This week, the 12th UN Forum on Business and Human Rights took place in Geneva, from 27-29 November 2023. Over 2,000 participants from government, business, investor organisations, civil society, UN bodies and human rights institutions came together to discuss trends and challenges in the private sector response to human rights issues. Here, Principal Associate Marlen Vesper-Graeske and Associate Liz Forster from our Global Business and Human Rights Group offer their key takeaways from the Forum.

More regulation, more enforcement

Human rights have leaped to the top of the ESG agenda for many multinational enterprises. One reason for this is the growing body of new legislation in Europe, such as the German Supply Chain Act (or LkSG) and EU Corporate Sustainability Due Diligence Directive (CSDDD), that require certain companies to take tangible steps to identify, mitigate and address the human rights impacts of their operations. Similar legislation has been introduced in Norway and is being debated in others, including the Netherlands and the UK. Much of this legislation is based on the UN Guiding Principles (which Freshfields helped to develop).

Compared to earlier ‘reporting’ legislation (such as the UK Modern Slavery Act), the new legislation carries significant sanctions for non-compliance. In Germany, for example, the Federal Office for Economic Affairs and Export Control (BAFA) has broad discretion to investigate allegations of non-compliance. It was clear from some of the conversations at the Forum that civil society groups and rightsholders intend to make good use of these enforcement mechanisms (indeed, such complaints are already being made).

Due to the breadth of the legislation and the penalties for non-compliance, its impact will be felt not only by companies falling directly within its scope, but also the companies they do business with, particularly those operating in higher risk sectors such as textiles or extractives.

Increased focus on due diligence measures and grievance mechanisms

One of the most common questions raised at the Forum was on how businesses can ensure that risk mitigation measures actually reduce the risk of human rights violations occurring. This question is not only relevant for rightsholders: the reputational, operational and legal repercussions of human rights abuses increasingly propel them onto the corporate “enterprise risk” radar.

Ensuring the effectiveness of due diligence and mitigation measures is extremely challenging, particularly for multinationals with complex global supply chains. As one speaker commented, it is practically impossible to carry out thorough social audits in certain parts of the world, particularly in conflict zones and/or areas where there is a heavy police or military presence. Most large multinationals now require their main suppliers and business partners to comply with human rights policies and codes of conduct. However, monitoring compliance with these requirements takes significant time and resources and, even then, verification can be imperfect.

Technology may help companies to address these challenges. Some companies have started using blockchain to help identify the source of raw materials, for example, while others use AI and data from workers’ mobile phones to identify forced labour and/or verify social audits (see examples here and here). Another important role for companies is capacity building, which may entail engagement with key suppliers about human rights issues, training for those in high-risk sectors, and guidance on how good human rights practices can be aligned with commercial KPIs or price requirements.

Many companies have also now established grievance mechanisms. However, it was clear during the Forum that both rightsholders and companies are facing difficulties in how to implement these in practice. Careful thought must be given to the design of grievance mechanisms: what parameters do companies have in place to ensure that valid concerns can be identified and escalated quickly and effectively? How will a company decide when to take responsibility for an alleged violation? And when determining an appropriate remedy, is adequate thought given to the cultural and socioeconomic context, to ensure that remedies do not themselves have negative repercussions?

Role of the financial sector

It is not always clear what role financial institutions or investors should play in addressing human rights risks and whether they are in line for due diligence or reporting legislation. There is scope for interpretation (and confusion) as to whether they must comply the LkSG, for example, and a key point of debate on the CSDDD is whether it will apply to the financial sector.

Irrespective of the legislation, there is increasing pressure on financial institutions and investors to take steps to address adverse human rights impacts that are directly or indirectly linked to their products, services or business relationships. Benchmarks such as BankTrack are shining a spotlight on commercial banks and, in jurisdictions such as France, financial institutions are facing legal challenges relating to their alleged involvement in human rights violations.

Some financial institutions and investors are responding to this pressure by establishing human rights due diligence procedures and grievance mechanisms and using their leverage to encourage corporate clients to do the same. The UN Working Group on Business and Human Rights is expected to publish a report in June 2024 on how this can be done effectively.

Legally binding instrument on business and human rights

Several weeks before the UN Forum, representatives from states and human rights groups met in Geneva to negotiate the UN Intergovernmental Working Group’s updated draft of a legally binding instrument on business and human rights. The object of this instrument is to regulate, in international law, the activities of multinational organisations and other business enterprises with respect to human rights.

The current draft of the treaty – which signatory states would need to incorporate into domestic law – would require companies to undertake human rights due diligence in respect of all their business activities and would impose sanctions where they have caused or contributed to human rights abuses. In many jurisdictions, the treaty has therefore been overtaken by the legislation highlighted above, and representatives from jurisdictions like Germany and the EU are keen to ensure the treaty aligns with laws like the LkSG and CSDDD. Consultations are ongoing, with a view to publishing a new draft of the treaty at the 55th meeting of the Human Rights Council in March 2024.