Five Questions to Evaluate Whether a Business and Human Rights or Broader Sustainability Law is “Good”

The imminent decision by the European Union to postpone for a year its complex and multi‑faceted sustainability law, the Deforestation Regulation (EUDR), is something of a surprise. The EUDR requires, among other things, due diligence that generates “adequately conclusive and verifiable information” that certain commodities—or products derived from those commodities—are produced in accordance with relevant domestic laws covering a wide swath of areas: land use, environmental protection, forest-related rules including biodiversity, labor rights, human rights, tax, anti-corruption, trade and customs, and free prior informed consent as set out in the UN Declaration on the Rights of Indigenous Peoples. And once that fistful of information on domestic legal compliance is gathered—which encompasses national, state/provincial, and even local regulations that may or may not be readily accessible—then there must then be a further assessment to evaluate whether there is a risk that goods may not be deforestation-free, which of course is the focus of the EUDR.  That assessment itself has a wide range of requirements, including levels of corruption, the prevalence of data falsification, a lack of law enforcement, human rights violations, the presence of armed conflicts, or the existence of legal sanctions. Only where the risk assessment reveals no or only a negligible risk that the relevant products are non-compliant, and there is conclusive and verifiable information of domestic legality, can the goods be imported into the EU, sold on an EU market, or exported from the EU.

Although these steps are more detailed than other such laws, past efforts by business to delay implementation of similar human rights and sustainability regulations—such as the U.S. Uyghur Forced Labor Prevention Act, the EU Corporate Sustainability Reporting Directive (CSRD), the German Supply Chain Due Diligence Act, and Canada’s Forced Labour and Child Labour in Supply Chains Act—have not had the same level of success. Indeed, while we have seen significant disagreements among experts about the meaning of basic terms related to the CSRD, a number of factors, including the intricate and opaque nature of the EUDR’s requirements, the difficulties in gaining full insights into how compliance with local laws can be understood and demonstrated, and objections from countries outside the EU whose exports would be impacted, created such fundamental disorder that that postponement apparently made more sense.

That decision to postpone implementation of the EUDR—driven at least in part by its inherent complexity and breadth—raises a related but more fundamental question: “What makes for a good human rights or sustainability law?” We first began positing this question more than a dozen years ago; we resurfaced it last year in the context of the Corporate Sustainability Due Diligence Directive in a joint paper with A2, and the issue came up again a few weeks ago at the Engaging Business Forum in Atlanta. As policymakers continue to ponder new proposals and regulations at a dizzying pace, we recommend that they ask five fundamental questions ahead of time:

• Is it solving a clear problem? A good law seeks to solve a problem that is readily identifiable or close a gap that the market is not otherwise addressing. Given the continued proliferation of global environmental and social challenges across a wide range of issues, there is no shortage of possibilities. However, we often see laws proposed that appear more reactive than thoughtfully conceived, designed to adjust behaviors by companies and even host governments that are not clearly connected to a specifically identified problem. Such efforts may be well-intentioned, but they often lead to laws that are difficult to implement from a practical standpoint. We also see “vanity” human rights-related laws, designed to portray a positive image for politicians to their constituents but which may duplicate laws already on the books or fail to address new issues or challenges. One question that might reasonably be asked regarding the EUDR is whether its coverage of sustainability issues, including the considerable detail in the local legality and risk assessment reviews on human rights and interconnected areas, are effectively and uniquely addressing extant problems.
• Is the law as targeted as possible? As a corollary to the first principle, a good law must not be broader than needed to solve the identified concern. Broad laws with vast requirements covering a wide range of environmental and human rights-related issues, goods, services, and activities have a tendency to go beyond closing a gap the market is not addressing. They become unwieldy to comply with, more difficult to interpret, and ultimately harder to enforce. The EUDR’s tentacles and coverage of multiple commodities and products derived from those commodities might be examined through this lens as well.  Further, the law should be targeted to the identified concerns and not stray into tangential areas, many of which may already be covered by other laws. The idea that environmental and human rights matters, such as mass displacement arising from climate change, are often intertwined is not wrong, but the policy signal needs to target the actual triggers that tie such adverse impacts together.
• Is it simple? A good human rights or sustainability law is easy to understand so that the steps needed to comply are readily identifiable, even if not necessarily readily implementable. Often such laws are shorter in length rather than longer. If lawmakers cannot set out the core requirements of a law in a few pages, it likely means the law is not consistent with the simplicity precept. In addition, laws with ambiguous key terms and contradictory guidance raise concerns regarding due process and the rule of law, particularly when it comes to enforcement. The same is true for laws that leave interpretation of undefined concepts like “negligible risk” to the subjective whim of non-expert regulators. Further, laws where compliance steps cannot easily be discerned are bound to pose problems; if it is not clear how to comply, compliance is likely to be erratic and, more importantly, expensive. Finally, at least in the human rights space, hard laws that are modeled on soft law principles often benefit from existing guidance on practical implementation. Policymakers might look first to what already exists in practice and try to memorialize it.
• Is it substantively coherent? Before crafting a new law, it is important to understand the frameworks that already exist and any unintended consequences that may arise. Increasingly, laws are being proposed and adopted without real consideration or reference to other laws already on the books. Where laws in a single market seek to achieve overlapping goals, it can lead to inefficiencies and unnecessary compliance burdens for companies, inconsistencies in mandates, and unclear enforcement priorities for governments. Regulators should anticipate how companies might expand or enhance existing approaches, driven by current regulations, to most readily close the gap that the new law is seeking to address. By the same token, it is important to understand the logical consequences of the law’s impact and evaluate how those consequences cohere with parallel policy objectives. For instance, some have noted that the resources needed to comply with the EUDR could lead companies to derisk and consolidate their supply chains, resulting in more limited employment options and worker vulnerability in developing markets, which in turn may increase poverty and the Modern Slavery risks that other EU-related laws are seeking to mitigate.
• How will it be enforced? While a proposed business and human rights or sustainability law may be consistent with the first four principles, it is important to consider how it will be administered before its adoption. Indeed, how the law will be enforced is in many respects as important as its content. Most laws focusing on human rights and environmental risks rely on regulatory enforcement by government agencies, whether through investigations and administrative proceedings, or civil or criminal enforcement. Some laws contemplate civil litigation brought by affected stakeholders and/or their representatives to drive corporate accountability. Pre-adoption, it is worth evaluating whether agencies have the resources and expertise to mount meaningful enforcement efforts, and if not, how to address constraints pursuant to a reasonable timeline. If not, in-scope entities may adopt a cost-benefit analytical approach to compliance, which helps no one. It also is worth considering whether judges are well-positioned to meaningfully interpret and enforce the new law, and how long it may take for that capacity to be built. The volume of potential new stakeholder-driven litigation that may ensue, and whether that helps or hurts the law’s ultimate policy objective, is another consideration.

No doubt many other considerations will come into play for regulators contemplating new human rights laws, as well they should. But while the EUDR is a broader sustainability law, as its delay suggests, before adding to the bevy of new laws that are being proposed and adopted in the space it is worth asking at least these five questions: (1) whether the law closes a specific gap, (2) whether the law is as targeted as possible, (3) whether the law is easy to understand, (4) whether the law is coherent with the existing legal frameworks, and (5) whether the law can be effectively enforced. The answers will help determine whether the law will succeed or sow confusion.