And why do you need to start right now?
There is an urgency to incorporate human rights policy into your business operations, as stated by Yulia Levashova, Assistant professor at Nyenrode Business Universiteit. Besides a moral duty to take good care of your employees and ensure that your company respect human rights, it also makes a ‘good business sense.’ As a modern business leader, you do not want to be in the competitive disadvantage with other companies that already focus on sustainable business models and working on their human rights policies. Furthermore, as a business, you would like to avoid being involved in any lawsuits or suffer reputation damage because of any allegation of human rights abuse. Human rights-related lawsuits filed by non-governmental organizations (NGOs) against corporations have increased exponentially in recent years.
Additionally, the compliance of businesses with human rights is no longer a voluntary practice. Numerous authoritative international codes and guidelines specify Corporate Social Responsibility (CSR) obligations for companies. These include, for example, the Organization for Economic Cooperation and Development (OECD) Guidelines on Multinational Enterprises, the Ten Principles of the UN Global Compact and the 2011 UN Guiding Principles on Business and Human Rights.
Furthermore, European organisations, such as the EU and individual States are rapidly introducing mandatory rules for companies requiring them to comply with human rights by conducting due diligence and preparing reports on the social and environmental risks. In the EU and the Netherlands, the rules for mandatory human rights due diligence are currently in the process of adoption. Soon, most companies will be required to integrate human rights and environmental due diligence throughout their entire supply chain. The European Commission's proposal for a European Directive on Corporate Sustainability Due Diligence specify human rights and environmental due diligence obligations that will be imposed on companies and companies’ directors. The EU Taxonomy Regulation mandates financial market participants to publish on their websites information about their policies on the integration of ‘sustainability risks.’ Many European financial institutions require the human rights due diligence integrated in the business as a precondition for financing.
Next to the European and national legal developments, companies, which investing or trading abroad are expected to comply with the new CSR obligations under international law. Direct obligations imposed on foreign investors have emerged in recent International Investment Agreements (IIAs) that regulate the rights and obligations of foreign investors (companies operating abroad). An example is the Dutch Model Investment Agreement (2019), used to negotiate new IIAs between the Netherlands and third countries. Also see: Position Paper on the Dutch Model Investment Agreement: Coherence of policies – CSR as part of international investment treaties.
According to the Dutch Model Investment Agreement, investors are expected to conduct a due diligence process to identify, prevent, mitigate and account for its investment’s environmental and social risks and impacts. Furthermore, investors are required to follow domestic laws and regulations of the state in which they invest, including human rights, environmental protection, and labor laws. This means that a Dutch company operating abroad must follow national laws under the terms of an investment agreement concluded under this Model. Similarly, there is a trend in many developing economies toward prioritizing human and environmental rights. A few Latin American countries have enacted stringent environmental laws in order to effectively regulate liability for the environmental costs. On the African continent, some countries like Morocco introduced stricter environmental impact assessment rules for foreign companies operating on their territory.
The growing role of mandatory compliance with ESG issues requires rapid action from companies to stay competitive and socially responsible in a changing market. To achieve that, the business leaders should (i) gain knowledge about relevant human rights issues and (ii) integrate a human rights due diligence system throughout their supply chain in a timely manner.
Concerns about the environment, social issues, and governance (ESG) are altering the requirements for international businesses governed by international trade and investment rules. For any modern business leader, it is essential to get a comprehensible understanding of the key issues integrated under the umbrella of ESG that, among others include mandatory human rights due diligence; climate change-related regulatory risks; the requirements under the UN Guiding Principles and the OECD guidelines and sectoral agreements, human rights risks related to foreign direct investment, etc. Various pieces of training to get this knowledge are currently available for business leaders. For example, Nyenrode Business University offers short courses developed explicitly for companies’ executives that include an understanding of human rights standards and how they can be effectively integrated into business operations. Also, companies in the Netherlands can receive support in implementing an effective CSR policy by turning to a ‘one-stop shop’ mechanism developed by the Dutch government. The ‘one-stop shop’ provides information, knowledge exchange, and facilitation in setting up a due diligence process. The support centre’s key objective is to prevent service fragmentation and help mitigate regulatory pressures for companies.
Companies must comply with various CSR requirements and implement human rights due diligence in their supply chain. Adopting national and European CSR laws with the enforcement and a penalty system aims to create a level playing field between Dutch companies that already fulfil their duty of care and companies that still need to do so. Therefore, it is ‘business common sense’ to set up a due diligence process now in order to comply with the requirements that will be binding in the future.
It is advised to follow several vital steps laid down in the UNGPs and the OECD Guidelines in setting up an efficient HRDD system within the company:
KPMG and Nyenrode have set up the ESG Innovation Institute to help organisations make the transition to sustainability. Organisations can create added value in their business operations by balancing financial and economic results, transparency, social interests and the environment. We aim to make the latest ESG knowledge, skills and ecosystem accessible to executives who want to accelerate the route to sustainability in a professional and informed way.
Dr. Yulia Levashova is an Assistant professor at Nyenrode Business University. She is part of Nyenrode's Faculty Research Center for Entrepreneurship, Governance & Stewardship. Read her impact case ‘'Shifting towards sustainability of foreign direct investments' here.
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