Human Rights Due Diligence and the CSDDD

The Corporate Sustainability Due Diligence Directive (CSDDD) that was recently agreed upon by the EU institutions sets the responsibility for companies to conduct due diligence on the human rights and environmental impacts of their operations. Once adopted, Member States will be responsible for transposing the directive into national law, and companies within scope will have an additional layer of due diligence and reporting to comply with.

In this article, we explore the United Nations Guiding Principles on Business and Human Rights, one of two human rights standards that the CSDDD refers to, and recommendations to approach the due diligence process.

CSDDD human rights framework

The CSDDD does not specify its own criteria for human rights benchmarks and assessments. Instead, it refers to existing international frameworks on human rights, specifically the United Nations Guiding Principles on Business and Human Rights and the OECD Guidance on Responsible Business Conduct. As such, companies within scope of the CSDDD should refer to these guidance when formulating a human rights due diligence process.

United Nations Guiding Principles on Business and Human Rights

The United Nations Guiding Principles on Business and Human Rights defines human rights as those outlined in the International Bill of Human Rights and the International Labour Organization’s (ILO) Declaration on Fundamental Principles and Rights at Work. These are:

1. freedom of association and the effective recognition of the right to collective bargaining;  
2. the elimination of all forms of forced or compulsory labour;  
3. the effective abolition of child labour;  
4. the elimination of discrimination in respect of employment and occupation;  
5. a safe and healthy working environment

A company’s human rights due diligence should cover all of the above, in addition to any other impacts not included above but that are found to be material to a company’s operations. The Guiding Principles recommends four steps for due diligence:

1. Assessing the business for actual and potential human rights impacts
2. Taking action
3. Monitoring those actions
4. Disclosing #2 and #3 above

The first phase of the due diligence process – assessing the business for actual and potential human rights impacts – involves three parts:

1. Mapping business activities and relationships
2. Identifying the relevant stakeholders and designing an effective engagement process  
3. Identifying and assessing potential and actual human rights impacts or risks

If a company’s operations involve complex supply chains, it is sufficient to focus on the biggest risks. However, this does not absolve entities from responsibility in their supply chains, as the Guiding Principles call for the assessment of human rights impacts through an entity’s “own activities or as a result of their business relationships”. Stakeholder engagement is an important part of the assessment phase.

The second phase, taking action, should consist of two parts:

1. Assigning responsibility for addressing impacts
2. Designing decision-making processes and oversight and allocating budget

We would also add a third part to taking action which is not explicitly mentioned in the Guiding Principles, that is identifying the most appropriate course of action. There are two types of actions companies can take to address impacts depending on if it was an actual impact or a potential impact. Actual impacts require remediation, while potential impacts require mitigation. Actual impacts directly caused or contributed by a company must be addressed through remediation via legitimate processes such as grievance mechanisms.  

The third phase of due diligence, monitoring actions, involves tracking the following:

1. Qualitative and quantitative indicators (which should be identified during the second phase when deciding the best course of action)
2. Gather feedback from stakeholders

The fourth and final phase, disclosing the measures taken and their effectiveness, should follow these recommendations:

1. Accessible to the public in a sensible form and frequency
2. Provide sufficient information to enable evaluation of the effectiveness of measures taken
3. Does not put stakeholders or commercial confidentiality at risk

The UN Guiding Principles on Business and Human Rights leaves plenty of room in its recommendations for varying business and operational contexts. Companies can achieve CSDDD compliance by following the four phases, covering the five basic human rights defined by the ILO. This process of due diligence should be conducted periodically to reflect the changing nature of human rights risks as companies and operating models evolve.