No Need to Reinvent Wheels: Drafting Meaningful Human Rights Due Diligence through Model Suggested Supply Chain Contract Clauses

The American Bar Association (ABA) is the largest voluntary association of lawyers and law students in the U.S. and the world. It was the first national bar association to have formally endorsed the 2011 UN Guiding Principles on Business and Human Rights (UNGPs) and has made the elimination of modern slavery and child labor in supply chains a signature goal. I have been an ABA member for many years, starting as a former corporate lawyer who worked for a large multinational company, and continuing when I moved to the field of business and human rights. 

I am therefore happy to report that in March of 2021, a Working Group of the ABA Business Law Section published its Model Contract Clauses to Protect Workers in International Supply Chains (Model Clauses). This version offers contract lawyers the opportunity to use contract language that would explicitly operationalize human rights due diligence in supply chain contracts, in order to make clear that abuses of workers’ rights occurring in global supply chains is a shared responsibility of buyers and suppliers. Group 33 Created with Sketch. (The Model Clauses are for informational purposes, do not constitute legal advice and are not official ABA policy.)  

This version offers contract lawyers the opportunity to use contract language that would explicitly operationalize human rights due diligence in supply chain contracts, in order to make clear that abuses of workers’ rights occurring in global supply chains is a shared responsibility of buyers and sellers.

The traditional approach of buyers’ legal counsel towards the problem of human rights issues in business supply chains has often been to shift most responsibility to suppliers. This resulted in the creation of supply chain contracts that require suppliers to meet prescribed human rights standards (often in the form of boilerplate codes of conduct for suppliers), breach of which could entitle the buyer to the full range of contract remedies (including damages, rejection or resale of the goods, termination of the contract, and indemnification), whether or not the buyer’s own decisions or actions contributed to the breach. 

This is sometimes referred to as a “top-down compliance” approach because it is based on representations and warranties of performance that the supplier must adhere to in the contract. However, this approach is in tension with human rights due diligence under the UNGPs, which provide that since buyers can contribute to human rights impacts by suppliers (e.g., by repeatedly making last-minute quantity and design changes without due consideration of the potential impact on workers, as suppliers scramble to meet those changes), they should share responsibility for addressing the impacts. Group 33 Created with Sketch. (In addition, even where the buyer does not cause or contribute to the impact, it should exercise or try to build its leverage to prevent the impact where it is directly linked to the buyer’s goods or services.)  

Not only is such an approach problematic under the UNGPs, but substantial research has shown that it is not effective to improve supply chain human rights performance; i.e., it often ignores the root causes of human rights abuse, and does not prevent its recurrence. By failing to do so, a top down compliance approach can perversely encourage suppliers with low margins and inadequate financial and managerial capacity to meet contractual human rights standards to cheat, in order to keep the customer’s business.  This approach by buyers has sometimes been called “paying for a bus ticket expecting to fly.”

A top down compliance approach can perversely encourage suppliers with low margins and inadequate financial and managerial capacity to meet contractual human rights standards to cheat, in order to keep the customer’s business. 

The Model Clauses seek to address this problem by shifting from a top-down compliance approach to a human rights due diligence approach. A key driver for the changed draft is the need to prepare lawyers to be able to align their clients’ contracts with the likely enactment of mandatory human rights due diligence legislation in the EU, which will affect US companies that do business in the EU.

The Model Clauses are not intended to be a binding standard. It is suggestive only, and does not constitute legal advice. It is not official ABA policy. Rather, it is aimed at buyers who truly want to align their supply chain contracts with the UNGPs, but don’t yet know quite how to do so. As opposed to reinventing the wheel, the Model Clauses provide a suggested model for doing so. 

Multistakeholder Consultation: The Model Clauses are the product of extensive research and consultation with a wide variety of different types of lawyers in the ABA, including commercial, business, and human rights lawyers. The Working Group also solicited wide input from civil society and businesses.  Its goal was to develop contract language that is practical, reasonable and readily operationalized. 

The Model Clauses incorporate changes in two key areas, which I discuss below:

  1. Moving to a Human Rights Due Diligence Regime

First, the Model Clauses explicitly incorporate language that would require buyers and suppliers to perform the contract in accordance with the human rights due diligence provisions of the UNGPs. The suggested language would flow this responsibility through the entire supply chain. It would make clear that seeking to prevent human rights impacts in the supply chain is a shared responsibility of buyers and suppliers at all supply chain levels. 

  1. Shared Responsibility to Understand and Remedy Human Rights Impacts.

Second, the Model Clauses would recognize the shared responsibility of buyer and supplier to remedy human rights impacts. It would oblige the suppler to have in place adequately funded and governed nonjudicial operational level grievances mechanisms, and to develop and implement a plan to remedy adverse human rights impacts resulting from their performance of the contract. Buyer and seller would cooperate to understand the causes of the impacts. And if it is determined that buyers contribute to them, the buyer would be obliged to cooperate with the supplier to contribute to the remedy of the impact. In order to encourage amical resolution of disputes between buyers and suppliers, the Model Clauses would provide for nonjudicial dispute resolution mechanisms prior to litigation.

To implement these changes, the Model Clauses suggest two model Schedules: a Schedule P (human rights contract performance standards) and a Schedule Q (buyer’s code of conduct).

Schedule P would list contractual standards of human rights performance necessary and appropriate to the contract, such as references to the UNGPs and to the OECD Guidelines for Multinational Enterprises and guidance documents on their implementation; to specific human rights legislation and multistakeholder initiatives; to the company’s own human rights policies, supply chain codes, and so forth.

Schedule Q is a proposed buyer’s code of conduct. It would detail the contractual responsibilities of buyers concerning their commitment to respect human rights, buyer selection of suppliers, negotiating the contract, performing and renewing the contract, remediating human rights impacts, and disengagement/responsible exit. Schedule Q is intended to explicitly embody in the contract the expectations that buyers will not undermine the human rights performance of suppliers, as referred to earlier.

In essence, the Model Clauses are designed for buyers’ counsel whose clients want them to implement human rights due diligence in their supply chain contracts. Since human rights due diligence is being reflected or incorporated in the law, particularly in the EU, this is very timely. Lawyers would not have to reinvent the wheel when seeking to integrate respect for human rights into supply chain relationships.

This viewpoint contains the personal views of the author only, not that of any person or entity, including Shift or the ABA. The author was an advisor to the Working Group of the ABA Business Law Section.

Statement on recommendations by EFRAG to the European Commission on sustainability reporting standards and governance

New York, NY

Shift – the leading center of expertise on the UN Guiding Principles on Business and Human Rights – welcomes the report published this week by EFRAG following the mandate from the European Commission, that sets out recommendations for European sustainability reporting standards. The report contains a range of critical recommendations for the work of a future standard-setter for EU-mandated sustainability reporting:

  • First, it highlights the principles and the process for implementing ‘double materiality’ to determine what information a company should report: both information about the company’s most significant impacts on people and the environment (impact materiality); and information about sustainability matters that affect the company’s ability to create value (financial materiality). The Task Force recognizes from past experience that companies need clear guidance on implementing double materiality, so they report fully on their material impacts, and not only on those that are also financially material.
  • Second, the report proposes a welcome shift away from a vague category of ‘social’ information to an approach that starts with the stakeholders most at risk (“affected stakeholders“) and then looks at how the company’s business may affect them – for instance through health and safety, forced labor practices or loss of access to clean water. This gives companies a clear way to prioritize the issues they need to report on, in line with international standards.
  • Third, the recommendations highlight the need for indicators and metrics that offer genuine insight to the users of reporting (“characteristics of information quality”). Too few of the typical ‘social’ indicators do so today. The report underlines the need for all indicators to be assessed against some key criteria to avoid perverse consequences and false conclusions. And it emphasizes the value of companies setting and reporting against good quality, outcome-oriented targets that reflect the change they intend to make and enable them to measure and disclose progress.

David Vermijs, who co-chaired the Task Force’s workstream on conceptual guidelines, commented, “These are critical recommendations that need to be front and center in the work of the future EU standard-setter. They set the foundation for ensuring that sustainability reporting both helps companies focus on what matters most when it comes to their sustainability performance, and enables their stakeholders to get a true picture of how well they are progressing.”

Shift notes that some of the Task Force’s recommendations will benefit from continuing consultation, including how the new standard-setter can support and accelerate greater ambition and convergence in reporting standards at the international level – including the integration of impact materiality and with regards to “reporting areas” – and the extent to which ‘intangibles’ can be brought within the framework of sustainability reporting.

“Perhaps most important at this point,” commented Caroline Rees, Shift’s President, “is the matter of the standard-setter’s future composition. While we welcome the separate report published on this issue, it leaves open some critical questions as to whether and how the new body will include the necessary deep expertise in the full range of sustainability issues, including and in particular regarding impacts on people. Getting this right will be key to the success of the whole endeavor.”

For media inquiries, please contact communications [at] shiftproject [dot] org.

Letter from John Ruggie to German Ministers regarding alignment of draft supply chain law with the UNGPs

New York, NY.

Professor John Ruggie writes to German Ministers to welcome move towards a national law on corporate human rights and environmental due diligence in supply chains, while also raising questions about elements in the draft law and the need to ensure alignment with the UN Guiding Principles.


This letter was originally written in English. An unofficial translation into German by the Business and Human Rights Resource Centre is available here

Planning for Risk Mitigation: Assessing Human Rights in Strategy Development and Roll out

When human rights practitioners develop strategies to identify and prevent risk to people, they often feel like their hands are tied: the business is already operating in a certain way, in given markets with different levels of risk, selling a line of products that already exists and partnering with suppliers that have already been decided by other functions. They then spend effort and resources trying to superimpose human rights considerations onto an approach that is already wired to impact people.

But what if that were not the case? What if a company could build human rights risk planning into the design of a new strategy, or soon-to-launch product or business model transformation? Companies could develop a product or roll out a strategy with the necessary safeguards in place to mitigate risks to people, to improve company decision-making, and to potentially re-shape business behaviors. Crucially, an early and full view of the potential impacts across the ecosystem in which a new product, service or strategy sits would also enable a company to bring in the right peers and partners to address them.

This ambition shaped Ericsson’s approach – to examine human rights risks connected to the rollout of their new flagship technology: 5G.

LISTEN TO | Théo Jaekel, Corporate Responsibility Expert at Ericsson explaining why 5G is critical to the telecom industry and to his company.

5G is the latest evolution of mobile technology standards. While we’ve become familiar with the iterative release of mobile technology innovations, 5G it not just the “latest version.” It promises to exponentially increase the capacity and efficacy of networks and to enable many new user scenarios and capabilities: data will be king (as opposed to voice and SMS); download and upload speeds will be faster, and devices will connect to wireless networks quicker. 5G will also provide the fuel for the Internet of Things (IoT), Augmented Reality, Virtual Reality and Big Data. In short, it is a quantum leap for the ICT sector and, most likely, for all of us as well.

But news coverage of 5G has not always been as optimistic. The legitimate concerns about the way this new technology may affect us – whether due to privacy breaches, the increased automation of jobs and the need for “just” worker transitions, or the potential for citizen surveillance – have often been obscured by various conspiracy theories, including misleadingly linking cell towers to the coronavirus pandemic.

In this context, ahead of the upcoming large-scale rollout of 5G, Ericsson aimed to encourage an informed discussion of these human rights risks and the company’s involvement with them. Along with Shift, the company embarked on a distinct human rights assessment, looking not at what the impacts were, but at what they could be.

The exercise started with desktop research on the new technology, which led to the mapping of the 5G value chain and then layering on the potential impacts on affected stakeholders whose rights could be at risk. This resulted in a set of salient human rights impacts (those human rights at risk of the most severe negative impacts) that could be tested internally with key company stakeholders in a workshop setting, along with a group of expert, external organizations.

Through that exercise, Ericsson was able to identify risks before they happened. For example:

  • Through the value chain, Ericsson identified ways in which privacy could be at risk if the new technology enables apps to gather an exponentially greater amount of data without the knowledge or consent of users, and then sell it to digital advertisers to help them target their messaging more effectively.
  • 5G will enable machines to take on more specialized and professional work, potentially impacting significant portions of the working population (blue and white-collar workers alike) in the future. This will require a concerted response by businesses and governments to ensure a ‘just transition’ for workers through new skills development.
  • 5G technology is also likely to support increased surveillance capabilities, including more precise geolocation data, which could be misused for illegitimate purposes, such as enabling governments to target specific groups or shutdown networks in more discrete ways.

The identified impacts are not necessarily unique, or indeed solely attributable to 5G. But, the potential for many of the impacts is heightened by the way in which 5G breathes life into a myriad of other emerging technologies such as Artificial Intelligence, Virtual Reality, Augmented Reality and Big Data. By understanding this, Ericsson is better prepared to manage and/or mitigate their occurrence.

LISTEN | Senior Advisor David Vermijs offers examples of the breadth of impacts that could be connected to the roll out of 5G

Proactive, early-stage risk identification comes with its own challenges, specifically because not all potential risks (or the related unintended consequences) can be anticipated until a product or strategy hits the market. A business will have to fine-tune its approach as roll out continues. However, this effort will allow the company to embed safeguards into the product or strategy, identify channels for leverage with other entities, and be better positioned to engage with stakeholders in future conversations.

So, what can other companies learn?

Taking a pre-emptive approach – while preferable – may not always be possible. Yet, there are important lessons from this exercise that practitioners may want to consider regardless of where their company is on their human rights journey:

  1. Make the business case for why it is important for human rights to get a seat at the table in product and strategy development and rollout. While practitioners may not be able to turn back time, they can make the case for why it is important to identify risk at an early stage of future product and strategy design. A proactive approach can:
    • Enable companies to identify potential impacts before they occur and be better positioned to tackle otherwise unforeseen risks, including risks to the business.
    • Help identify systemic issues that are often difficult to see through a more traditional audit.
    • Help the company build partnerships at an early stage, positioning it as a convener for partners, peers and other stakeholders to use collaborative leverage when needed.
    • Show stakeholders who are reticent that the company understands their concerns and is willing to take action.
    • Help the company develop a relationship of trust with civil society organizations and other stakeholders that can be essential in the planning, executing, monitoring and evaluation of human rights actions.
  1. Assessing risk is the foundation, not an end result. While this sort of approach to identify risk is innovative, it will have limited effect if it is not followed by concrete steps to mitigate the identified risks, and consistent efforts to test whether the initial assessment was accurate, or if there are other risks that arise from the actual rollout of the technology.

Ericsson’s assessment was made publicly available on March 2, 2021 and may be found here.