Multi-Stakeholder Initiatives and Mandatory Due Diligence

While it might seem counterintuitive, as business and human rights continues a sprint toward a mandatory paradigm, voluntary multi-stakeholder initiatives (“MSIs”) are perhaps more important than ever before. MSIs provide frameworks for engagement between business and civil society, and often for other important stakeholders as well, such as government, academics, international institutions, and investors. MSIs typically are formed around a specific issue or industry, and commonly develop standards for corporate conduct around that issue or industry, along with tools to assist with implementation and forums to discuss how those standards can be applied in challenging situations. In an era where mandatory human rights due diligence laws are being announced and adopted at a rapid pace, the role of MSIs in developing calibrated standards of practice through an inclusive and engaged approach will be critical in defining the baseline principles against which corporate conduct will be assessed by courts, governments, rights-holders and other external stakeholders.

Mandatory Human Rights Due Diligence Laws & MSIs

Over the past 2 years, domestic and regional human rights laws and regulations have been proposed, adopted and implemented at a blistering pace. Some are highly specific, such as the European Union (“EU”)’s initiatives on sustainable finance, digital services, batteries and deforestation, each of which has a component requiring human rights-related due diligence. Others are more general and sector-agnostic, such as the supply chain due diligence laws in Norway and Germany, new U.S. export control diligence requirements, or the forced labor import ban under Section 307 the U.S. Tariff Act of 1930.

In terms of governance and philosophy, the compulsory nature of these laws, with government enforcement, are premised on a different theory than MSIs, which are voluntary. MSIs have existed for more than three decades. As noted by the civil society organization MSI Integrity, a civil society organization focusing on whether and how MSIs protect and promote human rights, “MSIs currently operate in almost every major global industry.” Unlike Private-Public Partnerships (PPPs), which generally create funding and risk-setting agreements between governments and the private sector, and industry associations, which primarily involve corporate members, the fact that MSIs generally include at least both industry and civil society can give them an inherent level of credibility in their principles and tools. Indeed, several leading MSIs, such as the Voluntary Principles on Security and Human Rights and the Global Network Initiative, play pronounced roles for the sectors and issues that that they cover, outlining good practice for MSI members and non-members, and providing detailed implementation tools, assurance standards and reporting requirements. Dozens of other MSIs also exist, covering a wide range of subjects, including artisanal and small scale mining, the production of footwear and apparel, fishing practices, global cotton production, forestry, sustainable coffee, tourism, batteries, and water, to name a few. Those MSIs may address an array of human rights risks associated with the industries they cover, from freedom of expression and privacy, to child and forced labor, to health and safety, to corruption, to deforestation.

How MSIs Can Help Define Good Practice Under Mandatory Human Rights Due Diligence Laws

MSIs have not been free from criticism, particularly around corporate accountability and providing meaningful access to remedy. That criticism has contributed to the current environment, where governments are rapidly proposing and adopting laws and regulations that mandate human rights due diligence, grievance mechanisms, and civil and regulatory enforcement schemes. Indeed, the subject matters covered by some MSIs may substantially overlap with new or proposed targeted laws and regulations.

That overlap might be misconstrued to suggest that the voluntary codes of MSIs have been supplanted by mandatory legal regimes, rendering them obsolete. In fact, leading MSIs – in which an array of prominent corporate actors, civil society organizations, and other stakeholders participate – have an opportunity to play particularly critical roles. In general, the laws being adopted outline the general steps associated with human rights due diligence – (1) assessing and identifying adverse risks and impacts, (2) taking steps to prevent or mitigate those impacts, (3) evaluating the effectiveness of those steps, and (4) disclosing publicly the company’s risks, mitigation efforts, and the approach to measuring their effectiveness. The laws are process-driven, and do not contain detail regarding how companies should reasonably carry out those four steps, even when addressing specific sectors or issues. Nor do they include principles against which a company’s due diligence approach can be readily judged, or guidance about how due diligence can be effectively undertaken where human rights complexities are present.

In fact, reasonable human rights due diligence cannot proceed under a “one-size-fits-all” approach. For laws that are sector and issue neutral, such as supply chain due diligence initiatives, reasonable due diligence for a cocoa company may be very different from that of apparel, energy, or transport companies. Those distinctions are equally present even with regulations that are sector or issue specific. For instance, under the EU Digital Services Act, seeking to limit the spread of illegal content online, the diligence of hosting services, marketplaces, and online platforms each will be highly divergent. The same is true under the EU batteries regulation, which mandates human rights due diligence for the raw materials and production of all types of batteries imported and sold in the EU, including portable batteries, SLI batteries (supplying power for starting, lighting or ignition of vehicles), light means of transport (LMT) batteries (providing power for the traction to wheeled vehicles such as electric scooters and bikes), electric vehicle (EV) batteries and industrial batteries.

Leading MSIs are particularly well-suited to provide that missing detail. Indeed, the groundbreaking draft Corporate Sustainable Due Diligence Directive (“CSDDD”) expressly recognizes as much, stating that companies can rely on the standards set by leading MSIs to support implementation of their due diligence obligations. While there may be substantial disagreements between the EU Council, Parliament and Commission over the contours of the CSDDD, all three at least agree on that aspect. The reason is clear. Leading MSIs can:

• Create detailed standards that outline reasonable company conduct in the relevant sector and/or around particular human rights issues and challenges;
• Develop measures to allow companies to identify and address the specific risks and impacts that may arise within those sectors and/or around those issues and challenges;
• Generate guidance and tools to assist with assessing implementation of those standards, including how to consider whether the standards and measures are effectively mitigating relevant risks and impacts;
• Offer forums through which companies, civil society and other expert stakeholders can discuss how the standards and measures can be implemented in particularly challenging settings, integrated into new technologies, or applied against emerging practices;
• Establish reporting frameworks specific to the industry or issue, in which MSI participants can disclose their due diligence approaches; and
• Build governance and oversight mechanisms to create confidence that companies are abiding by relevant principles of good practice to generate alignment with relevant legal regimes.

The fact that leading MSIs operate through an engaged approach that involves industry, civil society and other stakeholders, often including governments, affords their due diligence standards and tools a high level of persuasiveness and authority. Further, leading MSIs generally offer a forum that allows members to discuss and debate how those standards can be applied in challenging settings, offering additional benefits. Without MSI leadership, it will be left to courts and regulators to define what constitutes reasonable practice, even though they may lack subject matter expertise, the benefit of in-depth multi-stakeholder engagement and a sophisticated understanding of how due diligence can be applied in complex settings. Of particular concern, those court- or regulator-driven definitions may not be fully consistent with established corporate good practice -- forcing companies to adjust and potentially undermining effectiveness-- or take into consideration all potential adverse human rights impacts, increasing the potential for harms to individuals and communities.  Indeed, commentaries on recent cases brought in front of the French courts in the context of the Duty of Care legislation state as much.

Conclusion

For leading MSIs, the movement toward mandatory human rights due diligence is not a threat, but an opportunity. MSIs can outline reasonable and actionable practice within their spheres of expertise, providing substance and definition to the skeletal processes contained within the new laws and regulations. It may be necessary for leading MSIs to generate new tools and materials specifically aligned with human rights due diligence frameworks, and to use their forums to generate engaged dialogue around those approaches. Leading MSIs have the chance to help shape how new mandatory due diligence laws will be applied and that chance should not be missed.