Human Rights and Business: A Regulatory Turning Point for More Responsible Practices
Facing persistent abuses such as forced labor and child labor, new European regulations, such as the CSRD and the CSDDD, impose increased transparency and due diligence obligations on companies. As part of our partnership with De Gaulle Fleurance for the 5th edition of the 2024 Observatory of Societal Transitions, Charles Autheman, lecturer in business and human rights at HEC Paris, provides an overview of human rights, analyzes the impact of the new laws, and explores emerging best practices for a more equitable future.
"Regulatory changes have already led to significant changes in company practices, encouraging them to take Human rights."
The State of Human Rights
Can you give us an overview of the current Human rights situation worldwide, and more specifically in Europe? What are the main Human rights abuses observed today, and in which sectors/countries are they most frequent?
The global Human rights situation is vast and complex, encompassing a diverse range of rights that have been recognised and codified over time, in particular by the Universal Declaration of Human Rights (1948). These rights fall into several categories. There are, for example so-called “negative
rights". These rights guarantee individual freedoms which the State must avoid infringing (such as freedom of expression). There are also “positive rights” which are often economic, social or cultural which require active intervention by the State in order to be exercised (such as the right to social
security).
Another dichotomy exists between individual and collective rights. Collective rights linked to issues of sustainability or interconnection with the planet, are beginning to be defined as evidenced by the recent recognition by the United Nations General Assembly of a right to a healthy environment and clean air. It is easy to understand the diversity of subjects and, inevitably, the differences in vulnerability in different national contexts.
Regarding the relationship between business and Human rights some indicators give cause for concern. For example, child labour is currently estimated at 160 million children worldwide, the vast majority of them in sub-Saharan Africa, mainly in agriculture. Following a fairly sharp reduction over the last decade, estimates point to stagnation or even an increase worldwide. The forced labour is estimated at 27.6 million people in 2022, 5 million more than in 2017. Cases of forced labour can be found on every continent and in a wide range of sectors, including services, manufacturing and construction.
On the European continent, child labour is not a major problem but there are differences from country to country. The forced labour is a cause for concern with a prevalence of 4,4 per 1000 in Europe and Central Asia. A holistic view should also look at the extent to which economic activities,
imports and consumer practices on European soil contribute to child labour and forced labour outside European territory, as is the case for greenhouse gas emissions.
Overall, current trends reveal that on issues such as child and forced labour, the EU's objectives established by the international community in the context of the SDGs (elimination by 2025 and 2030 respectively) are unreachable. It is crucial to think about the actions that need to be taken in
Europe to rectify this situation.
Impact of New Regulations
In your opinion, have new regulations such as the CSRD (Corporate Sustainability Reporting Directive), the CSDDD (Corporate Sustainability Due Diligence Directive), and the forced labour regulation started to show signs of improving Human rights? What are the main challenges facing these regulations in their implementation and application?
It is essential to examine jointly these new regulations aiming to improve the transparency and harmonisation of extra-financial communications on sustainability. The CSRD aims to harmonise a fragmented framework, enabling companies to better reflect their performance. The CSDDD imposes obligations of due diligence on Human rights and the environment. Finally, the ban on importing export or marketing products manufactured using forced labour reinforces this regulatory coherence.
In terms of impact, it is still too early to make a definitive judgement, as these regulations are gradually coming into force. However, now that the content of the texts is known, it is possible to observe how companies are beginning to structure themselves in order to comply with them.
Companies, particularly European multinationals are organising to respond to the new requirements of these regulations. The sustainability, purchasing or finance have to change their practices to avoid potential material, reputational and legal reputational and legal risks.
There is little hindsight on such legislation and its real impact on Human rights. By looking at comparable initiatives, such as the US provisions banning the import of products derived from forced labour, we can see that companies are adopting ambivalent attitudes. While some choose to engage in constructive dialogue with at-risk suppliers, in line with the legislator's expectations, others choose to abruptly sever business relations, which can have dramatic consequences for workers who are already vulnerable.
In short, although the aim of these texts is to promote responsible corporate conduct, the actual consequences on the ground remain uncertain. Moreover, it is worth noting that the introduction of the European regulation on forced labour was not accompanied by an in-depth impact study,
raising legitimate questions about its implementation and its potential effect on forced labour situations.
Regulations on forced labour products
Can you explain the importance of laws banning the import of products made using forced labour, such as the US Tariff Act, section 307. How do they fit into the wider framework of Human rights protection?
The idea of imposing trade sanctions on products produced as a result of Human rights violations goes back a long way, particularly to the slave trade and slavery. Boycott movements already existed to oppose the marketing of such products.
In the United States, prohibition mechanisms were introduced as early as the 1930s with a law oncustoms duties which, among other provisions, allowed customs authorities to seize products before they entered the American market if they were manufactured, in whole or in part, using forced
labour. This raises complex legal issues, particularly concerning the definition of "in part". For example, if a product contains 0.001% of an ore derived from forced labour, it can technically be seized. This text embodies a powerful and repressive approach to the protection of Human rights.
In contrast, mandatory due diligence is generally perceived as an incentive-based approach (“carrot” logic). The legislator encourages virtuous behaviour and imposes a due diligence obligation on companies. The aim is to encourage proactive approaches to the identification, assessment and
correction of Human rights risks.
The mechanisms for banning imports of products derived from forced labour are based on a coercive approach. The legislator has the power to sanction players who do not comply with the rules, thereby creating a deterrent. This text addresses a sensitive issue for companies: their ability to
export their products to the American market without obstacles. For companies dependent on this market, being denied access to the US market represents a significant threat.
In the case of the European regulation, the framework is more sophisticated: it blocks not only imports into the European market, but also exports from the European market and the sale on the domestic market of products manufactured locally using forced labour.
In short, the idea is clear: to protect Human rights effectively, we need powerful tools that pose a strong threat to companies and force them to comply.
What concrete impact have these regulations had so far on company practices and on the fight against forced labour?
To assess the concrete impact of these regulations, it is interesting to look to the United States, where measures have been in force for several years, enabling tangible results to be measured. One striking example is the rubber latex glove industry. In 2021, a series of import bans were put in place,
targeting several Malaysian companies, including Top Glove, the main player in the market, in response to suspicions of forced labour in the value chain.
This decision by the American authorities had significant consequences: shipments of gloves were blocked in American ports, resulting in considerable financial losses for the company. The gloves, essential in the context of the COVID-19 pandemic, found themselves blocked by customs, with financial consequences and a risk of product deterioration pending resolution of the case.
On the stock market, Top Glove, which had experienced an explosion in sales during the pandemic, saw its market capitalisation fall to levels similar to those prior to the health crisis, despite continuing
strong demand. Although there are no specific due diligence laws in the US or Malaysia, this situation forced Top Glove to adopt due diligence practices, identify forced labour issues and review its production processes.
This example illustrates the powerful impact of these regulations, showing how they can encourage companies to act more responsibly. However, it is important to note that other cases have shown less favourable consequences, highlighting the complexity of implementing such measures.
In summary, this type of regulation has already produced significant changes in business practices, forcing companies to take ethical and social issues into account. However, results may vary, and some companies may face challenges in adapting to the new requirements.
Companies reactions
How are companies reacting to the new Human rights regulations? Do you see a clear desire for change or rather a minimal compliance approach?
The situation is rather fragmented and gives the impression of a certain amount of trial and error. This can be explained by the fact that the legislative texts are arriving with a delay, even though the European legislator is seeking to align and ensure consistency. This lack of synchronisation makes it difficult for companies to understand the legislation, as they would be able to act more uniformly if they had a clear and coherent framework.
Take the example of forced labour: these crimes are complex and difficult to identify. Companies may be exposed to various forms of forced labour, each requiring an adapted answer. This may involve changes in purchasing policies, Human resources or occupational health and safety policies, depending on the nature of the business, its location and the risks it faces. This is why approaches such as due diligence, risk mapping and individual situation analysis are crucial.
What is undeniable, however, is the groundswell of reaction from many companies. Although they are doing so in different ways, it is rare to find a company that does not feel concerned by these issues. The motivations behind these reactions may include changes in leadership, pressure from
investors or consumers, or fear of legal action and media controversy.
In my view, many companies are adopting a compliance approach. Global estimates on child labour and forced labour are known to those interested in these issues and are public data that were available well before legislation was passed. Despite the existence of these figures, it is tragedies
such as the Rana Plaza industrial accident in Bangladesh in 2013 that act as an accelerator, both in the emergence of legislation and in changes within companies.
That said, even such high-profile events have not led to a radical change in corporate behaviour. While some are showing a real desire to change, this is not necessarily the case for the majority. For many, the emphasis is on minimal compliance, which is understandable in a context where risk is
becoming increasingly material and real. This desire for compliance is a positive first step, but it needs to be backed up by a deeper commitment to respecting and promoting Human rights.
Do you have any examples of good practice that certain companies have put in place to respect and promote Human rights?
There are many examples of good practice in Human rights, covering a wide range of subjects. However, it is difficult to find a company that perfectly respects all the criteria, even when we focus solely on fundamental rights at work: freedom of association and collective bargaining, the fight
against forced labour and child labour, the prevention of all forms of discrimination, and health and safety at work. This highlights the scale of the task ahead.
Historically, in the absence of specific legislation, certain practices that could be likened to abuses of fundamental rights at work have been tolerated. For example, some companies have been able to adopt openly anti-union positions, without this leading to sanctions.
Some companies have taken interesting measures, for example by revising their recruitment policies, particularly with regard to migrant workers. These changes may have been triggered by scandals or increased media exposure, highlighting shortcomings in due diligence and recruitment
policies for low-paid workers. Debt bondage, an indicator of forced labour, can exist in a company's value chain if there is insufficient vigilance.
By taking a closer look, virtuous practices can be discovered, sometimes even on a sectoral scale, through multi-stakeholder alliances tackling specific issues. However, CSRD may reveal that some companies, although recognised for their efforts on a given issue, are neglecting other aspects of
Human rights. A holistic view is crucial in assessing the overall Human rights performance of companies.
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