A bill has begun its progress through the UK Parliament, with the potential to impose new human rights due diligence obligations on the businesses within its scope.
Sponsored by the crossbench peer Baroness Young of Hornsey, the “Commercial Organisations and Public Authorities Duty (Human Rights and Environment) Bill” received its first reading in the House of Lords on the 28th of November, with a second reading still to be announced.
Although laws of this kind are often reshaped significantly by their passage through the Palace of Westminster, we set out below three key implications arising from the Bill in its current form.
What would be required
Under the Bill, among other obligations, commercial organisations would be required to conduct “reasonable human rights and environmental due diligence” including, at a minimum:
- Integrating human rights due diligence into policies and management systems;
- Identifying, assessing and addressing actual or potential human rights and environmental harms, through prevention, mitigation and remediation;
- Establishing or participating in and maintaining effective grievance mechanisms;
- Tracking, verifying, monitoring, and assessing the effectiveness of these measures; and
- Conducting informed, meaningful, and safe engagement with stakeholders, particularly workers, affected rights-holders, and those defending human rights.
It also requires firms to report on the effectiveness of their due diligence activities in the previous financial year, as well as their due diligence activities planned for the coming financial year.
Who would be affected
The Bill defines “commercial organisations” as per the UK Bribery Act, i.e. bodies incorporated / partnerships formed under UK law and other bodies / partnerships carrying out business in the UK.
The specific requirement to report on these activities will apply to commercial organisations with an annual worldwide turnover at or exceeding an amount to be specified by the Secretary of State.
What happens if things go wrong
Where a commercial organisation fails to comply with its due diligence or reporting obligations, the Bill allows for a range of penalties including a fine extending to 10% of global turnover.
However, as we have seen with anti-corruption and tax-evasion laws, defences will be available for those organisations who can prove that they took “reasonable” steps to prevent harm.
What happens next
The Modern Slavery Act 2015, our most recent UK comparator, asked only that businesses report on steps taken to address modern slavery in their operations or supply chains.
In this context, the requirements above would represent a significant change of pace.
The rate of acceleration may be felt most significantly by the financial services sector, whose compliance with existing modern slavery requirements has recently become the subject of criticism.
Although it appears that the financial sector will be temporarily excluded from the full scope of the EU’s Corporate Sustainability Due Diligence Directive, developments like this show that there is still an appetite at the national level to legislate for higher human rights standards across the private sector as a whole.
Indeed, if we consider the recent developments in Germany, Norway and Switzerland, a trend emerges in which mandatory human rights due diligence appears to be becoming the norm.
Therefore, financial institutions seeking to improve their modern slavery reporting, in response to recent criticism, may need to set their sights further. Although its exact appearance will change as it progresses though our parliamentary system, the Commercial Organisations and Public Authorities Duty (Human Rights and Environment) Bill could easily represent the shape of things to come.
For more information on how we are helping financial services clients to meet the demands of developing human rights laws, please contact Simon Stiggear, Michael Pollitt, or Charlie Lewis-Orr.
