Biodiversity law and regulation
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The first wide-ranging supply chain due diligence regulations imposed across companies within a jurisdiction was the 2012 California Transparency in Supply Chains Act. 179 The Act requires large retailers and manufacturers doing business in California to publicly disclose their efforts to eradicate slavery and human trafficking from their direct supply chain. Due diligence requirements are related to five specific areas: verification, supplier audits, certification, internal accountability and training. 180 The law only requires that business make the required disclosures and does not mandate any particular measures businesses must take to safeguard their supply chains. Remedies do not include fines or penalties. 181 Instead, the statute authorises the Attorney General to bring an action for injunctive relief directing compliance.
This has led to criticism and suggestions for the introduction of financial penalties for non-compliance.
The most established mHREDD regime is France’s 2017 Corporate Duty of Vigilance Law 194 (the Vigilance Law), an amendment to the French Commercial Code. 195 The duties enshrined under the Vigilance Law go beyond simple reporting and require companies to establish a Vigilance Plan, effectively implement it, and report on its implementation publicly in the company’s annual management report. 196 The Vigilance Law includes environmental risk assessment, as well as human rights and health and safety. 197 In the event of breach of the obligations, a Court may order an injunction (with a possible periodic penalty payment for lack of compliance), civil liability and a potential publication of the court’s decision on civil liability. It is estimated that approximately 150 large, French companies are currently in scope. 198 Germany recently adopted a Supply Chain Due Diligence Law which will enter into force on 1 January 2023. 199 The law is primarily focussed on human rights violations, 200 but environmental risks are relevant insofar as pollution of soil, water or air will lead to human rights violations 201 or there is a risk of breach of certain international conventions on pollutants. 202 The German law requires annual identification of risks in a company’s business operations and those of its direct suppliers and management of those risks through training, procurement, and contractual measures. Where a human rights violation or environmental damage has occurred or is imminent, a company must take immediate remedial measures to prevent, end or minimise the violation. The law will be monitored and enforced by Germany’s Federal Office for Economic Affairs and Export Control, and there is provision for fines of up to two percent of annual turnover for non-compliance. 203 A further sanction could be exclusion from public procurement for up to three years. However, the law explicitly excludes civil liability, which had been proposed by the Green Party. In practice, the law will apply to approximately 900 companies from 1 January 2023 and to approximately 4,800 companies from 1 January 2024. 204 194 Loi n° 2017-399 du 27 mars 2017 relative au devoir de vigilance des sociétés mères et des entreprises donneuses d’ordre. 195 Art. L. 255-102-4 C. com. 196 European Commission, Study on due diligence requirements through the supply chain, final report, Publications Office, 2020. 197 Art. L. 255-102-4 C. com.: 1. The plan includes reasonable due diligence measures to identify risks and prevent serious violations of human rights and fundamental freedoms, the health and safety of persons and the environment, resulting from the activities of the company and those of the companies it controls within the meaning of II of Article L. 233-16 , directly or indirectly, as well as the activities of subcontractors or suppliers with whom an established commercial relationship is maintained, where those activities are related to that relationship. 198 Thomas Lapierre et al.,What if future EU mandatory human rights due dili- gence legislation comes to rescue of French Corporate Duty of Vigilance law?, International Bar Association; French Corporate Duty Of Vigilance Law FAQ, European Coalition for Corporate Justice, 23 February 2017. 199 Act on Corporate Due Diligence in Supply Chains (BGBI), 22 July 2021.
Other jurisdictions have followed suit, with requirements for reporting on supply chain labour conditions in Australia 186 and a proposal for a Modern Slavery Act introduced in the Canadian Senate in October 2020. 187 The EU has adopted the Non-Financial Reporting Directive, 188 which requires large public interest entities, such as listed companies, banks, and insurers with over 500 employees to disclose information about their business model, policies, outcomes, risks, risk management and Key Performance Indicators (KPIs) relating to four key sustainability issues: environmental, social and employee issues, human rights, and bribery and corruption. 189 However, these reporting requirements do not constitute a substantive due diligence standard. The obligation laid down is generally regarding the frequency or content of reporting on these risks, but does not create a duty of care on companies to act to mitigate them, or provide remedies for those affected. 190 Research indicates that such reporting standards have had poor adoption and limited impact. For example, a 2015 report on the California Act found that only 14% of companies covered by the legislation were compliant. 191 The UK Home Office estimates that only 60% of the companies covered by the MSA have made a Modern Slavery Statement 192 and that many companies treat it as a mere tick-box exercise. In response to a consultation on the efficacy of Section 54, the UK Government has made commitments to introduce financial penalties for non- compliance. 193
THE RANA PLAZA DISASTER
The 2013 Dhaka Rana Plaza garment factory collapse 182 was a pivotal moment in the advent of due diligence laws and regulations. Rana Plaza was an eight-story commercial building on the outskirts of Dhaka, Bangladesh where five garment factories with over 5,000 workers made clothes for major brands across the world including the USA, UK, Spain, Italy, Germany and Denmark. On 24 April 2013 the building collapsed, killing at least 1,132 people and injuring more than 2,500. This disaster, one of the worst industrial tragedies on record, hit headlines globally and awoke the world to hazardous working conditions, particularly for women and girls, in the “fast fashion” industry. 183 The tragedy prompted a number of legislative initiatives and parliamentary discussions that would eventually help to inform the due diligence frameworks that are emerging today. After California, the UK led the charge at a national level for due diligence regulation with the Modern Slavery Act (MSA) 2015. 184 Section 54 of the MSA created a reporting requirement which requires businesses operating in the UK (regardless of place of incorporation) with an annual turnover of more than GBP 36 million to publish a “slavery and human trafficking statement” (Modern Slavery Statement) every year. 185 If a company fails to comply, the Secretary of State may bring civil proceedings in the High Court for specific performance. However, no such civil proceedings have been instituted by the Secretary of State to date. In addition, there is no monitoring or oversight by the Home Office or other governmental body. 179 Kamala D. Harris, The California Transparency in Supply Chains Act: A Resource Guide, California Department of Justice, 2015 180 Ibid. 181 Ibid. 182 Sarah Labowitz and Dorothee Baumann-Pauly, Business as Usual is Not an Option, NYU Stern, April 2014. 183 The Rana Plaza Accident and its aftermath, International Labour Organiza- tion. 184 Transparency in Supply Chains etc. A practical guide, UK Government, 13 December 2021. 185 The Modern Slavery Act 2015 (Transparency in Supply Chains) Regulations 2015, section 2, 28 October 2015.
The next generation: mandatory due diligence (mHREDD)
Recent legislative initiatives are much more ambitious than their reporting-based forerunners. They create a new corporate duty of care through mandatory human rights and environmental due diligence (sometimes abbreviated to “mHREDD”). This next generation of regulations also extend to environmental harm and damage to biodiversity.
186 Modern Slavery Act 2018. 187 Bill S-216, An Act to enact the Modern Slavery Act and to amend the Cus- toms Tariff, 2nd Sess, 43rd Leg, 2020 (committee stage). 188 Council Directive 2014/95/EU of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups [2014] OJ L 330. 189 European Union, Communication from the Commission — Guidelines on non-financial reporting (methodology for reporting non-financial information) [2017] OJ C 215. 190 European Commission, Study on due diligence requirements through the supply chain, final report, Publications Office, 2020. 191 Michael Ball, J.D., et al., Corporate Compliance with the California Transpar- ency in Supply Chains Act of 2020, Development International, 2 November 2015. 192 Home Office tells business: open up on modern slavery or face further action, GOV.UK, 18 October 2018. 193 Transparency in supply chains consultation – Government Response, GOV.UK, 22 September 2020.
200 Ibid, Section 2(2). 201 Ibid, Section 2(3).
202 The Minamata Convention on Mercury 2013, the Stockholm Convention on Persistent Organic Pollutants 2001, or the Basel Convention on Hazardous Wastes 1989. 203 Marcus Krajewski et al., “Mandatory Human Rights Due Diligence in Germa- ny and Norway: Stepping, or Striding, in the Same Direction?” Business and Human Rights Journal, 16 September 2021. 204 Ibid.
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