Recent developments in human rights and environmental due diligence regimes and extraterritorial biodiversity cases

This article provides an update on value chain liability since our March 2022 report on Biodiversity liability and value chain risk. We examine the latest developments in human rights and environmental due diligence regimes and extraterritorial biodiversity cases.

Human Rights and Environmental Due Diligence Regimes

International Guidelines and Framework

Three main international frameworks enshrine human rights due diligence standards; the UN Guiding Principles on Business and Human Rights (UNGPs), OECD Guidelines on Multinational Enterprises, and the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy.[1] These frameworks create a general “soft law” obligation on companies to conduct due diligence for human rights and/or environmental harms across corporate supply chains.[2]

Regional and Domestic Legislation and Initiatives

EU Corporate Sustainability Due Diligence Directive

On 23 February 2022, the European Commission adopted a proposal for the Corporate Sustainability Due Diligence Directive (CSDDD),[3] which requires large EU companies and non-EU companies with significant EU activity, to identify, prevent, mitigate, and account for adverse human rights and environmental impacts in their own subsidiaries and their value chains, including in relation to biodiversity loss. After revisions in November 2022 and since the European Parliament agreed its negotiating position on the Commission’s proposal on 1 June 2023, some of the more ambitious provisions of the CSDDD have been watered down, with the most major change being the removal of Articles 25 and 26, which previously imposed directors’ duties in line with the CSDDD.

In this amended version of the proposal, the CSDDD lays out the key due diligence requirements in Articles 4, 4a, and 5. Article 4 states that companies must “conduct human rights and environmental due diligence as laid down in Articles 5 to 11” by taking steps which include:

• Integrating due diligence into their policies, which must be reviewed continuously and updated when significant changes occur (Article 5);
• Identifying actual or potential adverse impacts (Article 6);
• Preventing and mitigating potential adverse impacts, and bringing actual adverse impacts to an end and or to adequately mitigate the extend of such an impact while taking all effort to bring the adverse impact to an end (Articles 7 & 8);
• Establishing and maintaining a notification and non-judicial grievance mechanism (Article 9);
• Continuous monitoring and verifying the effectiveness and implementation of their due diligence policy and measures (Article 10); and
• Publicly communicating and reporting on due diligence (Article 11).

In relation to human rights and biodiversity, these squarely fall within the scope of the CSDDD as per Articles 3, 6, 7 and 8.

Article 3 sets out some key definitions contained within the CSDDD, and defines ‘adverse human rights impact’ to include violations of the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights, amongst others. Article 3 also contains the definition of ‘adverse environmental impact’ as “an impact on the environment resulting from the violation of one of the prohibitions and obligations” under international environmental conventions, including in relation to biodiversity, the trade in endangered species of wild fauna and flora, mercury, persistent organic pollutants, hazardous chemicals and pesticides, ozone-depleting substances and hazardous waste. Although CSDDD therefore covers a wide range of negative impacts on biodiversity, there is no requirement for companies to consider their impact on biodiversity other than through the lens of the listed conventions.

It is important to note that the environmental impacts covered under the CSDDD include combatting climate change. The obligation provides that EU Member States shall ensure that companies’ business model and strategy align with the transition to a sustainable economy and the Paris Agreement 1.5 °C target in line with the EU’s 2050 climate neutrality target and its 2030 climate target.

It is possible that the CSDDD will undergo further amendments in the legislative process currently underway before the EU Parliament. In the meantime, many EU member states have passed their own national acts mandating human rights and environmental due diligence across supply chains, including Germany and the Netherlands.

Germany

Germany's Supply Chain Due Diligence Act (SCDDA)^[4], in force since 1 January 2023, mandates companies falling within its scope to make reasonable efforts, at their own discretion, to ensure that there are no violations of human rights and environmental obligations specified in the law in their own business operations and in the supply chain. A mere duty of effort is established and not a duty to succeed. However, a duty to succeed may exist because companies must remedy violations in their own business area.

The SCDDA extends companies' responsibility to the entire supply chain, graded according to the degree of influence they can exert. At first, due diligence obligations under SCDDA extend to the enterprise's own operations and direct suppliers. Due diligence obligations regarding indirect suppliers exist if an enterprise has actual indications that suggest that a violation of a human rights-related or an environment-related obligations at indirect suppliers may be possible (substantiated knowledge).

The SCDDA specifies the form in which companies must fulfil their due diligence obligations. This includes, for example, analysing risks, taking preventive and remedial measures, creating opportunities for complaints, and the obligation to report on activities.

Applicable to firms with over 3,000 employees from 1 January 2023 and 1,000 employees from 1 January 2024, non-compliance may lead to the exclusion from the award of public contracts, financial penalties, as well as administrative fines up to €800,000 against a natural person, € 8M against a legal person or in the case of a legal person or association of persons with an average annual turnover of more than € 400 M, up to 2% of the average annual turnover. The SCDDA does not provide for an extension of civil liability. Liability under the general German law (tort) principles is not excluded.

Protected human rights result from internationally recognised agreements, such as the International Labor Organization core labour standards, which are referred to conclusively in the law. Human rights risks are defined and, in particular, include child labour, forced labour, all forms of slavery, disregard of labour protection obligations, freedom of association, inequality and withholding of an adequate living wage, certain environmental pollution relevant to human rights as well as land deprivation, torture and cruel, inhuman or degrading treatment.

The environment is considered by the SCDDA if environmental damage leads to human rights violations. In addition, due diligence obligations of companies include environment-related obligations arising from the Minamata Convention (risks from involvement in the production and disposal of mercury-containing products), the PoPs Convention (risks from the production or use of certain Persistent Organic Pollutants) and the Basel Convention (risks from the import and export of waste).

However, the official legal explanatory memorandum does not mention the word "climate" at all. This omission leaves room for interpretation by the courts regarding the extent to which the indirect effects of climate change fall under the purview of corporate due diligence, such as environmental obligations, human rights, and health. It is uncertain whether the courts will consider climate change within the realm of corporate responsibility, as the law primarily focuses on safeguarding the more direct impacts on human rights and health, which are the only explicitly protected interests. The term "environment" is primarily referenced as something that can cause harm to the protected interests (i.e., human rights) when it itself undergoes damage.

In sharp contrast, the CSDDD proposal explicitly includes the climate and climate change as integral components of corporate responsibility. In the cases where the SCDDA mentions some direct responsibilities for the environment like the prohibition of soil-, air-, or water pollution, it only does so by connecting it with the necessity for threats for the human health and so forth.

However, at some points the SCDDA also does try to secure other than direct human interests like the environmental biodiversity, as companies are prohibited to use mercury in production processes, which may harm biodiversity by accumulating in various ecosystems and absorbed by organisms, destroying their reproductive and neurological functions.[5]

In conclusion, the SCDDA has been subject to criticism by environmentalists for its heavy emphasis on direct human rights concerns, while neglecting to address corporate responsibilities for indirect impacts on human rights, such as those resulting from climate change which is likely to change with the upcoming CSDDD.

Netherlands

In March 2021, the Dutch Parliament introduced the Responsible and Sustainable International Business Conduct Act for mandatory human rights due diligence. In November 2022, a bill was proposed that would more be closely aligned with the proposed EU Corporate Sustainability Due Diligence Directive.[6]

Similarly to the SCDDA , the bill applies to the company’s own activities as well as those of its contractors, subcontractors or other legal entities in its value chains. It introduces a general duty of care under which it requires companies that know or should reasonably suspect that their own activities or activities in their value chains may have adverse impacts on human rights or the environment in countries outside the Netherlands, to:

Take all reasonable measures to prevent the impacts;

If the impacts cannot be prevented, mitigate or reverse them to the extent possible and, where necessary, enable remediation; and

If the impacts cannot be sufficiently mitigated, refrain from the relevant activity or terminate the business relationship if it is reasonable to do so.

While the Act broadly defines the adverse impacts on human rights as violations of human rights, including discrimination, forced or child labour and others, it expands the scope of adverse impacts on the environment beyond the provisions of CSDDD outlined above to include any environmental damage and, importantly, impacts of human-induced climate change. In doing so, it therefore introduces a more comprehensive scope of mandatory environmental and human rights due diligence than CSDDD.

In terms of implementation, the amended bill proposes an effective date of July 1, 2024, with a phased implementation over twelve months. Compliance requirements include policy and business process implementation within six months, risk assessment and action plan within nine months, and monitoring and remediation mechanisms within twelve months.[7]

Beyond the EU, other countries have taken notable steps towards introducing mandatory corporate human rights due diligence into their national law.

Norway

The Norwegian Transparency Act requires large companies to conduct human rights due diligence in their supply chains and communicate with consumers in line with the OECD Guidelines from 1 July 2022.[8] It aims to ensure compliance with fundamental human rights and decent working conditions and prevent corporate human rights abuses. The Act applies to larger companies domiciled in Norway and foreign companies selling goods and services in the country, as defined under Norwegian law.[9]

US

The US Uyghur Forced Labor Prevention Act (UFLPA) came into effect in June 2022. The law mandates companies sourcing material from China's Xinjiang region to carry out human rights due diligence to demonstrate that their supply chains are free of forced labour to import goods into the US.[10] The Act primarily applies to high-risk sectors such as apparel, cotton products, tomatoes and tomato products, and silica-based products.[11]

Extraterritorial biodiversity cases

Apart from increasingly robust regulation of corporate human rights and environmental impacts through human rights and environmental due diligence, there is a rising trend of extraterritorial biodiversity litigation. In these cases claimants from one country where biodiversity and human rights impacts were suffered, bring their case before the courts in the country, where the profits of such impacts were reaped, usually by the parent company of a subsidiary was allegedly responsible for the original impacts.  We have identified the following two notable cases since our report was published in March 2022:

Municipio de Mariana v BHP Group (UK) Ltd

Damage to livelihoods and biodiversity pleaded before English courts

Over 202,600 Brazilian claimants are seeking compensation before English courts for damage caused by the 2015 collapse of the Fundão Dam in Southeastern Brazil, owned by Samarco Mineração SA, Vale S.A., and BHP Brazil, which resulted in 19 deaths and widespread environmental destruction. The defendant requested a stay on the claims on procedural grounds, arguing that Brazil was a more appropriate forum for this case than England.[12] The Court of Appeal nevertheless allowed the case to proceed before English courts, as the proceedings were not oppressive and submitted claims were not "pointless and wasteful". [13] This means that the substantive claims of the Brazilian victims will now be heard in England.

This case adds to other “extraterritorial” cases for founding jurisdiction in England and Wales, such as Okpabi [14], in which claimants are bringing biodiversity destruction, pollution and loss of livelihoods in their home countries before English courts. As such these cases add to the docket examples of a rising litigation trend in which corporate ownership structures are used to trace liability for biodiversity loss and other grievances from subsidiaries responsible for the conduct on the ground in the Global South to their parent companies often incorporated in the Global North, which benefitted from the profits generated by the environmentally damaging conduct.  

Survival International Italia ETS v Conceria Pasubio S.p.A and Gruppo Mastrotto

Illegal deforestation of Indigenous lands in Paraguay pleaded in Italy

In 2022, Survival International Italia brought a complaints against the leather companies Mastrotto and Pasubio for sourcing leather for their car seats from two tanneries, which the claimants allege are linked to illegal deforestation of land of indigenous Ayoreo tribe in Paraguay. The case is brought on behalf of this tribe and emphasises the connection between breaches of indigenous rights and biodiversity loss in extraterritorial biodiversity cases.

The complaint was filed before Italy’s National Contact Point (NCP) for the OECD and alleges breaches of the environmental principles in the OECD Guidelines. In particular, Survival International Italia argues that the illegal activities and habitat destruction negatively impact human and indigenous rights. In their complaint, Survival International Italia demands that Pasubio stops importing hides from tanneries in Paraguay that are responsible for and/or involved in the deforestation.[15] Additionally, the NGO also requests a progress report to showcase improvement in environmental performance.[16]

Conclusion

The trend towards mandatory human rights and environmental due diligence is gaining momentum worldwide. Extraterritorial litigation which combines human rights abuses with environmental impacts is also foreshadowing the increased need for corporations to look at their value chains and corporate structures to identify, prevent and mitigate any negative human rights and environmental impacts. The potential legal, regulatory and reputational risks arising from these trends cannot be underestimated, and it is crucial for companies to stay informed of the development in the evolving regulatory and litigation landscapes.