Keynote Speech by John Ruggie at Corporate Due Diligence and Civil Liability Webinar

These remarks were originally delivered on January 28, 2021 by Professor John Ruggie at the Corporate Due Diligence and Civil Liability Webinar, hosted by Nova Centre.  

“Thank you, State Secretary, and thanks to all the sponsors and participants of this seminar series. I have been in this field for a while and I am so pleased by the fact that we are having discussions at levels of detail and possibilities that would have been hard to imagine just 10 years ago, when the Guiding Principles were adopted. I know we have a lot further to go, but every once in a while, I like to remind myself that we have already come a fair way that we can build on…”


Shift Submission to the European Commission’s Consultation on EU Sustainable Corporate Governance

In February 2021, Shift submitted responses to the European Commission’s Consultation Proposal for an Initiative on Sustainable Corporate Governance. The feedback provided through this questionnaire will be taken into consideration as the European Commission drafts its policy position.

Shift’s key points include:

  • EU legislation establishing a new corporate duty to conduct human rights and environmental due diligence (HREDD) has the potential to help level the playing field, ensure that Boards are aware of their responsibility to oversee the management of a company’s salient human rights and environmental risks, and drive a common understanding of what “quality” due diligence looks like. Importantly, it could also help ensure greater access to remedy through the inclusion of appropriate civil liability provisions. 
  •  Directors should be accountable for overseeing how a company prevents and addresses its negative impacts on people and planet. Even without the reform of directors’ duties, the introduction of a corporate duty to conduct HREDD would make a significant contribution to this objective by requiring directors to oversee appropriate due diligence systems.
  •  The due diligence process expectations set out in the UNGPs and in the OECD Guidelines should form the core requirements on business in any new regulation. But to ensure meaningful implementation, those enforcing this new duty will need to pay attention to key features of HRDD that are indicative of the seriousness of a company’s efforts. National regulators will need guidance on how to assess whether there is an authentic intent and effort within a company to both find and reduce risks to workers, communities and other affected stakeholders. We propose what some of these “Signals of Seriousness” could be for HRDD in a draft resource attached to our submission, informed by initial testing with business, government, and civil society stakeholders. 
  •  Any new duty needs to have improved outcomes for people as its ultimate goal. As such, it is important that HREDD is not conceived of as a “tick-box” exercise, but as one that necessarily involves the creative use of leverage beyond contractual terms or commercial leverage alone – including public advocacy where appropriate and partnership with industry peers and stakeholders to drive change – as well as meaningful engagement with affected stakeholders
  • Any new legislation should have a wide scope, including both SMEs (with appropriate flexibility in implementation) and foreign companies operating in/into the single market.
  •  To ensure a level playing field in practice, there need to be meaningful consequences for companies that clearly fail to meet a new duty, involving judicial and administrative measures. This should include: 
    • creating or endowing national-level regulatory bodies with the capacity and expertise to carry out regular reviews of corporate disclosure and performance and hold companies accountable; 
    • EU regulatory oversight through a new, fit for purpose entity with its own enforcement powers that brings together national regulatory bodies and expert stakeholders; and 
    •   civil liability for certain harms with a defense where companies can demonstrate that they undertook due diligence that was appropriate and proportionate to the relevant impacts. The mere fact of conducting some form of due diligence should not be considered as a complete defense to liability, or as a safe harbor against claims being brought.
  • A new corporate duty needs to be accompanied by a range of other EU policy measures to set the right incentives and help bridge the “accountability gap” between the likely scope of liability on the one hand and the full scope of HREDD in line with international standards on the other.


“Signals of Seriousness” for Human Rights Due Diligence

This discussion draft is intended for the consideration of the European Commission and other stakeholders as the Commission develops proposals on mandatory human rights and environmental due diligence (mHREDD) and considers how national regulators would implement any such legislation. Shift is submitting this draft together with our formal response to DG JUST’s consultation on a potential new corporate duty to carry out HREDD.

In this discussion draft, we propose some key signals that national regulators could use in assessing the seriousness or quality of a company’s HRDD, grouped into six broad areas of company practice:

  1. Governance of human rights;
  2. Meaningful engagement with affected stakeholders;
  3. Identifying and prioritizing risks;
  4. Taking action on identified risks;
  5. Monitoring and evaluating progress in addressing risks;
  6. Providing and enabling remedy

Not all these features need to be present to judge HRDD to be meaningful or serious, yet where few of them are present, it is unlikely that HRDD will achieve its purpose in practice.

This draft is intended to inform a discussion about assessment by national regulators of company compliance with potential new mandatory human rights and environmental due diligence (mHREDD) legislation by:

  • Highlighting critical features of HRDD that are often overlooked or done poorly in practice by companies (such as meaningful stakeholder engagement);
  • Identifying key practices and behaviors needed for meaningful implementation of HRDD that can help in distinguishing better from poorer quality HRDD by going beyond the ‘observable basics’ of company practice;
  • Being relevant to companies of all sizes and sectors by highlighting features of HRDD that could be demonstrated by any company in a variety of ways.

It is not intended to:

  • Replace or dilute existing guidance on the process elements of HRDD;
  • Exclude consideration of authoritative sector-specific guidance by regulators where that is relevant to a company being assessed;  
  • Define leading practice in carrying out HRDD.

We welcome feedback on this discussion draft and will be consulting further on it during Q1 2021. Please direct your feedback and inquiries to: info [at] shiftproject [dot] org

Shift and Frank Bold Submission to the Consultation on Potential Needs for Changes to the Governance and Funding of EFRAG

Shift joined Frank Bold in responding to the the consultation process on potential needs for changes to the governance and funding of the European Financial Reporting Advisory Group (EFRAG).

The submission comments on issues of due process, governance structures, representation of private sector and civil society; representation of Small and Medium Enterprises (SMEs); on cooperation with other standard setters and initiatives; on governance structure and funding.

Shift Submission to IFRS Consultation on a Sustainability Standards Board

In December 2020, Professor John Ruggie submitted his views to the IFRS Foundation for their consultation into the proposed establishment of a Sustainability Standards Board (SSB) to develop global reporting standards on sustainability. Professor Ruggie urged the Foundation not to limit the initial work of a future SSB to environmental issues and suggested that:

  • The urgency of today’s inequality crisis, including environmental justice issues, requires a parallel effort to integrate the underlying human rights issues into a new standard-setter’s work.
  • The IFRS Foundation take care to ensure that the framing and presentation of a new standard-setter are clear regarding the constraints of its mandate to issues that have demonstrated narrowly-defined financial materiality, and that they do not imply that it covers all sustainability issues of critical importance with regards to companies’ social and environmental performance.

On Mandatory Due Diligence, SMEs Don’t Need a Free Pass; they Need Flexibility

This article originally appeared in this compendium by the Business and Human Rights Resource Centre

As the debate on mandatory human rights due diligence (mHRDD) at the EU-level starts to move from the if to the what and the how, a key concern that policymakers must grapple with is the size of businesses covered by any incoming legislation.

While our work with some forward-thinking small and medium-sized businesses suggests that they boast some significant advantages over their larger counterparts when it comes to realizing their responsibility to respect human rights, legislators will need to act with care not to disadvantage them. The first step would be to anchor mHRDD in the UN Guiding Principles’ understanding that while the responsibility to respect human rights applies to all businesses, the means through which a company meets that standard will vary according to its size.  

Here are five key considerations to support such an approach being reflected in new legislative developments:

  1. Half of the world’s population works for a small or medium business

First, let’s look at the numbers: SMEs account for about 90% of all businesses and contribute up to 50% of total employment in the world. That is why, if legislation aims to drive positive outcomes for people in the context of business activity, it must reach the businesses people work for and interact with. What’s more, we see that the support amongst larger businesses for mHRDD increasingly hinges on the inclusion of SMEs in any such regimes, given the interest of multi-nationals in the level-playing field and the increased leverage with resistant suppliers that mHRDD promises.

  1. Prioritization of salient issues

Most stakeholders recognize that companies – regardless of size – need to prioritize their salient human rights issues. For small businesses with limited resources, prioritizing action on the most severe risks to people is even more crucial to get traction. For instance, we’ve spoken to businesses in the apparel, food, retail and cleaning sectors that have made progress by focusing on addressing the problem of low wages, believing this will have knock-on effects on a host of other rights. The expectations hardwired into legislation ought to reflect the need to enable businesses to prioritize action on human rights impacts based on their severity and that the complexity of company processes for identifying and taking action on impacts will be affected by the size of the company in question.

  1. A focus on the quality of relationships with business partners

In comparison to larger businesses, SMEs tend to have fewer suppliers and customers, which can enable deeper and better-quality relationships. In work that we’ve done with forward thinking SMEs, we’ve seen how they often spend a lot more time selecting business partners that are the right fit and putting more up-front investment into finding those who share their values and tend to perform well on human rights. For small businesses that aim to respect people, partnership with suppliers is a necessity not a choice.

However, there is a risk that legislation on mHRDD incentivizes an approach where a buyer ‘polices’ its supply chain through a process of monitoring and social audits. This approach would fail to encourage the right behaviors for any business, but would particularly impact SMEs. As policymakers consider how best to articulate the standard of human rights due diligence, they should encourage practices that focus on relationship-building, not policing, to work towards better outcomes for people. 

  1. Expectations on action need to move beyond commercial and legal leverage

SMEs often lack the cold, hard commercial leverage of larger multi-nationals, and must think more creatively. For instance, we’ve seen how one medium-sized business has rolled out programs on freedom of association and worker voice in the most challenging contexts, despite having less than 5% of the product buy from suppliers. This business achieved buy-in through explaining the benefits of the program, and drawing on the trusted relationship it had developed, rather than requiring suppliers to participate.

Under any form of mHRDD, the nature of a company’s involvement with a human rights impact, and the strength of the action it has taken to prevent it from occurring, is likely to determine the assessment of the consequences the company faces. Such assessments must consider the wide spectrum of avenues to effectively influence business partners, rather than honing in narrowly on the extent to which a company has deployed legal or commercial leverage, which SMEs are unlikely to possess.

  1. Respect for human rights is more than a mechanical due diligence process

One of the advantages that committed SMEs have over their larger counterparts when it comes to human rights is a greater facility to nurture a culture that supports people and their ability to speak up for themselves. For SMEs, people truly are their most important asset. The very lack of resources and stretch that skeptics cite as reasons why SMEs may find it difficult to respect human rights means that smaller businesses have to respect, trust, motivate and empower their employees to succeed. From talking to executives in SMEs, it is clear to us that committed leaders are able to instill values of empathy and empowerment through face-to-face interaction with employees, listening to them and modelling desirable behaviors. 

Experience shows that even the most sophisticated human rights risk management processes will bear little fruit if they are not fully embedded in company culture, lived by the business’ leaders, and supported by effective governance structures. Here, values-driven SMEs have an advantage and legislation should support that relative strength, setting the expectation not just for a mechanical due diligence process, but one that lives and breathes, informing company behavior and decision-making.

Structuring legislation to encourage and compel companies to adopt and scale rights-respecting business practices and behaviors is no small task. But the legislation will have limited impact for the people that need it the most if it does not consider how best to incorporate SMEs within its scope. Doing so means ensuring an adaptable framework that sets a clear standard of conduct, but allows businesses of all sizes to reach that standard drawing on their unique strengths and expertise.

Shift’s David Vermijs to participate in task force that will produce recommendations on the potential development of EU non-financial reporting standards

We are proud to share that Shift’s Senior Advisor, David Vermijs, is among the 40 selected members of the multi-stakeholder task force appointed by the European Reporting lab to produce recommendations on the potential development of EU non-financial reporting standards. This forms part of the preparatory work for a revised version of the EU Non-Financial Reporting Directive, due in 2021.  

During the first phase of the project, David is co-leading a workstream that will analyze and assess the conceptual framework for potential reporting standards, including approaches to materiality, linkages to the SDGs, and the structure and types of relevant information.

Good reporting standards have a critical role to play in both reflecting and shaping responsible business conduct.

Good reporting standards have a critical role to play in both reflecting and shaping responsible business conduct. A separate EU initiative is currently developing plans for mandatory human rights and environmental due diligence. This is expected to align with the standard of conduct for companies set out in the UN Guiding Principles on Business and Human Rights.

A revised Non-Financial Reporting Directive and robust reporting standards can create coherence for companies between what they are expected to do and to report when it comes to managing their impacts on both people and the planet. Effective reporting is in particular critical for markets to be able to recognize and reward those companies that are consistently progressing in their efforts to identify and address the most critical risks to people in their operations and value chains.

The EU initiative is therefore both critical and timely. It should also support a move towards more coherent and consistent standards at the global level. 

Accountability as part of Mandatory Human Rights Due Diligence: Three Key Considerations for Business

The European debate on mandatory human rights due diligence (HRDD) has gained significant momentum in the last year. A number of national initiatives are coming to a head in late 2020, and the European Commission is launching a formal consultation on a potential EU-wide regime on mandatory human rights and environmental due diligence. We have seen growing business support for mandatory HRDD, from both individual companies and business associations, as well as an increase in joint calls by business and civil society for such measures.

As we approach this critical moment, we have been working hard at Shift to support constructive discussions among government, business and civil society allies about the role and content of new regulation. In particular, we have been engaging with businesses that are supportive of new measures, but have concerns about what shape it might take and what the consequences might be.

In this briefing note, we explore what well-designed mandatory HRDD measures could look like, with a focus on the role of accountability – or consequences – for meeting a new legal standard of conduct. We set out three key considerations that we believe businesses that are committed to meeting their responsibility to respect human rights should keep in mind:

  1. The legitimate role of liability in implementing the UN Guiding Principles
  2. Incentivizing robust HRDD through accountability measures that go beyond liability
  3. Assessing the quality of a company’s due diligence

“Effective regulation should take account of the legitimate concerns of various stakeholder groups. For mandatory HRDD, that means forging legislation that speaks to businesses’ concerns that liability on its own won’t incentivize the right kinds of practices and behaviors by companies throughout their value chains. But it also has to address the understandable views of civil society that a failure to meet an agreed standard of conduct should result in robust consequences, including a basis for those harmed to seek remedy.”

Rachel davis, vice president of shift

Human Rights Due Diligence: the State of Play in Europe

The map

This map illustrates the state of play of mandatory Human Rights Due Diligence initiatives, legislation and movements, across different countries in Europe. It is based on this resource by the Business and Human Rights Resource Centre, and was last updated in July, 2020.

Where things are at in the debate

Our Business Engagement Director, Francis West, provides a quick recap of where things are at in the debate

Opening Remarks by John Ruggie at the Conference “Human Rights and Decent Work in Global Supply Chains”

The recording of these remarks is available here.

The UN Guiding Principles on Business & Human Rights are approaching the tenth year since their unanimous endorsement by the Human Rights Council. It is encouraging that their uptake continues apace, not only by businesses but beyond. For example, human rights factors make up the bulk of the S elements in ESG investing, with investors clamoring for more robust metrics. Also, global sports bodies, including the International Olympic Committee and FIFA, have made human rights a mandatory part of their host city agreements.

The UNGPs were conceived to generate an ongoing interactive dynamic of a smart mix of measures – voluntary and mandatory, national and international – that would strengthen the business and human rights regime over time.

But I confess that governments, with exceptions, have been a weak link in this dynamic. So, I am pleased to see action picking up on two significant fronts in the EU context.

The first is human rights due diligence. This is the foundational construct for businesses to identify, prevent, mitigate and account for their adverse human rights impacts – throughout their operations and business relationships.

The experience of the past decade has demonstrated that many multinationals understand the importance and utility of human rights due diligence. But the record also shows shortcomings and weaknesses in implementation.

In response, Germany, like several other governments, is giving serious consideration to making human rights due diligence mandatory, as foreshadowed in its 2016 National Action Plan. Similarly, mandatory human rights and environmental due diligence is on the legislative agenda of the European Commission.

…many details still need to be worked out. Perhaps none is more important than the question of liability. It may be helpful for me to recall that the UNGPs foresaw the possibility of liability…

I appreciate that many details still need to be worked out. Perhaps none is more important than the question of liability. It may be helpful for me to recall that the UNGPs foresaw the possibility of liability, and how it might play out in practice. The Commentary to UNGP 17 state that:

Conducting appropriate human rights due diligence should help business enterprises address the risk of legal claims against them by showing that they took every reasonable step to avoid involvement with an alleged human rights abuse.

Of course, case-specific facts would also be considered in any such assessment.

A second area that shows progress is the strengthening of non-financial disclosure requirements, including on human rights. Indeed, there is a rush into this space by private international standard setting bodies, large asset managers, alliances of consulting firms and the like, all wanting a piece of the ESG standards market.

The EU, as the world’s largest trading bloc, has a golden opportunity here to provide authoritative standards, which inevitably would have international spillover effects.

Here the EU, as the world’s largest trading bloc, has a golden opportunity to provide authoritative standards, which inevitably would have international spillover effects.

Perhaps there is still time for the Germany Presidency in collaboration with the Commission to establish a measure of policy coherence across the related EU initiatives, so as not to contribute to overwhelming businesses with potentially overlapping or, worse, inconsistent requirements.

Progress on these two fronts would contribute significantly to the overarching concern of this conference with promoting decent work in supply chains.

Indeed, I believe it would go even further and help inform the grand debate taking place on both sides of the Atlantic on the social purpose of the corporation, on the need for it to better serve a broad array of stakeholders in addition to shareholders.

So in conclusion, thanks again, and I wish you every success on the journey ahead.

John G. Ruggie, the Berthold Beitz Research Professor in Human Rights and International Affairs at Harvard’s Kennedy School of Government, has served as UN Assistant Secretary-General for Strategic Planning, and as the Secretary-General’s Special Representative for Business & Human Rights. He chairs the Board of Shift.