the incentives or knowledge to properly pay attention to these risks in their value chains. For instance, one of the sessions at the OECD Forum touched upon the topic of child labour risks in the global operations and value chains of the textile Industry. In that case, scrutiny is often limited to their first-tier relations, while it should focus as deep into their value chain as where violations happen in sectors such as the extraction of raw minerals, harvesting agricultural raw materials and through sub-contracting.

Human rights frameworks The framework of human rights also covers more than companies may expect. Besides forced labour and child labour, human rights such as the right to an adequate standard of living, living wages and living income, bring their own challenges. However, these are essential to address the root causes of poverty and prevent a scala of other human right and environmental abuses further down the line.

EU's CS3D This is why the upcoming EU Corporate Sustainability Due Diligence Directive (CS3D) is essential to move away from a voluntary approach. This new EU Directive will bring clarity, raise the level-playing field around the concept of human rights and environmental due diligence. On the other hand, companies will need some time to implement their due diligence policies and receive support based on support and a series of guidelines which the Commission will draft, in consultation with Member States, business sectors, social partners and other relevant stakeholders. To ensure compliance the CS3D is introducing provisions on penalties and civil liability. If non-compliance has been causing or contributing to adverse impacts, the companies can be made liable for the generated damages to victims.

New due diligence legislation in sight The CS3D is now in its final stage of negotiation within the European Parliament. The work on the proposed the Forced Labour Ban has started more recently, which should provide a strict restriction on products made with forced labour by applying 'appropriate due diligence' efforts. Once adopted, these two legislations in the coming years may prove to be game-changers in terms of national and international responsible business conduct, in many sectors worldwide.

Responsible business conduct is not optional More than a decade ago, we witnessed the introduction of the UNGPs and OECD’s Guidelines on human rights and environmental due diligences. Although these are supported by the international community, they remain voluntary. They have set the fundaments, but failed to provide justice for all victims against corporate abuse. Irresponsible business conduct is still daily business, unfortunately. The CS3D and the Forced Labour Ban should change that.

According to the 2020 study for the European Commission, only 16% of the companies surveyed carried human rights due diligence throughout their whole value chain.

AxHA actively advocated for this EU legislation and helps clients to understand its practical implications.


Updates: On June 1, 2023, the European Parliament adopted its final report and entered in negotations with the Council. On December 14, 2023, Council and Parliament achieved a provisional deal regarding the CS3D

_Photo by Clay Banks on Unsplash_

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