An Open Goal for Investors

Richard Gardiner, EU Public Policy Lead at the World Benchmarking Alliance, says CSDDD offers a rare opportunity to improve corporate human rights risk accountability.

The EU’s recently approved Corporate Sustainability Due Diligence Directive (CSDDD) has the potential to systematically change the way corporations approach their human rights risks, both within their operations and supply chains. It will do this by setting a legal baseline outlining exactly how the largest multinationals operating in the EU are expected to address these risks across their global supply chains.

The passing of this law has been hailed as a significant victory in the sustainability community. Investors in particular should be paying close attention to these developments, as CSDDD presents both challenges and opportunities that can significantly impact their portfolios.

Why CSDDD matters to investors

One of the most compelling reasons for investors to care about and invest time in understanding CSDDD is the enhanced leverage it provides. The law offers a legal and political framework to mandates companies to proactively tackle their human rights risks, which investors can utilise to push for greater corporate accountability. By directly referencing these legal obligations, investors can exert pressure on companies to engage more deeply with human rights issues within their value chains. Unlike the existing voluntary global standards, the leverage provided by CSDDD is not just theoretical. It has practical implications for improving corporate behaviour and, by extension, protecting the long-term value of investments.

Investors are not merely passive observers of corporate performance but have a proactive role to play. By incorporating CSDDD in their responsible investment practices, investors can ensure that the leverage provided is not just a by-product of the law but becomes a mainstream expectation across the investment community. This mainstreaming is vital for preventing and addressing both current and potential negative impacts on people, managing financial risks, and meeting the evolving expectations of beneficiaries, civil society, regulators and clients.

Current landscape and investor opportunities

This pressure point is more important now than ever. Data from the World Benchmarking Alliance’s Corporate Human Rights Benchmark (CHRB) underscores the urgency of CSDDD. Although 66% of benchmarked companies in high-risk sectors have demonstrated improvement on key human rights indicators, a staggering 40% still disclose no or insufficient evidence of a human rights due diligence process. This indicates a significant gap between current practices and the standards that the CSDDD aims to enforce. Investors, armed with the

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Standards Review Puts Labour Issues Centre Stage

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Human Rights as a Basis for Climate Litigation

Olga Hancock, Head of Responsible Investment, Church Commissioners for England, explores the implications for investors of the EHCR decision on Swiss government inaction.

In November 2023, I wrote about the links between human rights and climate change for investors. Since then, there have been significant developments. One in particular stands out.

Last month, the European Court of Human Rights (ECHR) determined that the Swiss government had violated its citizens’ human rights, due to its lack of action on climate change. The case – Verein KlimaSeniorinnen Schweiz v Switzerland – was brought by four women and a supporting association who were concerned about the consequences of climate change on their living conditions and health.

The ECHR ruling is significant because it makes the link between human rights and climate change material for investors – and establishes a legal precedent for climate litigation on the basis of human rights law. And so this ruling inevitably raises the pressure on governments to be more ambitious on climate change. The case is also important for investors because of the implications for private legal actions.

So what happened?

To simplify: the ECHR ruled that the Swiss government had not adequately addressed its climate change obligations and needed to take measures to do so. Significantly, these obligations were defined as alignment around 1.5°C, adequate intermediate reduction targets, and a goal of net zero by 2050. For the 46 member states of the ECHR, that effectively imposes obligations to enhance climate mitigation policies.

Engagement with governments

The decision hands investors an important weapon as they engage with governments to enhance climate ambition. Investor engagement with governments is an increasing area of focus, as investors move from a stewardship approach focused on company engagement to collaborative engagement with governments to address systemic risk – and thus create an enabling environment for sustainable investments.

Governments have to date been able to respond to investors by saying that their requests to create a Paris-aligned enabling environment form part of a broader political process. Now there is a judgment which requires ECHR member governments to comply with the ambition of the Paris Agreement.

This decision will no doubt guide other judicial bodies’ thinking around the world, when considering human rights as the basis for climate litigation. The jurisprudence in EHCR rulings, whilst not binding, is considered ‘persuasive authority’ in other jurisdictions, so the case is also important for engaging with governments outside

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Diversify for a Just Transition

Anita Dorett, Director of the Investor Alliance for Human Rights, warns of the pitfalls of relying on social audits to address state-sponsored forced labour risks.

Given multinationals’ complex global supply chains and trading relationships, the vast majority of today’s goods are sourced and produced far from where they are sold and consumed. For this reason, to meet their responsibilities under the UN Guiding Principles on Business and Human Rights (UNGPs), companies must ‘know and show’ where human rights risks may be present at every link in their global supply chains.

To address supply chain risks, companies are expected to disclose all their suppliers and business relationships throughout the entire supply chain, develop stringent supplier codes of conduct, and implement robust monitoring systems to ensure their codes are being enforced on the ground. Third-party social and labour audits and related supplier certifications have long been the go-to method for supply chain monitoring, noting that there are significant shortcomings with these programmes. Where these programmes fail, however, is in geographies where state-imposed forced labour is prevalent. In these cases, even the best-intentioned of such risk-assessment schemes are rendered wholly unverifiable and, therefore, meaningless.

Prohibited practices

Distinct from forced labour imposed by private actors like companies or individuals, state-imposed forced labour is compulsory labour enforced by state or governmental authorities. According to Walk Free’s Global Slavery Index, in 2021, 3.9 million people were forced to work by state authorities.

The International Labour Organization’s (ILO) convention No 105 expressly prohibits state-imposed forced labour. State-imposed forced labour is often implemented as a means of political coercion or ‘re-education’ or as a punishment for expressing dissenting political views; as a method of mobilising labor for economic development; as a means of labour discipline; or as a means of racial, social, ethnic, or religious discrimination. State-imposed forced labour can be found in 17 countries including Uzbekistan, Turkmenistan, Eritrea, North Korea, and China.

Nowhere is this pernicious form of human rights abuse better illustrated than the Chinese government’s long-term repression and enslavement of people in the Xinjiang Province (Uyghur region). The pervasive use of state-imposed forced labour programmes, enforced through an extensive surveillance system in the Uyghur region, vividly illustrates the impossibility of conducting credible supply chain human rights due diligence where the state controls the outcome.

According to auditors, they are only given limited access to worksites, can only inspect a curated ‘snapshot’ of factory conditions,

EU Corporate Sustainability Law Falls Short

The final text has sparked mixed reactions from the industry, with some criticising the reduced ambition of the directive.

The Corporate Sustainability Due Diligence Directive (CSDDD) was finally approved by the European parliament last week after months of tense negotiations, ending fears that the policy may never materialise.

But the version now set to become law is a much weaker piece of legislation than the one originally proposed two years ago, and as such, has drawn criticism from industry members.

The law aims to hold large European businesses accountable for environmental and human rights abuses across their entire supply chain, no longer permitting them to turn a blind eye to environmental and human rights abuses beyond the EU’s borders.

The European Commission released the first draft of the CSDDD in February 2022. The law was due to force big companies to identify, report and prevent the adverse impact of theirs and their business partners’ operations on human rights and the environment. It was also due to require them to adopt clear carbon emission reduction plans.

At the end of last year, the law’s passage through the EU’s two legislative bodies – Council and Parliament – looked guaranteed. But following pressure from some member states, the requirements were significantly scaled back, eventually resulting in the approval of a watered-down version by the council in March.

Under the final text approved by the parliament last Wednesday, far fewer companies will be subject to the rules than originally intended. In addition, the directive’s roll-out has been delayed and will not be fully implemented for five years, and the financial sector will be exempt from conducting due diligence on customers.

Mixed feelings

Supporters expressed some relief that the CSDDD was passed in time before this summer’s EU parliamentary elections – in which polls suggest right-wing parties may make gains – but were critical of its reduced requirements.

Aleksandra Palinska, Executive Director of sustainable finance industry body Eurosif, called its passage through parliament a “major political breakthrough”.

“However, we do regret the last-minute changes which reduced the ambition of the directive, including significant limitation of the scope, a complete removal of the provision on financial incentives for the promotion of transition plan implementation, and a lengthy phase-in period,” she said.

Palinska told ESG Investor that it was “very likely” the directive would not have passed if it had happened after the elections, when a more

Big Tech Fails to Account for Israel-Palestine Role

Investors have taken action through engagement and exclusion but are being encouraged to double up efforts to increase transparency in the sector.

Research conducted by the Business & Human Rights Resource Centre (BHRRC) has revealed the extent to which tech companies are failing to take responsibility for fuelling the Israel-Palestine conflict, highlighting the crucial role that investors can play in setting the record straight.

In December last year, the BHRRC invited 115 tech companies operating in or providing services to the Occupied Palestinian Territory (OPT) and Israel to respond to a survey focused on transparency and heightened human rights due diligence (HRDD).

Of all surveyed companies, only three responded with specific answers – Ericsson, Hewlett Packard Enterprise (HPE) and TikTok. A fourth – Meta – responded with general information on its due diligence practices.

“Our outreach was largely met with a deafening silence, revealing that tech companies providing services to Israel and the OPT are falling woefully short of their human rights responsibilities,” said Phil Bloomer, Executive Director at the BHRRC. “We are appalled at the opacity of the tech sector given its high risk of contributing to devastation and suffering in the region. Heightened due diligence is not only a fundamental responsibility to this – but in these circumstances, makes compelling business sense.”

It is common practice for companies and investors to adhere to the UN Guiding Principles on Business and Human Rights (UNGPs) – the global standard for business responsibilities on human rights. Guidance on heightened HRDD in conflict-affected areas was also published by the UN Development Programme and the UN Working Group on Business and Human Rights in 2022. However, NGOs have noted that this guidance is largely aimed at businesses, with very little detailed information for investors.

Firms globally are facing further regulatory pressure for transparency and accountability on human rights risks, notably through Europe’s Corporate Sustainability Due Diligence Directive, but also the US government’s plans to introduce HRDD guidance to manage tech firms’ exposures.

Heightened responsibilities

Since Hamas’s attack on Israel on 7 October 2023, tech companies operating in the region have been linked to numerous human rights violations, according to the BHRRC – including the use of AI to target Hamas, censorship of Palestinian narratives, unlawful surveillance, disinformation, denial of internet access, internet shutdowns, and failure to address hate or incitement content.

The human consequences of these violations can range from facilitating civilian killings in bombing campaigns, limiting access to lifesaving