The Patchwork of Human Rights Due Diligence Regulations

Introduction

International labour Organisation estimates that there are 50 million people trapped in modern slavery. This is more slaves than at any point in the history of humankind. Jurisdictions worldwide are developing human rights due diligence regulations to address this global challenge. However, the landscape is fragmented, with varying approaches across different regions. As business remains a key stakeholder in driving the change, it needs to respect the core human rights principles and follow specific regulations. The fragmented landscape, however, is creating complexity for global corporations. What is more, we have been experiencing recently how swiftly the landscape can change and how geopolitics impact the regulations. Those fast changes and fragmented solutions often times leave the business in paralysis, preventing it from investing in large corporate programs and deciding on the course of action that will be relevant in the long term. 

This article summarises key insights from a recent Ground Truth Intelligence (GTI) webinar featuring experts in the field of human rights due diligence. The discussion focused on the evolving regulatory frameworks in Europe, Japan, and the United States. Irmela Mysen, Specialist Partner at BAHR , Ayumi Fukuhara, Partner at Nagashima Ohno & Tsunematsu and Meriam Nazih Al-Rashid, Partner & US Head of BHR and ESG at Evershed Sutherland shared not only the most recent legal updates but also practical advice for business.  

The European Approach: From Voluntary Guidelines to Hard Law

Similarly, as in other regions, the foundation for the European regulations lies in the UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises. These frameworks, set out expectations for businesses to respect human rights in their operations and supply chains. However, the voluntary nature of these guidelines led to concerns about their effectiveness in driving meaningful change. The evaluations in the late 2010s revealed that business-related human rights abuses remained a significant issue, prompting legislators to consider regulatory requirements with potential sanctions for non-compliance.

Omnibus discussions in the EU

“I cannot foresee that the core principles in the UN Guiding principles and in the OECD guidelines are going to disappear in the regulatory frameworks. (…) there is a limit to what is going to change.” Irmela Mysen

The European Union has since been actively developing its regulatory framework for human rights due diligence. The Corporate Sustainability Reporting Directive (CSRD), which came into effect in 2022, requires approximately 50,000 companies to include sustainability reporting, including information on human rights due diligence, in their management reports.In addition, the Corporate Sustainability Due Diligence Directive (CSDDD) aims to align with the OECD guidelines and establish a six-step process for identifying, preventing, and mitigating human rights risks in companies’ operations and supply chains.

Despite the very recent introductions of these regulations, we are already facing a potential shift towards a “softer law” approach in the EU, with discussions around simplifying the CSRD, CSDDD, and taxonomy regulations. The discussions around omnibus – simplified and potentially watered-down requirements create yet another unknown for compliance practitioners. It remains to be seen if the planned simplification impacts mainly the excessive reporting burdens, or also the substantive due diligence efforts.

Norway’s Pioneering Transparency Act

Ahead of the game, Norway took an early lead with the implementation of the Transparency Act in 2022. This law codifies the OECD’s six-step due diligence process, requiring companies to:

• Understand and assess human rights risks in their operations and supply chains
• Implement measures to mitigate those risks
• Communicate their efforts transparently

A unique aspect of Norwegian law is the right of any third party to request information from a company about its human rights due diligence processes and how it addresses specific risks. Companies are legally obliged to respond to such requests, promoting transparency and accountability.

Japan’s Guidelines-Based Approach

The combination of international regulatory pressure, market expectations and growing corporate awareness may compensate for the lack of strict legal mandates in the short term.” Ayumi Fukuhara

Unlike Europe, Japan does not currently have obligatory human rights due diligence laws. The Japanese government created guidelines on human rights due diligence in 2022. This reflects a growing recognition of the importance of responsible business conduct. The guidelines are not legally binding, but they provide a strong reference point and a framework for Japanese companies to identify and address human rights risks in their operations and supply chains. Many Japanese companies are already taking steps to implement human rights due diligence. Those initiatives are introduced on the basis of the growing awareness of this topic among the business community, but also by the customer expectations, investor pressure, and a desire to align with international best practices.

The US – The Ever-Changing Landscape  

The United States has long relied on a “soft law” approach to human rights, emphasizing guidelines and principles over binding regulations. However, recent initiatives signal a shift toward more enforceable measures. The Uyghur Forced Labor Prevention Act (UFLPA) exemplifies this change, imposing a blanket ban on imports from Xinjiang unless clear evidence proves the absence of forced labor, bypassing traditional risk assessments. Additionally, the updated 2024 National Action Plan on Responsible Business Conduct outlines a comprehensive framework for promoting ethical business practices, focusing on areas like workers’ rights, anti-corruption, and environmental sustainability. Despite these advancements, concerns persist about the future direction of human rights regulations, particularly amid shifting priorities under the current administration. The evolving U.S. landscape reflects a balancing act between maintaining flexible soft law principles and implementing robust regulatory frameworks to address global human rights challenges effectively.

The Reasons Behind Different Global Regulations

The separation in global regulatory approaches—whether soft or hard—can often be traced to a variety of socio-political factors. These include cultural and historical influences, the value placed on individual rights, considerations for workers’ welfare, and differing attitudes toward capitalism. For instance, Norway exemplifies how cultural factors shape regulation. With a long history of strong political support for the working class, Norwegian society places significant importance on the fair treatment of workers, viewing poor labor conditions as fundamentally unjust.

Geopolitical factors also play a critical role in shaping regional regulatory strategies. Japanese companies, for example, often operate in both the U.S. and China, requiring them to navigate a delicate balance between these two economic powerhouses. Japan’s cautious regulatory stance may also stem from its cooperative relationship with Southeast Asia, emphasizing harmony and collaboration.

In Europe, geopolitics appears to be a driving force behind its recent response to the U.S. regulatory changes. The EU has framed initially the initiatives like the CSRD and CSDDD as competitive advantages. The same justification is now being used in the discussions of the omnibus regulations and the simplification of the above regulations. 

 “Morality cannot be legislated, but behavior can be regulated. Judicial decrees may not change the heart, but they can restrain the heartless.” Martin Luther King

Key Takeaways 

While the specific jurisdictional requirements and approaches may vary, the underlying principles remain consistent:

• Businesses have a responsibility to respect human rights in their operations and supply chains.
• The principles and key business guidelines are codified in the UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises
• Due diligence is essential for identifying, preventing, and mitigating human rights risks.
• Risk-based approach remains the golden standard 
• The perfect is the enemy of good – start small and improve as you go.  

As the regulatory landscape continues to evolve, it is essential for businesses to stay informed and adapt their due diligence practices accordingly. Ground Truth Intelligence (GTI) is committed to providing the resources and expertise needed to navigate this complex terrain and promote responsible business conduct worldwide.

• Learn more about GTI’s due diligence solutions
• Sign up for the upcoming webinars
• Contact us for a consultation to discuss your specific needs

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