3. National laws
Despite developments of voluntary standards at the international level, research shows many global companies have a weak implementation of human rights due diligence. The 2020 Corporate Human Rights Benchmark found that of 230 companies across five sectors, only a minority demonstrated willingness and commitment to take human rights seriously. There was often a disconnect between “commitments and processes on the one hand and actual performance and results on the other”.
Amnesty International Norway’s 2019 business rating of Norwegian companies and international companies with subsidiaries in Norway found that only 47 % of them conducted human rights risk assessments and had a human rights policy.
The next step should therefore be adopting a UN treaty on business and human rights, making human rights due diligence mandatory. However, even if proposals for such a treaty have been produced, making it into binding international law may take a long time. As mentioned above, proposals for EU-level regulations have been launched, but reactions to its coverage and effectiveness have been mixed.
Therefore, legislation at the national level that makes human rights due diligence mandatory seems necessary to achieve further results. Several countries have enacted such laws, covering large and, in some instances, medium-sized enterprises, including select rights or the whole human rights catalogue, and with some laws including environmental standards, decent working conditions and other public goods in addition to human rights.
The Norwegian Transparency Act
The Norwegian Act relating to enterprises’ transparency and work on fundamental human rights and decent working conditions was adopted on 14 June 2021 and entered into force on 1 July 2022. The Act makes it mandatory for larger enterprises that are resident in Norway and that offer goods and services in or outside Norway and for larger foreign enterprises that offer goods and services and pay tax in Norway to carry out human rights due diligence (Section 4). They shall publish an account of how this has been done and the results (Section 5). The report shall describe the enterprise's structure, area of operations, guidelines, and procedures for handling actual and potential adverse impacts on fundamental human rights and decent working conditions.
It shall also inform about risks of adverse impacts that the enterprise has identified, as well as measures or plans to cease actual adverse impacts or mitigate significant risks, and the results or expected results of these measures.
Notably, the Act makes it mandatory for companies to answer, upon written request, any person regarding how the enterprise addresses actual and potential adverse impacts, including both general information and information on specific products or services (Section 6). Companies will have three weeks to answer, which can be extended to two months if the amount or type of information is particularly burdensome. The information shall be adequate and comprehensive (Section 7).
The Act sets up a supervisory regime consisting of the Consumer Authority and the Market Council, the latter handling appeals of decisions made by the former. In addition to monitoring compliance and deciding on breaches, the Consumer Authority shall provide information, advice, and guidance to ensure that they abide by the Act.
In this way, the Consumer Authority shall support companies in their efforts to abide by the law and, if they fail, decide on whether to penalise them (Sections 8-9 and 11-14).
The Act has been a breakthrough for mandatory human rights due diligence and transparency. It obliges companies to carry out due diligence to stop, prevent or limit negative consequences on human rights and working conditions that the companies have either caused, contributed to, or are directly related to their business activities, products or services through supply chains or business partners. Due diligence must be carried out for the enterprise’s entire supply chain, and it will be held accountable for all breaches of fundamental human rights and decent working conditions within its supply chain.
The Act is mainly in line with demands of a broad Coalition for Responsible Business, consisting of business enterprises, civil society organisations, and trade unions, except for not including environmental standards and information on production sites. This broad-based coalition played an essential role in promoting the Act. Another critical input came from a government-appointed committee to propose an Act on business transparency on supply chains, duty of knowledge and due diligence assessments.
According to a study of the Act’s consequences, while there are more than 540 000 companies in Norway, the combined number of big and middle-sized companies is 8 830. They constitute the so-called ‘larger’ companies covered by the Act.
Legislation in other countries
Legislation in the UK, Australia, and the Netherlands has a narrower scope than the Norwegian Act, while the French Duty of Vigilance Law includes all human rights and the environment. The French law, however, lacks some of the most forward-leaning provisions of the Norwegian Act, such as the right to information from companies about adverse impacts. A German Act adopted in 2021 on corporate due diligence obligations in the supply chain will gradually enter into effect from 2023.
The Modern Slavery Bill was introduced to the UK Parliament on 10 June 2014 and passed into law on 26 March 2015. The Act obliges companies to report on what they do to prevent modern slavery in their business and supply chains. Companies face no penalty for not complying with the Act, and paradoxically companies can report having done nothing to prevent modern slavery and still comply with the Act.
The Act has nevertheless contributed to awareness about the responsibilities of business enterprises and encouraged other countries, such as Australia, to introduce legislation that goes further.
The Australian Modern Slavery Act was adopted in 2018 and entered into force on 1 January 2019. It obliges companies that are Australian or conduct business in Australia with annual consolidated revenue of more than $100 million to submit an annual modern slavery statement. Unlike previous legislation, the Act includes conduct occurring in the supply chain. The Minister keeps Statements in the Modern Slavery Statements Register, which the public may access.
Like the UK Act, there are no penalties for non-compliance, but the Minister may request a company that has failed to comply with its reporting obligations to explain. If it still fails to comply, the Minister may reveal the company’s identity and why he believes it has failed to comply.
The Dutch Child Labour Due Diligence Law was first introduced in 2014 and adopted by the Dutch Senate in May 2019. The Law enters into force only in 2022 to provide companies sufficient time to investigate their supply chain. It applies to all companies that sell or supply goods or services to Dutch consumers, no matter where the company is based or registered. Companies that fail to exercise child labour due diligence may be subject to financial and legal enforcement actions, including multiple years of imprisonment of the legally responsible director.
Companies covered by the Law must submit a statement to a regulatory body confirming that they have exercised supply chain due diligence to prevent child labour. The regulator will publish the statements in an online public registry.
The obligations to carry out due diligence and to produce an action plan take the Dutch law a step further than the UK and Australian Modern Slavery Acts and bring it more in line with the French Duty of Vigilance Law, which was adopted on 27 March 2017 and entered into force in 2018.
This law is unique because it includes respect for all human rights and the environment. For the first time, a national law obliged companies to identify, prevent and address human rights and environmental risks that occur because of their business activities. It covers companies with at least 5,000 employees in France or 10,000 worldwide, including their subsidiaries, suppliers, and subcontractors.
The law requires companies to establish and implement an annual “vigilance plan” regarding the environment and human rights. They can be held accountable for these plans, which are required to be made publicly available. The plans should, i.a., include a risk map intended to identify, analyse, and prioritise risks; procedures to regularly assess the risk assessment situation of subsidiaries, sub-contractors, or suppliers with whom they have a commercial relationship; appropriate actions to mitigate risks and impacts: an early-warning mechanism to alert and collect reports relating to the existence or realisation of risks; and a system to monitor the measures implemented and evaluate their effectiveness.
The enforcement of the law relies exclusively on the courts, as any interested person may request the court to order a company to comply with its obligations or to compensate for the damage caused by its lack of vigilance. There has, however, been extensive criticism that French companies so far have failed to abide fully by the law and that there are few cases brought against them. There is, therefore, a need for more vigorous enforcement.
On 11 June 2021, the German Parliament (“Bundestag”) adopted the Act on Corporate Due Diligence Obligations in Supply Chains. The Act will enter into force for companies with 3,000 or more employees with a registered office or domestic branch in Germany on 1 January 2023. From 1 January 2024, it will also apply to companies with 1,000 or more employees.
The Act obliges companies to conduct human rights and environmental due diligence in their supply chains, including establishing a risk management system and designating internal responsibilities, issuing a policy statement, regularly performing risk analyses, defining preventive measures, taking remedial action, reporting, and establishing a complaints procedure.
Current status
The adoption of national laws requiring enterprises to conduct due diligence has been celebrated as a breakthrough by civil society organisations, trade unions, investors, political parties, and businesses. Increasingly, business operators view mandatory due diligence as necessary to level the playing field and provide legal certainty.
After France pioneered such legislation in 2017, a dozen European countries have discussions underway on introducing similar legislation. The Norwegian and German laws adopted in 2021 were other significant developments.
However, processes on the EU level to adopt similar legislation have taken some time. The Dutch Minister of Foreign Trade and Development, Tom De Bruijn, stated in December 2021 that he was disappointed with the delays and that his government had decided to introduce a new national law on human rights and environmental due diligence. This way, Dutch law could pressure the European Commission to avoid losing time. It is now expected, however, that the European Commission’s 23 February 2022 proposal of a Directive on corporate sustainability due diligence will be adopted in 2023.
In addition to national laws, more than 40 governments have produced or are producing national action plans on business and human rights to implement the UNGP. These plans articulate the government's expectations of companies operating in their jurisdiction to act responsibly concerning human rights at home and abroad. Statements by G7 and G20 leaders further add to this picture, underlining that business companies should conduct human rights due diligence.
In sum, after the adoption of the UNGP, developments have shown that voluntary international standards were not enough to reach the stated aims. There must be legislation and effective enforcement. Getting an agreement in the UN may, however, take time. At the EU level, expectations are that a Directive will be enacted in 2023, but its coverage and effectiveness remain to be seen.
The enactment of national laws, therefore, plays an important role.
First, national laws do not introduce new norms. They incorporate established international norms and transform them into legal requirements for thousands of companies registered or active in their respective national jurisdictions. In this way, an increasing number of international business enterprises must integrate due diligence into their operative routines, gain experience and competence, and contribute to normalising human rights and environmental concerns in business operations. Enforcement of the laws varies, but they have made it more difficult for business operators to disregard human rights concerns.
Second, the enactment of national laws put pressure on the EU and the UN to enact legally binding documents. In the words of Kjell Inge Ropstad, the Norwegian government Minister in charge of the Transparency Act proposal: “Even if national laws on business and human rights represent significant progress, it is paramount that we get stronger international regulation. We do not want to see companies moving to countries with weak legislation.”
Third, by ensuring that enterprises conduct due diligence in their supply chain, their competence to deal with the kind of dilemmas multinational enterprises risk being confronted with when entering authoritarian playing fields will, over time, increase. These playing fields are all, but ‘level’ and navigating them requires extensive competence and balancing skills. You need experience, which you can only get from practice.