Mandatory Human Rights Due Diligence: A study on sources of international business and human rights law, and stakeholder engagement in the context of the EU’s sustainability due diligence directive

Abstract: The European Council’s proposal for a corporate sustainability due diligence directive (the “Proposal”) aims to introduce obligations and respon-sibilities for some companies (“Company/Companies”) related to sustainability matters. Part of the reasons for the Proposal was the emergence of global value chains, which are prone to contain human rights violations. The model for the Proposal was the United Nations Guiding Principles on Business and Human Rights (“UNGP”) which promotes business and hu-man rights by means of soft law. This paper investigates the business and human rights hard law embedded in the proposed directive, and in a broad context investigates if hard law is necessary for the promotion of business and human rights. The conclusion reached is that soft law can become binding on companies by means of voluntary participation, however, the voluntarism limits effective enforce-ment and supervision of wide-spread responsible business conduct. Hard law is therefore necessary for the enforcement of sustainable business practices, but the promotion of the proposed hard law came in the form of model soft law, meaning that hard law is not key to promoting business and human rights, rather that soft and hard law are complementary. Based on the foregoing, the paper also discusses what role human rights soft law ought to have in the context of emerging hard law. Since soft law facilitates the promotion of business and human rights, and hard law facilitates effective enforcement, the two should not diverge on central terms and princi-ples, since that may curtail the evolution of a harmonised global standard for responsible business conduct. Three provisions from the Proposal related to stakeholder engagement are investigated in the paper. These relate to (i) the definition of direct and indirect business partners, (ii) providing targeted support to business part-ners to help adherence to a prevention action plan and, finally, (iii) termination of business relationships. The provisions provide for a balanced set of tools for Companies in their due diligence regimes. There is however a degree of uncertainty and potential limitation in the practical application of the measures enumerated. What differentiates a direct business partner from an indirect business partner is whether there is a commercial agreement between the parties. The paper shows, however, that there is a risk of uncertainty as to whether a commercial agreement is entered into pursuant to responsibilities that may actualise on the part of an in-scope company. The mechanisms embedded in the Proposal risks creating uncertainties as to whether a business partner is direct or indirect and thereby obscures predictability in practice. The targeted support that an in-scope Company may have to provide to a business partner is wide in scope and allows for creative discretion and collaboration. The measures are however provided with a ceiling as to how extensive the need for assistance may be before the Company must assess whether the business relationship must be terminated. The mechanisms of termination of partnerships are given a prominent role which has negative implications for the stakeholders in a business partners operations since termination is ultimately unsatisfactory engagement pursuant to its inherent inability to resolve a potential adverse impact.