Authors Sergio Garrido Vallespí and Marc Morros Bo wrote an article titled “Human Rights Due Diligence in the United States and the EU: Differences, Trends, and a Corporate and Dispute Resolution Critique” (“the Article”). The Article has been divided into a series of four blog posts to be published on the blog of the Georgetown Journal of International Law (“GJIL”). This post is the second in the series. The first, third, and fourth posts are accessible on the Georgetown Journal of International Law Blog website. 

Comparative law analysis and trends

United States Legislation: State Law

State law governing HRDD seems to make the same mistake as federal law: states, emulating the federal government, prefer to give priority to certain human rights to the detriment of others when making processes comparable to HRDD mandatory. 

Principle 12 of the UNGP establishes that “[t]he responsibility of business enterprises to respect human rights refers to internationally recognized human rights—understood, at a minimum, as those expressed in the International Bill of Human Rights and the principles concerning fundamental rights set out in the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work.” In Massachusetts, as in Rhode Island, different laws, such as the Act Relative to the Commercial Exploitation of People or the Child Welfare Service Needs of Sexually Exploited Children (for Rhode Island, see the Uniform Act on Prevention of and Remedies for Human Trafficking and the R.I. Gen. Laws Ann. § 11-9-1(c), 11-9-1(b) and 11-9-2), took some steps to combat human trafficking, forced labor, and sexual exploitation. Why is it that the right not to be discriminated against is not included? Illinois’ Business Supply Chain Transparency for Slavery, Trafficking and Child Labor Act, requires that certain retailers and manufacturers doing business in the state with annual worldwide gross receipts of over $100,000,000 (under Washington’s Transparency in Supply Chains Act, over $75,000,000) shall disclose their efforts to eradicate slavery, human trafficking, and child labor from their supply chains. Why is it that environmental rights are not included? In New Jersey, its Drug Price Transparency Act, SB1615, implements reporting obligations on the entire process of drug pricing across the supply chain in a similar manner to that of HRDD. Why is it that human trafficking, forced labor, and sexual exploitation are not included?

Overall, the U.S. states do not include all human rights when establishing processes similar to HRDD. Among those same states, however, attention must be drawn to California, as its Transparency in Supply Chain Act (CTSCA) is the most expansive legislation on forced labor and trafficking in corporate supply chains. Only two of the numerous human rights are touched upon, albeit they are addressed thoroughly. For sellers and manufacturers that do business in California and have annual worldwide gross receipts exceeding $100,000,000, the CTSCA requires them to disclose on their web pages their efforts to eradicate slavery and human trafficking from their supply chains. Precisely, these are i) verification of supply chains, ii) auditing, iii) certification, iv) internal accountability, and v) training. As good as that may sound, these are primarily enforced through consumer awareness and public scrutiny, since the CTSCA does not impose penalties for noncompliance with its disclosure requirements, in clear opposition to the abandonment of a laissez-faire approach underlying HRDD, more broadly addressed in section 3.1 of this Article. 

EU legislation: Secondary law

The EU is well ahead of the United States in the HRDD field. This has not always been the case, though. Before last December, EU law was as dispersed as U.S. law is. Conflict minerals, battery, deforestation, forced labor, and raw materials were separately regulated with an HRDD logic through multiple secondary law sources.

On January 14, 2024, the EU Parliament and Council finally seemed to agree on what they would call a Corporate Sustainable Due Diligence Directive (CSDDD). As the EU Parliament reported, the new CSDDD would set “obligations for companies to mitigate their negative impact on human rights and the environment [(“HREDD,” one could say)] such as child labor, slavery, labor exploitation, pollution, deforestation, excessive water consumption or damage to ecosystems.” It must be noted that the usage of the term “such as” reflects that this is not a numerus clausus list. Here, some may read the proposed 2021 U.S. Corporate Governance Improvement and Investor Protection Act as an equivalent to the CSDDD. It also avoids sector-specificness when imposing a DD obligation, and instead requests companies to periodically disclose information related to environmental, social, and governance (ESG) performance metrics. However, besides the fact that this U.S. law still needs the approval of the Senate to enter into force, ESG protection is arguably not as broad as human rights protection. The only human rights that the proposed ESG Corporate Governance Improvement and Investor Protection Act will certainly protect are the labor rights present in the Xinjiang region of China, with clear reference made to the UFLPA in the same rule.

The CSDDD identifies six different human rights-high-risk sectors: i) manufacture and wholesale trade of textiles; ii) clothing and footwear; iii) agriculture; iv) manufacture of food and trade of agricultural materials; v) extraction and wholesale trade of mineral resources or manufacture of related products; and vi) finance. Then, it establishes economic requirements in global turnover and number of employees for companies to fall within the scope of the CSDDD. 

In our view, if passed, the two most important obligations that should be complied with are ensuring that business strategies and plans are in line with the 2015 Paris Agreement, as well as requiring that the enterprise applying HREDD end its relationships with companies of the value chain if it identifies non-avoidable or preventable actual or potential adverse impacts. Regarding the first of these obligations, it would seem that the EU is finally dealing with the problem of enforcing one of the most famous environmental treaties to date. Indeed, the CSDDD provides for civil liability and damages, as will be developed in section 3.1 of this Article. For the second obligation, it appears that the EU is more concerned with upstream partners in the supply chain than downstream ones, given that it limits the application of the CSDDD in downstream supply chains to transport, storage, and disposal, expressly excluding the financial sector. One could view this as a reasonable approach, since the raw material, the suppliers, and the manufacturing actors (upstream) could have more margin to impact human rights and/or the environment as opposed to a distribution actor that may, at a maximum, generate concern in the environmental field or the final consumer (downstream).

EU legislation: Member States national laws

Contrary to U.S. states, the problem with the HRDD regulation of EU countries is not reflected in the kinds of industries they address, but in the extent of the liability regime after a violation has occurred. Following the logic of University of Michigan Professor David Hess in his paper The Management and Oversight of Human Rights Due Diligence, three groups may be differentiated: i) those requiring HRDD but not providing for civil liability; ii) those requiring HRDD and providing for civil liability with the burden of proof on the victim of human rights violations seeking a remedy; and iii) those requiring HRDD and providing for civil liability with the burden of proof shifting to the company in alleged human rights violation of the one seeking a remedy. We would add a fourth category to that list consisting of passive States, as not all EU Member States have regulations requiring HRDD.

An example of the first group could be the Netherlands for its 2019 Child Labor Due Diligence Act. The fact that the Netherlands followed this path catches us by surprise, though, as its courts seem favorable to having UNGP HRDD enforced. In fact, a Dutch court ruled in mid-2021 that the company Shell should “limit […] the aggregate annual volume of all CO2 emissions into the atmosphere (Scope 1, 2 and 3) due to the business operations and sold energy-carrying products of the Shell group to such an extent that this volume will have reduced by at least net 45% by the end of 2030, relative to 2019 levels,” mostly relying on the UNGP and the already mentioned OECD Guidelines for Multinational Enterprises. Germany would also fall into this category, but its 2021 Supply Chain Act would provide for an extensive administrative enforcement system and a sanctions regime.

There is less to say about the second, third, and fourth groups. The French Duty of Vigilance law is evidence of a system requiring HRDD and providing for civil liability with the burden of proof on the victim of human rights violations seeking a remedy, while a similar Swiss proposal that was finally rejected in a 2020 referendum would serve as an example of the third category. Spain and Italy, for their part, represent the countries in the fourth group, only entering into HRDD regulations indirectly through Legislative Decree No. 254/2016 and the Spanish Companies Act, respectively, among other laws.

Critique: A corporate view

The rise of interventionism through commercial laws

The regulations described above show that, in recent years, we have witnessed a rise in legislative interventionism aimed at safeguarding human rights in the supply chain process, be it fully developed or not. Fields of law like commercial legislation are experiencing a transformative shift and focusing on material concerns. The traditional focus on corporate formalities and procedural matters has been abandoned. This break calls for a closer look at the legislator’s intentions, which are quite similar in all Western countries, but the degree of intervention differs.

The rationale of the measures

The contemporary legal trend suggests a departure from the traditional focus and reflects i) an increase in human rights protection and ii) the legislator’s distrust towards consumers. Although societies are fully aware of the disgraces occurring in large companies’ supply chain processes, legislators prefer to intervene and ensure a minimum layer of human rights protection. In other words, rule-makers are knowledgeable of the ethical purchasing approach by consumers, but they prefer to intervene in the form of laws disregarding full market reliance.

Leaning in favor of a non-liberalist approach reflects that relying solely on consumers’ ethical considerations might not yield the desired outcomes. The underlying assumption might be that consumers do not prioritize factors such as sustainability or transparency and decide to purchase cheaper products manufactured under unknown—and probably, poor—conditions. In our eyes, end users are sufficiently informed about supply chain issues, but their prioritization will very likely and substantially depend on consumers’ purchasing power and price differences among other factors. Natural market forces would not encourage businesses to respect ethical practices voluntarily, a premise which is perfectly coherent with an existing skepticism concerning the efficacy of the laissez-faire economics approach. However, a departure from trust in the market’s self-regulatory mechanisms has its pros and cons. 

On one hand, legislative intervention supporters contend that additional regulation is needed where voluntary compliance may fall short, and a more assertive regulatory approach is required when ethical considerations are not prioritized. Said actions in HRDD establish uniform frameworks ensuring that companies of all sizes and sectors are subject to the same moral standards. Through the creation of level playing fields, this consistency encourages justice and accountability and helps businesses abide by common human rights standards. Furthermore, the imposition of strict penalties through legislative measures constitutes a strong incentive and deterrence for companies to include HRDD in their core business processes. Proactive compliance harmonizes fair business practices and permits consumers to receive clear information about enterprises’ human rights policies. Once this framework becomes applicable, it will convert informed consumers into powerful change agents making better decisions and prioritizing ethical factors.

On the other hand, critics like Robert McCorquodale have argued that legislative intervention may distort the natural dynamics of the market. In fact, well-known scholar Justine Nolan has emphasized over time the relevance and effectiveness of incentives or deterrent fines over rigid regulations. Regarding the severity of the latter, it raises questions about the potential unintended consequences of stringent measures. These can especially and disproportionately affect small enterprises, implying that an aggressive punitive approach might involve an important burden for them. Nevertheless, legislative intervention cannot be analyzed generally, since the appropriateness of the measures depends on the specific industry. Therefore, each country’s context requires a different balance between legislative action and market autonomy.

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*LL.M. (International Business and Economic Law), Georgetown University Law Center in progress; LL.M. (International Business Law), ESADE Law School and Freie Universität Berlin (2023); LL.B. and B.A. in Global Governance, Economics and Legal Order, ESADE Law School (2022).

**LL.B., ESADE Law School and Columbia Law School in progress.