A new report from the NYU Stern Center for Business and Human Rights sheds light on the current failures in corporate accountability and calls for stronger regulatory frameworks and compliance assessments to ensure corporations respect human rights across global operations.

The report explores current regulatory efforts in the field of business and human rights and outlines best practices for ensuring measurable success and respect for due diligence rights.

According to NYU Stern approximately 50% of the world’s top 2,000 companies will be covered by the Corporate Sustainability Due Diligence Directive (CSDDD). This regulation will require companies to identify and address human rights risks within their operations as well as throughout their global supply chains.

But while the legislation is a “pivotal moment for corporate human rights accountability”, representing significant advancement over previous voluntary frameworks, more is needed, says NYU Stern, adding governments need to develop and enforce substantive performance standards and metrics by which corporate compliance should be assessed and companies held accountable.

While it provides several recommendations for governments to tighten up on regulatory requirements, it also points out companies can take steps to ensure compliance, should the law be made more stringent.

The report’s author Cecely Richard-Carvajal, said: “The shift from voluntary initiatives to mandatory regulations is a significant step forward in ensuring that corporations take meaningful action to address human rights risks. Now we need to develop more data and means for assessing corporate compliance and progress. Our report offers a roadmap for governments and businesses.”

What can companies do to ensure due diligence compliance?

1. Start preparing now for new due diligence legislation:

Companies need to start acting now including those who are not directly covered by proposed legislation. Many companies will find themselves included indirectly as part of the supply chain of a larger company that is within the scope of new legislation. Even more importantly, the world is changing and in all likelihood companies who are not yet required to comply with this legislation now are likely to be brought within its scope in the foreseeable future. Companies should start by assessing their business models, mapping their supply chains and identifying gaps in their knowledge of their business operations and those of their core business partners. They should gather as much data as possible on their suppliers and assess their existing data-collection systems and processes. Where possible, they should identify the information that is currently missing in order to assess what is working and what is not. This mapping must extend beyond Tier 1.

2. Build robust internal systems: 

Companies should invest the time, money and resources to build the capacity necessary to integrate human rights into their corporate framework. A representative from the human rights team of a large food and beverage company told us how legislation provided an opportunity to improve their internal governance. The legislation enabled those already working on human rights within the company to get buy-in on human rights issues at a senior level of the company. Companies should hire personnel with human rights knowledge and expertise to help inform company decision making. They should have access to senior company executives to ensure that human rights challenges get the attention they deserve. Work on human rights needs to be integrated into all relevant parts of the business to ensure that human rights issues are not siloed. Particular attention should be given to improving collaboration and coordination between legal and compliance, supply chain sourcing, sustainability and human rights teams. Capacity building means training staff on the meaning of corporate human rights responsibility, including the specific human rights risks to a company in a particular industry. Training should extend to those in a company’s value chain (especially those throughout its core supply chain). By building the knowledge, expertise and capacity internally within a company, human rights will become part of the fabric of corporate decision-making going forward.

3. Prioritise risks and focus on outcomes

Companies cannot be expected to solve all human rights issues in their supply chains as there are no “risk-free” supply chains. What the CSDDD and other new regulatory provisions do require is for companies to take measures to identify, mitigate and prevent these risks. Companies often feel they need to do everything all at once, but this is not the best way forward. Companies can and should prioritise risks (and the UNGPs allow this). Companies should identify those risks looking at their entire supply chains, not only Tier 1 suppliers. After choosing where to focus, companies should focus on reforms that are likely to result in improved outcomes which they themselves measure. All these processes should be examined through the lens of performance. Merely having a “process” often does not correlate with improved outcomes.

4. Engage openly with government

Companies should engage with appropriate government officials. Where their obligations are unclear, government representatives often can clarify expectations. Companies should seek to maintain an open and candid dialogue with regulators. Addressing human rights risks will often be complicated. Addressing these challenges responsibly and appropriately will take time. Therefore, it is necessary for companies to be transparent and frank with regulators about the risks they face and the steps they are taking to address them.

5. Engage meaningfully with stakeholders

Companies should take the time to develop a meaningful stakeholder engagement plan. This starts by determining who are the relevant stakeholders. Stakeholders can take a range of different forms — suppliers, workers, trade union leaders, community organisers, academic experts and religious leaders. This engagement should be undertaken before big decisions are made. Companies should seek to engage with stakeholders substantively, including by asking specific and targeted questions. Generic questionnaires on human rights will not suffice. Companies should work with suppliers with a view toward pursuing a model of shared responsibility, where buyers, suppliers, governments, intergovernmental agencies and philanthropic agencies work together to fund needed changes. Companies should consider supplier capacity and adopt responsible purchasing practices. For engagement to be meaningful, findings from stakeholder consultation should inform a company’s human rights approach and lead to change. Benchmarking organisations have shown that in the past this often has not been the case.

Earlier this year, Just Style explored how the apparel sector is affected by the CSDDD and what companies should do to prepare their corporate due diligence programmes.