Shaping Corporate Responsibility from the UN Guiding Principles: New Legislation in Human Rights and Supply Chain Management
Q&A with Caroline Rees
Caroline Rees, President and Co-Founder of Shift, a non-profit organization with a mission to advance towards a world where business gets done with respect for people’s human rights. She leads the organization’s thought leadership work on key challenges and opportunities in advancing corporate respect for business and human rights. In recent years, Caroline has focused on improving corporate human rights reporting as a catalyst for better human rights risk management, and on improving the data and methods used in evaluating companies’ social performance as part of ESG (environmental, social and governance) analysis.
Caroline previously spent 14 years with the British Foreign and Commonwealth Office. From 2003 to 2006 she led the UK’s human rights negotiating team at the UN and she ran the negotiations to establish the mandate of the Special Representative of the UN Secretary-General on business and human rights. The success of this initiative led to Professor John Ruggie’s appointment and from 2007-2011 Caroline was a lead advisor on his team and deeply involved in the drafting of the Guiding Principles. From 2009 to 2011 Caroline was also the Director of the Governance and Accountability Program at the Corporate Social Responsibility Initiative at Harvard Kennedy School. Caroline is a Commissioner on the Business Commission to Tackle Inequality, a member of the Advisory Committee of the Investor Alliance for Human Rights, the Advisory Group to the Workforce Disclosure Initiative, and the Advisory Panel of the Capitals Coalition.
As consumers, we likely assume that the products and services we purchase are coming onto the market free of human rights violations. But this is, unfortunately, far from reality. The World Index of Human Rights Violations gives a dire picture of the large scale of human rights violations happening around the globe. A significant amount of the violations happens in full view of transnational corporations utilizing supply chains in countries whose human rights records are dismal. Violations also occur in companies’ own operations, including in western countries. What obligation do businesses have to rectify these violations in some way? In the past, there was very little obligation other than public pressure on companies to do more. Times have changed and an international standard has been established to guide corporations and governments on their respective responsibilities for tackling human rights violations associated with business activities.
The UN Guiding Principles on Business and Human Rights (UNGP or Guiding Principles), adopted on June 16, 2011, is a catalogue of 31 principles for implementing the UN “Protect, Respect and Remedy” framework on the issue of human rights and transnational corporations and other business enterprises. The goal is to assist states and companies in creating the right mix of measures for enabling and incentivizing respect for human rights by business – from legal and regulatory frameworks to policy measures, to corporate due diligence processes that address risks to people’s human rights not only in the company but also in its value chain far from the corporate suite.
Matthias Bosch: Caroline, you were working with Professor John Ruggie when he was teaching at the Harvard Kennedy School. He is the architect, of the UN Guiding Principles on Business and Human Rights. Those principles are also the foundation of the proposed EU legislation – Corporate Sustainability Due Diligence Directive (CSDDD or Due Diligence Directive). If passed, the impact of the law in Europe will be enormous. Thousands of US companies will also be required to follow the EU law when doing business in the European Union. When you were working with John Ruggie, did you expect that your work would one day have such an impact?
Caroline Rees: We'll certainly have to see how many US companies are affected, but early estimates seem to be in the area of a thousand or so, which is not insubstantial, for sure. That may come down in light of recent negotiations, as the political agreement reached in December between the EU political institutions has hit political hurdles in Brussels. At the start, I would certainly say that I didn't have that foresight as to the extent of this impact. When we started the work under John Ruggie’s mandate that led to the UN Guiding Principles, it was very much building up the evidence base, starting from how people perceived the responsibility of business. We were looking at how the impact of business on people was manifesting in the world and recognized around human rights issues. It was very much building up that base, talking with companies, talking with civil society, and talking with governments. What is there in the law? What is there in practice? What is the perception? It was incremental building up of a picture. Starting from those foundations, I think we have certainly come a long way over the past 13 years since the Guiding Principles were adopted.
But at the same time, John Ruggie's mandate in the UN Human Rights System was really quite different from most mandates of such nature. Most of them are special rapporteurs who are coming from a pure human rights law background. His was a role as a representative of the Secretary-General and somebody who was a preeminent international political scientist, looking far beyond the confines of the body of human rights law, to not just other bodies of law, but practice and political economy, and so forth, and building out a kind of process that simply had no precedents. So, in that regard, there were many differences in the process that I think led us to where we landed.
Now, all of that said, I don't think John, if he were with us, would be saying that he had exactly imagined this kind of impact. However, I think it's really important and often gets forgotten just how deep the academic roots that John brought with him to the role are, as we see them in the Guiding Principles. Those roots of the Guiding Principles go back intoJohn's thinking about the ways in which international flows of goods, services, finance have expanded, whilst the social protections for people who lose out have not kept pace with that expansion.
And then the other aspect of his academic thinking and work was around how international rules are created given that we don't have a world government. What is happening in today's globalized world is that the traditional public policy, rulemaking, governance that we're familiar with is now interacting with private sector governance and civic governance, coming from civil society, such that these distinct spheres that play upon each other and generate an evolution in norms and rules. He was very explicit in that. I think he said almost word for word that the Guiding Principles were never merely a text. They were always intended to generate a regulatory dynamic.
So back to your question. I don't think John would be saying he foresaw exactly where we are today. But the direction of travel in which the Guiding Principles have led us and the way they have engaged governments, business, and civil society in leading us towards improved regulation and some increased legislation as part of the mix of measures that are needed, was very much his original vision.
Bosch: We are interested in the social impact that people are able to create. You were a UK diplomat before you were working at Harvard Kennedy School. Could you explain your journey, detailing how you went from the diplomatic service to Harvard, and then to the development of the UN Guiding Principles?
Rees: Yes, I was a British diplomat for the first 14 years of my career. In the last four years of that period, I headed up our human rights team at the United Nations, which was negotiating for the UK on a whole host of traditional international human rights matters, including resolutions regarding the performance of certain governments on human rights, the development of treaties and protocols, and so forth.
And then I think in 2003 or 2004, this topic of business and human rights came to the table for the first time. Business hadn't been in the frame in any meaningful way until then. And it came in the form of a proposition from a sub-body of experts that suggested there were certain international norms that should apply directly to companies when it came to human rights.
So, I was looking at this proposition, along with all of my colleagues and counterparts from other governments. On the one hand, I had the representative of the Confederation of British Industry saying this is absolutely untenable: this is about pushing off onto companies the things that governments should be doing; and, on the other hand, I had the representative of the Amnesty International UK saying that this absolutely has to be on the agenda: we cannot go forward with egregious business impacts on people happening around the world with zero accountability for corporations. They were both right.
So, what do you do with that? The short answer was that the proposition on the table was so politically charged and, in some regards, problematic that it wasn't going to be the solution. So, we created a hiatus and said thank you, acknowledging good content in some areas of those proposals that could be built upon. And then my role became crafting a coalition of states from the different regions to find a way forward. I worked with my counterparts from Argentina, Nigeria, India, and Russia to craft a draft resolution and then chaired a set of negotiations on that text to create something that might lead us forward. And that ended up being a resolution that we adopted in 2005, asking Kofi Annan to appoint a Special Representative with a mandate to push the work forward and explore what the nature of a company's responsibility is when it comes to human rights – although it was hardly that well-articulated at the time. This is how I got to know John because he came to Geneva and knocked on my door and sort of asked, “Okay, give me some political background to this. What am I walking into here?” Over a number of months, I gave him some of that context to work with and ultimately, as I was leaving Geneva, he invited me to join him and his small growing team to work with him on whatever the process would be ahead.
It was a two-year mandate that ended up being six years. But John was on one hand, the UN representative of the UN Secretary General and on the other hand, still working at Harvard with a tiny budget from the UN. The budget allowed for a couple of country visits and part of the time of one person in the UN. He had to build out and raise funding for this team.
There were seven or eight of us who were there throughout the period of his mandate, who did the work, had the conversations, and traveled the world, talking with people in order to arrive at something as significant as the Guiding Principles. And others were along for part of the journey as well. But he had to create that mini ecosystem that enabled the Guiding Principles to come to fruition.
Bosch: I think the UK was one of the first countries that implemented a supply chain law – the Modern Slavery Act of 2015. Did this law come out of your efforts as one of the first national laws?
Rees: It was one of the first national laws. I think the domestic ebb and flow of enthusiasm for the subject could be a conversation in itself, but that’s right. It was developed with the support of Theresa May, when she was Home Secretary. She was very committed to the issue of forced labor. And what you had in the Guiding Principles was already a sort of consensus view that a particular type of human rights due diligence could be reasonably asked of companies. And so, then the Modern Slavery Act became an articulation of this, asking companies to what due diligence they are doing with regard to this issue in their supply chains. And then we had an Australian version which built on the same model.
Bosch: In Germany, my own country, we have had since 2023 the Lieferkettensorgfaltspflichtengesetz. It’s a bit simpler in English – the Supply Chain Due Diligence Directive. Parts of German industry are very skeptical about this new law. They are afraid of the bureaucratic monster created by the regulations. The level playing field in competition is somehow gone. What can we learn from the various national laws when applying it to the European Union?
Rees: John always foresaw that we needed a legislative and regulatory component. There are already bundles of legislation related to what a business is prohibited from doing or expected to do with regard to impacts on people, whether it's around health and safety or consumer protection or pollution. Legislation is a necessary component of any system to address risks to people from business activities.
The Guiding Principles talk about the need for a smart mix of measures on the part of government. From the early days of the mandate, it was always clear that both the NGOs advocating for an international treaty and the push from companies suggesting that all you needed were more voluntary initiatives, not adequate responses. Neither of those was going to be sufficient to meet the problem. Voluntary elements are necessary and mandatory elements are necessary in the mix of this.
I think what's really critical is that when you then pivot from a normative framework to legislation, various other risks come into the frame. These have nothing to do with the content of the Guiding Principles themselves. They have to do with the nature of legislation. And there's a little sort of perversity here, I think, in how company voices can play out. When it comes to legislation, there tends to be a call for absolute legal certainty and the pinpointing of every detail of what's going to be expected of companies. Businesses say “we want to know exactly what we have to do, when, where, and how, so we can tick it off. Then our lawyers can know that it's all been done, and our auditors can give us a clean check.” Well, then you end up creating a list of rigid things and you've kind of created the monster that companies thencomplain is too rigid and too demanding.
And that's a little bit of the challenge that lies in the dynamic of how you move from a normative framework to legislation. There's no doubt that pinning some things down is important. But the Guiding Principles are a standard of conduct which is ultimately about behaviors and cultures and approaches and mindsets. They take a flexible, risk-based approach that recognizes that companies need to take a differentiated approach across their supply chain depending on where the most severe risks are, rather than just blanketing their first tier of business partners with compliance requirements –which is unfortunately how many companies are implementing the German law. Nor does legislation have to be that way. Even where legal standards of negligence already exist, there has long been room allowed to adapt your approach and resources to focus where the greatest risk lies. Indeed, the EU draft law is significantly better in this regard.
If a company tries to do the same thing everywhere – to audit everything in the same way, look at every supplier the same way and so forth – you do create a monstrous burden. If you adapt so that you are applying resources where credible risk lies, you create a much more flexible way of dealing with the human rights issues, meeting the requirements and actually bringing benefit to your company because now you've got insight into things you need to have a handle on. They're genuine risks. Any business should want to be ahead of those. The key is not getting locked into excessive rigidity that feels burdensome because you're doing it in order to comply, rather than thinking about where the actual risks lie and how to apply your resources there. When you approach it in that more adaptable way, you are actually dealing with the issues that matter most and, in so doing, are meeting the requirements of the law.
Bosch: Transnational companies want to have one set of rules if their business is global. The wish is for them to be somehow standardized. At the moment, we have the UN Guiding Principles and the OECD Guidelines. A similar European Directive is still in the making. In February this year, there will be discussions in Brussels on the proposed law. National governments will then have to decide whether to adopt the new Directive. The German government is concerned about legal liability and potential damages corporations may be subject to. How do you think this is going to help the whole cause to bring human rights into the forefront of the decision-making process in corporations when they have a fear of liabilities hanging over their head?
Rees: There are a couple of things to sort of break out from that material. I think the first that I pick up on is about this sort of multiplicity of standards. What we have now, but which gets lost in translation, is an extraordinary convergence of standards.
Yes, we have the OECD guidelines as well as the Guiding Principles. But we worked hand-in-glove with the OECD so that their Human Rights Chapter has the same content. And then, we worked with other bodies such as ISO (International Organization for Standardization) and the IFC (International Finance Corporation) and others to embed the same approaches. Now, what's the primary reference point whether you're talking about the EU reporting requirements on the social side, or you're talking about due diligence legislation? It's the same reference point that those are modeled on – the UN Guiding Principles.
Despite some business opposition to the EU process on the due diligence legislation, thousands of companies and numerous sustainability-focused industry associations actually came out in positive support. They were clearly saying: Yes, we're absolutely up for this. Just keep it the same set of expectations – we need the predictability that what the Guiding Principles say is what you're asking us to do. That was a hugely constructive voice. And that's what we need more of. It's not actually that there is a multiplicity of asks of companies: it's simply the same thing said in different places.
The second was your point about liability. Civil liability is incorporated within the Due Diligence Directive, alongside scope for administrative measures. It remains uncertain how different jurisdictions will respond, particularly in terms of what their enforcement agencies choose to investigate, the manner in which these investigations simply influence their dialogues with companies, or potentially lead to some form of sanction. But when you're actually talking about the punitive measures, then you're talking about civil liability, and here we're in a very narrow set. A lot of civil society actors would be arguing that it is way too narrow. Liability is limited to situations where a company alone or jointly with another actor causes or contributes to a harm either intentionally or as a result of gross negligence. That's already a narrow set of situations with a pretty high evidentiary basis. The purpose of using the language of causation in the Directive was because it ties back to existing national law tests that are established for determining negligence, some of which are themselves quite stringent.
So, all this adds up to having to thread through the eye of a pretty small needle to land with civil liability, and we need to be really careful not to blow it out of proportion. Civil liability is a very particular, specific and narrow window. And then there will be other things that national governments look at by way of administrative supervision.
The text was technically agreed between the EU Council, the Parliament and the Commission. As it came to a vote last month, we have seen incredible political maneuvering by some government actors and lobbyists to cut the text down to something meaningless. So, of course it's not agreed until it's agreed through that process. If it isn’t, then we will see different Member States go different ways – as they already started to do – and the risk of divergent expectations that will actually create an unlevel playing field that is far less in the interest of business than a coherent, EU-wide approach that aligns well with the international standards.
Bosch: Thank you for the interview.
EDITORS’ NOTE:
Since this interview was conducted, on February 28, 2024, the text of the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) failed to secure a qualified majority among member states representative of the EU. A qualified majority is only reached if 15 of the 27 European Member States vote in favour of it and those 15 Member States represent at least 65% of the European population. Although an agreement on the CSDDD was reached on December 14, 2023, during the trilogue process of the EU Council, the EU Parliament and the EU Commission, the CSDDD was rejected by some of the Permanent Representatives of the Member States. National lobby associations played a significant role in the debate and decision. In particular, Germany, Italy, Czech Republic, Hungary, Luxembourg, Austria and Finland had earlier signaled a potential abstention. Prior to the final debate and decision, substantial concessions were demanded by several Member States and business lobbies to maintain support. On March 15, 2024 the CSDDD was finally adopted. Once the European Parliament will vote in April, the CSDDD will become EU law. The scope of the CSDDD was, however, substantially watered-down and will now apply only to roughly 0.05% of EU companies.
About the Author:
Matthias Bosch is a 2023 Harvard Advanced Leadership Initiative Fellow. After 25 years of practicing intellectual property law and litigating complex patent disputes with his law firm Bosch Jehle, Matthias switched directions and began working fully with social impact and philanthropy organizations. Since 2018, Matthias is actively involved with the non-profit organization Global Dignity, which teaches the concept of dignity in over 50 countries. Matthias also recently founded the advisory office, Bosch Global Advisors, dedicated to helping companies improve their social footprint, guide family enterprises and family offices towards impactful philanthropy, as well as develop strategies for family succession planning.
This Q&A has been edited for length and clarity.