Since John Ruggie helped organize it, the folks at Shift always have something interesting to say about the evolving business of human rights and its evolving regulatory-compliance structures. That evolution, and Shift's commentaries have become more interesting still as (mainly European) states have sought to legislate within the Second Pillar of the UN Guiding Principles for Business and Human Rights (UNGP) either jump start or end run the efforts to fashion an international instrument for business and human rights that will survive its crafting in the hothouse of its drafters and their allies. In the process, the hope is to find a way to interlink these efforts so that, in the end, they will have been curated together to provide something like a substitute to an international instrument.
That, at any rate appears to be the plan to those of us not privy to the inner working of these efforts but who can only see its results and public performances. In the process, state legislation continues to reinforce a transformative pattern of legality that, though starting at the heart of the regulation of human rights and sustainability in business, will substantially reshape the character and role of law in developed states. At the heart of the transformation is the movement of corporate regulation away from developing the parameters for corporate governance regimes driven by its key internal actors as they sort their power relations:--officers, shareholders, and the board of directors. Here corporate governance was assumed as essentially driven by private law under the constraints of statutory borders. Instead, corporate governance regulation assumes more the character of traditional public administrative law--one grounded on the twin pillars of highly regulated civil liability (either undertaken by individuals vindicating their rights, or by agents of the state vindicating their rights for them) and administrative supervision (undertaken by public officials directly through supervised compliance programs or indirectly through disclosures under rubrics like "Environmental, Societal, and Governance" (ESG) frameworks).
In the process, law changes its character. It becomes first a pathway for transmitting international standards onto the regulatory environment of administrative supervision without recourse of legislation (or than a general provision empowering the delegation of this regulatory and administrative projects to an un-elected bureaucracy). Fair enough; modern administrative law has been built by a century's long effort to cleverly interpret its way around otherwise constraining constitutional limitations. It becomes the means of constituting the apparatus for administrative supervision (and thus shifting its character from a behavior regulating to a constituting function into which the power to develop and force behavior rules is transferred. That project is the foundation necessary for the legitimization of contemporary compliance based supervisor regimes. Also fair enough as behavior regulating law becomes too difficult an enterprise for modern legislatures. And it becomes a means by which the autonomy of individuals and corporate governance stakeholders, expressed through the arrangement of private relations through social norms and contract, are diverted toward the administrative official. who undertakes the role of parens patriae for individuals, and the core of corporate governance is shifted from the internal relations among key actors, toward the impact of production on key stakeholders.
The European Union's current effort to develop a coordinated system of civil liability and robust administrative supervision of enterprises--grounded in the nationalization of international standards the operationalization of which will be delegated to enterprises--holds much promise to both (1) derail the progress toward an international legal instrument (by making it substantially irrelevant); and (2) develop regulatory structures with potentially global effect (at least within certain fields of production). Enter Shift to offer a guiding hand through its recently distributed: Aligning the EU Due Diligence Directive with the International Standards: Key Issues in the Negotiations-- SHIFT’S ANALYSIS (October 2023) (authored by Rachel Davis with input from Ruben Zandvliet).
Right now, the EU is in the process of negotiating a legal instrument that will establish new corporate human rights and environmental due diligence duties across the single market – the draft Corporate Sustainability Due Diligence Directive (CS3D). At the heart of the negotiations is how to ensure the CS3D is meaningful in driving better human rights and environmental outcomes while also being manageable for companies. The international standards on sustainability due diligence – the UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises (OECD Guidelines) – help answer precisely that question. So it is not surprising that the positions of the institutional negotiators have increasingly built on the core concepts in those standards as the process has moved forward. (Aligning the EU Due Diligence Directive with the International Standards , supra, p. 3).
In its web Press Release, Shift offered an image pointing to the thrust of its analysis and guidance:
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| Pix Credit: Shift Online Press Release |
The thrust is clear: "In this report, Shift takes stock of where progress has been made – and where work still remains – to ensure greater alignment between the positions of the three EU political institutions – the Commission, Council and Parliament – and the international due diligence standards." (Shift Online Press Release). That progress, of course, would be highly transformative, in the context of moving traditional core principles of corporate governance, of the function economic activity, and of the division of the roles of the state in fostering economic activity and private individuals in negotiating their social and risk relations in production. This is not necessarily a bad thing, though it is one that might benefit from a more forthright exposure to the political process on which the democratic legitimacy of all of this transforming will ultimately depend. But the antiseptic of transparency and engagement is difficult to apply to the work of experts and technocracies which style themselves as situated above (or beyond politics). But that is also a political decision that ought not to be left to them. Perhaps, though, a century of shifting power, from elected to administrative officials, has also shifted the boundaries of politics--and the scope of the exercise of political rights within the constitutional traditions of developed states. In that case, one might argue that there are no politics around science, and facts--nor in the interpretive science of extracting and accepting their character as science or facts.
In any case, the transformation focuses on a shift from a risk calculus centered on the relations of internal actors in production (officers, directors, shareholders, and others who by statute or contract enter into risk-reward relations with the enterprise) to one focus on impacts to stakeholders. It also represents a shift in the purpose of production from one grounded on profit to internal actors (equity holders, but also those with fixed risk interests--banks, trade creditors, labor, and the like) to one measured (though still quantitatively) by benefit to society. That benefit to society is measured by a "do no harm" principle that is fleshed out by normative principles (that still vary from ideological system to another), even when there is agreement on its meta-conceptions (environment, sustainability, social justice, development, and the like). It therefore realigns the fundamental purpose of collective economic enterprise--to create incentives towards risk taking, and therefor to create a space for innovation and long term increases to collective social welfare. In its place, economic activity is to be centered not just on a "do no harm" principle (however that is defined normatively), but also on a "prevent-mitigate-remedy" principle, in which (at least with respect to impacts tied to privileged normative values) might contribute to adverse effects. Economic activity, in this sense, has moved from risk encouraging to risk aversion. All of this is well known, though not much discussed, as the principal actors driving (and resisting) this movement tend to focus on the micro-analytics and micro-politics of the process. Big picture debates do not get people anywhere--especially those with agendas that can shift values on the ground without the need to mess with ideas until they have been transformed and it is safe to talk about them from a position of greater legitimacy and authority. None of this is necessarily good or bad--but it represents a normative change the scope and tenor of which will have to be fully elaborated in order to rationalize the effects of this shift throughout relevant legal orders. And at some point the constitutional issue will have to be confronted, or a means found to dismiss that impulse in some sort of authoritative (enough) way.
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| Pix Credit: Aligning EU Due Diligence pg. 13 |
All of these regulatory trajectories are nicely embedded (to some greater or lesser extent, though the trajectories are clear enough) in the European legislation. And that makes the effort important enough for important civil society actors like Shift to seek to guide the effort. The guidance is meant to serve a coordinating function--it seeks to align the EU's regulatory project with international soft law standards that represent something as close to consensus (for all its ambiguity) as is possible in the international order as it exists in the current era of its development. What makes the guidance most interesting, of course, is what it reveals about the fundamental nature of the project--its development of an oversight apparatus grounded in the exercise of administrative discretion bounded by statute, rules and norms. In that framework, control is a function of th ability to determine the parameters within which administrative discretion is to be exercised. In that context, the power to coordinate exercises of discretion, both as to their exercise and the definition of their limits, determines the extent of the authority to manage and control the business of human rights through these structures.
Shift's guidance may be accessed HERE: Aligning the EU Due Diligence Directive with the International Standards: Key Issues in the Negotiations-- SHIFT’S ANALYSIS (October 2023). Also of interest is Shift's analysis of the EU proposed regulation: The EU Commission’s Proposal for a Corporate Sustainability Due Diligence Directive SHIFT’S ANALYSIS (March 2022).
The section of Shift's Aligning the EU Due Diligence Directive with the International Standards touching on the shift in civil liability and administrative supervision (ibid., pp. 25-29) follows below.
ENFORCEMENT: HOW CAN CIVIL LIABILITY, ADMINISTRATIVE SUPERVISION AND ACCOMPANYING POLICY MEASURES BEST SUPPORT EFFECTIVE DUE DILIGENCE?
1. Civil liability:
What do the international standards say?
The UNGPs do not prescribe how the involvement framework maps to civil liability under
national law. However, they are explicit that conducting due diligence should help a company
address the risk of legal claims against it by showing that it took every reasonable step to
avoid causing or contributing to harm, thereby recognizing the relevance of due diligence as
a defense to civil liability. The UNGPs are also clear that companies should not assume that
conducting due diligence will on its own completely absolve them from liability for causing or
contributing to harm – meaning that due diligence should not function as a ‘safe harbor’ in the
sense of a total bar on claims.
The UNGPs reiterate the fundamental duty of states to take appropriate steps to ensure access
to effective remedy for business-related harms, including through judicial mechanisms. They
recognize that claimants in cases alleging harm involving businesses often face significant legal
and practical barriers to accessing justice and that states should take appropriate steps to reduce
these, particularly for individuals at heightened risk of vulnerability or marginalization.
What would closer alignment look like?
In the Commission’s proposal, liability applies in case of any failure to meet the duty
where damage occurs – meaning that the scope of the duty and liability are the same.
The Commission created a rebuttable presumption against liability in Art 22(2) where
a company has put in place contracts and accompanying audits with an indirect business
relationship. Not only is there a lack of evidence that such measures can be an effective
way to address impacts deeper in a company’s value chain, this approach is in tension with
the need to evaluate the appropriateness of a company’s due diligence as a whole in any
particular case.
The Council and Parliament positions instead focus on the fundamental role of a causal
link (whether through sole causation by the company or a form of contribution) between
a company’s due diligence failure and a harm. Requiring a causal link between a fault and
harm is common to many national systems. This also mirrors the approach in other EU
laws, for example on product liability. The appropriateness or quality of a company’s due
diligence is then relevant as a potential defense to liability. All three positions recognize,
for example, that account should be taken of any remedial steps already taken by
a company.
The three political institutions importantly agree that the provisions of the CS3D should
be of ‘overriding mandatory application’ where the applicable law would otherwise not
be the law of the Member State (broadly meaning that it will apply to any disputes in
Member State courts even if the impacts occurred in a non-EU country). While none
of the positions reverse the burden of proof, the Parliament position does include other
critically important aspects of enabling access to justice in Art 22(2a), many of which have
been highlighted in the commentary to UNGP 26, in OHCHR’s Accountability and
Remedy Project and by the EU Fundamental Rights Agency as issues requiring Member
States’ attention and which should be addressed in the final text and through appropriate
accompanying measures. 19
2. Administrative supervision:
What do the international standards say?
The UNGPs reflect the expectation that states should provide effective and appropriate
non-judicial mechanisms, alongside judicial mechanisms, as part of a comprehensive
state-based system for the remedy of business-related human rights abuse. As work
by OHCHR and Shift has shown, administrative supervisory mechanisms can
play an essential and complementary role to civil liability by providing guidance to
business and driving improvements in practice as well as functioning as non-judicial
complaints mechanisms.20
When acting as state-based grievance mechanisms, administrative bodies should also
meet the criteria in GP 31. The UNGPs recognize the particular role of National
Human Rights Institutions in this regard.
What would closer alignment look like?
The Commission’s proposal set out a complementary enforcement approach, encompassing
civil liability and administrative supervision. Member States will be required to nominate
‘supervisory authorities’ and should pay particular attention to their legal and functional
independence from the companies that they are intended to regulate, including through
robust conflict of interest requirements. This is essential to their effectiveness and to
ensuring that stakeholders trust the work of these authorities.
Administrative authorities should be given powers to investigate on their own initiative,
to receive ‘substantiated concerns’ and to impose ‘effective, proportionate and dissuasive’
sanctions. It will be important that the final text specify what is reasonable in this regard
to to ensure effective deterrence and prevent against fragmentation in Member State
approaches. The Commission proposal also acknowledged the need to give companies
reasonable time to address a due diligence failure or harm wherever possible before
imposing sanctions.
The Commission recognized that the normal process of administrative review would
ensure that either party could challenge supervisory authorities’ decisions in national
courts. It also emphasized that Member States should ensure cooperation among such
authorities, including through a European Network, which will be vital given the wide-
ranging nature of the issues and sectors that national authorities will be required to
engage with.
The Parliament position adds a critical focus on transparency, including the requirement
that authorities publish a list of covered companies, which has been missing from existing
national approaches and is essential for stakeholders to engage effectively with authorities.
The Parliament also emphasizes that the complaint function needs to meet the minimum
effectiveness criteria in the UNGPs (which, as noted above, apply both to state and non-
state based mechanisms).
Administrative authorities will have a particular role overseeing the separate regime of
climate transition plans under Article 15. Problematically, the Council position limits this
role to checking the existence of the plan only, which invites a paper compliance exercise
and will not give stakeholders – whether lenders, investors or NGOs – any confidence in
their robustness or reliability. This should be avoided in the final text.
3. Accompanying policy measures:
What do the international standards say?
The UNGPs set out the expectation that states should work to ensure policy coherence
across the full range of departments and agencies that deal with business conduct.
They should provide guidance to businesses on how to meet their due diligence
responsibilities with a focus on expected outcomes. States should take additional steps
to protect against harms by businesses that are state-owned or controlled or that receive
significant support or services from the state (such as through export credit, development
finance or trade promotion support). And they should promote the need for businesses to
meet their responsibilities through public procurement.
What would closer alignment look like?
There is a strong focus on support to EU businesses across all three positions, including
through guidance and national help-desks and platforms. Clearly authoritative guidance
from the Commission on implementation will be important but it must involve
engagement with both OHCHR and OECD as the bodies tasked with interpreting the
international due diligence standards. The Parliament has recommended a long list of areas
where the Commission should provide guidance; it will be important to focus initially
on core concepts that are most likely to affect whether due diligence is carried
out meaningfully.
All three positions recognize that industry and multi-stakeholder initiatives will naturally
play a role in the implementation of companies’ due diligence obligations, but that
recognition of this role should depend on the extent to which they are appropriate to
support effective due diligence. The Parliament position is most nuanced in recognizing
both their value and limitations: initiatives are typically valuable in relation to specific
aspects of due diligence rather than as a ‘one-stop-shop’ for due diligence – such as
supporting sector-wide risk identification, providing tools for mitigation of specific risks,
coordinating the use of companies’ leverage to enable remediation or providing access
to a shared grievance mechanism (in Art 14(4)). It is also explicit that participation in a
scheme does not automatically affect civil liability; it will of course be a factor to be taken
into account by enforcement authorities in evaluating the overall robustness of a company’s
due diligence.
There is a critical role for Member States to play in ensuring that their financial and
commercial forms of support to business support the logic of the CS3D and help
incentivize meaningful due diligence. Both the Commission and Parliament positions
support the inclusion of Art 24 which provides that Member States should take account
of companies’ due diligence performance in the context of public support. The Parliament
also includes a reference to export credits as one tool.
There is limited reference in the three positions to the need to support effective
implementation in third countries, which reflects the policy discretion that Member
States have in this regard. The accompanying work of the Team Europe Initiative on
Sustainability in Global Supply Chains (TEI), specifically the joint intervention logic
that the TEI is developing, will be essential to ensure that accompanying policy measures
are targeted towards achieving improved outcomes for affected stakeholders in key
production and sourcing markets and to support continued engagement and investment by
companies in those markets in order to drive up standards of business conduct over time.
The Parliament has added to the list of accompanying policy measures the need for
targeted support for affected stakeholders and their legitimate representatives to build
their capacity and ensure they have access to information. Member State support
will also be essential in focusing on aspects of national law and policy that businesses
themselves cannot (and should not) influence, particularly strengthening local state-based
mechanisms to support access to remedy in non-EU jurisdict
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