NYU Stern: Human Rights Laws Need Metrics, Enforcement
As corporate sustainability regulations develop, a new study calls for global standardisation and means to ensure compliance.
The emergence of guiding principle and rules to enhance corporate accountability on human rights has been a positive development – but it may not be enough to ensure lasting improvements.
The adoption of voluntary initiatives such as the UN’s Guiding Principles on Business and Human Rights and the OECD’s Due Diligence Guidance for Responsible Business Conduct over the past two decades has increased the understanding and monitoring of companies’ human rights impact.
But the NYU Stern Center for Business and Human Rights now says these voluntary measures have failed to have any measurable impact. And while the shift towards mandatory corporate human rights regulations, largely in the EU – including through the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) – is “positive”, more efforts are needed to maximise their effectiveness.
“For the last 50 years, the demand that global businesses respect human rights has largely focused on promoting voluntary commitments by companies,” NYU Stern noted. “Initiatives like the UN’s 2011 guiding principles have helped to normalise the idea that they have some responsibility for addressing human rights challenges linked to their operations. But overall, these initiatives have not had a sufficient impact.”
Outlining ongoing failures in corporate accountability, the centre called for stronger regulatory frameworks and compliance assessments – recommending governments develop performance standards and metrics.
“Regulation is great and we’re happy to see it develop, but we want to make sure this doesn’t become another box-ticking exercise and is actually impactful,” report author Cecely Richard-Carvajal, Masiyiwa-Bernstein Fellow at the NYU Stern Center, told ESG Investor. “Developing substantive standards and metrics for measuring corporate compliance and progress is the key to unlocking the power of this legislation, and will allow us to really move the dial forward.”
This, Richard-Carvajal explained, fits within the centre’s broader vision – set out in a 2021 whitepaper which called for a multi-stakeholder approach to human rights due diligence.
“Forced labour bans can be really useful levers and put a lot of emphasis on specific issues – but they need to be supported with the means to actually carry out change,” she added. “Part of our recommendations is to create administrative enforcing bodies and give them the resources to enforce the law.”
The multi-stakeholder approach is also supported by other organisations that monitor human rights due diligence, such as the World Benchmarking Alliance (WBA).
“[The CSDDD] is meant to work holistically as a mandated engagement tool in how everyone interacts with large companies: it’s not just supervisors in Spain, Germany or France who have to do this – everybody has a role to play,” said Richard Gardiner, Head of EU Policy at the WBA. “We’re trying to build up the global narrative that governments outside Europe have a big part in implementing this law. They can use it to hold companies to account.”
Concerted effort
In the report, the NYU Stern Center provided a series of guiding steps for both governments and companies.
To governments, it recommended consulting and engaging with international organisations, companies, and civil society to address business needs and broader human rights interests. “Each of these key stakeholders has important experience and expertise needed to ensure a robust legislative framework,” the report noted.
Governments should also build capacity to define and assess company conduct. “This includes collaborating with companies, focusing enforcement efforts on the most significant risk categories in primary industrial sectors, and hiring staff members with subject-matter expertise in these fields,” it said.
In addition, they should share information, knowledge, guidance and support to create consistent and mutually reinforcing national laws, as well as incentivise or sanction companies in line with their progress.
“Disclosure is a really important part of transparency and corporate human rights accountability, but you need it across different companies to compare them easily and have information that’s actually digestible,” said Richard-Carvajal. “That’s why you need standardisation.”
In parallel, NYU Stern advised companies to: start preparing now for increased regulation; build robust internal systems; prioritise risks and focus on outcomes; engage openly with government; and develop meaningful stakeholder engagement plans.
“People are finally waking up to the fact that CSDDD is going to happen,” said Gardiner. “Many of those who have been following the general business human rights agenda have in the last year to six months figured out that this is a game-changer and are interested in the next steps.”
With the EU leading the charge on regulatory efforts, the paper also argued for enhanced US government engagement and action.
“Europe is the at the forefront by far, with CSRD really changing the game in terms of disclosure, and now CSDDD,” said Richard-Carvajal. “These regulations also capture US companies with EU-based operations or supply chains. They are really influencing the global market right now, which is why we’re encouraging the US to pay attention.”
While the EU has acknowledged the failure of voluntary framework, with bodies such as the OECD and the UN expressing support for mandatory law, the US maintains that “legislation is not the way to go to have a sustainable future for companies”, Gardiner explained. As such, the country remains in the incentive phase, offering subsidies and initiatives such as the Inflation Reduction Act.
Investors’ place
Lobbying has meant that requirements under the CSDDD will only apply to financial institutions’ upstream, and not downstream, operations – which cover core investing and lending activities.
Describing this as a “missed opportunity”, Richard-Carjaval recommended they still take heed of the regulation.
“I think they will be caught in the future and brought in through a review clause – but it’s going to take a concerted effort by the European government, in light of the huge amount of resistance previously faced,” she said. “Even though they’re not required to comply right now, it shouldn’t stop them from thinking about this. Acting early and looking at their own downstream operations is really important.”
Investors also have a crucial role to serve in exchanging with governments on where they’re lacking knowledge and information – an “important lever” that can be used to increase pressure and influence corporate behaviour, Richard-Carjaval argued.
The WBA’s Gardiner agreed that investor groups could play a major part in pushing early implementation.
“For the last 10-15, years, investors have been pointing towards international standards and collaborative statements, but they’ve never been able to pin down the action expected,” he said. “With the CSDDD, they now have a legal hook and playbook to demand better performance along key human rights and environmental aspects. This is something they lacked until now, and which gives them massive implied power.”
With 80% of companies having scored zero on initials steps of implementation in a WBA report assessing readiness for the regulation, Gardiner urged investors to seize on this “huge opportunity”.
“We’re starting to plot that roadmap to success now, and will hopefully see some investor groups do something similar,” he said. “Companies should be honest about the problems they face, because they’ve got time to fix them. Now is not the time to pretend everything is okay.”
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