Whether it is the German Act on Corporate Due Diligence Obligations in Supply Chains (LkSG) or the EU Corporate Sustainability Due Diligence Directive (CSDDD): the laws that today require companies to exercise human rights and environmental due diligence share a common root. They are grounded in the same international frameworks – most notably the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct.
Understanding the logic of these frameworks also means understanding why the legal requirements have been designed the way they have – and being better placed to implement them.
Companies of all sizes are today embedded in complex and global business relationships. Long before national and international legal standards were adopted, voluntary frameworks defined corporate responsibility along supply chains. While these standards are not legally binding, they serve as important guidance for many companies.
The UN Human Rights Council unanimously endorsed the UN Guiding Principles on Business and Human Rights in 2011 – a landmark in the history of corporate responsibility. For the first time, a clear distinction was drawn: states have a duty to protect human rights, and companies have the responsibility to respect human rights.
The UN Guiding Principles describe the core elements of corporate due diligence. These include a policy commitment, risk assessment, prevention and mitigation measures, remediation, grievance mechanisms and the tracking of effectiveness. These elements shape almost all relevant legislation on human rights and environmental due diligence today.
The UNGPs comprise 31 principles across three pillars: the state duty to protect human rights (10 principles), the corporate responsibility to respect human rights (14 principles) and access to remedy (7 principles).
The OECD Guidelines for Multinational Enterprises on Responsible Business Conduct are the most comprehensive multilateral code of conduct for responsible business in international operations. The OECD adopted them in 1976 and has revised them several times since their introduction. The current version dates from 2023 and is supported by 51 adhering countries.
The Guidelines cover all key areas of corporate responsibility: human rights, employment and labour rights, the environment, combating bribery, consumer interests, science, technology, competition and taxation.
The National Contact Point – Implementation and Complaint Mechanism
To promote the effective implementation of the OECD Guidelines, all adhering countries have established National Contact Points (NCPs). In Germany, the NCP is located at the Federal Ministry for Economic Affairs and Energy.
The integrated complaint mechanism is the only government-backed international non-judicial instrument through which potential breaches of the OECD Guidelines can be addressed in a structured process. The aim is not to sanction companies but to foster constructive dialogue.
The six-step due diligence process
Based on the OECD Guidelines and the UN Guiding Principles, a risk-based due diligence process comprising six steps is recommended:
Step 1: Embed responsible business conduct into policies and management systems
Step 2: Identify and assess actual and potential adverse impacts
Companies should systematically establish where actual and potential adverse impacts on people and the environment may occur in their operations and throughout their supply and value chains. Particular consideration should be given to the perspectives of potentially affected stakeholders and to risks faced by groups at heightened risk of vulnerability or marginalisation.
Step 3: Cease, prevent and mitigate adverse impacts
Companies should take appropriate action to cease or mitigate identified adverse impacts and to prevent potential adverse impacts. Where not all adverse impacts can be addressed at the same time, human rights impacts should be prioritised primarily according to their severity. For other matters covered by the OECD Guidelines, both severity and likelihood should be taken into account.
Step 4: Track implementation and results
Measures alone are not enough. Their implementation and effectiveness should be reviewed regularly. Appropriate qualitative and quantitative indicators, as well as feedback from affected stakeholders, should be used for this purpose. The results should be used to continuously improve these measures.
Step 5: Communicate how impacts are addressed
Step 6: Provide for or cooperate in remediation and manage grievances
Where companies have caused or contributed to adverse impacts, they should provide for or cooperate in their remediation. In addition, companies should establish or participate in effective and accessible grievance mechanisms so that concerns can be raised at an early stage, grievances can be addressed and appropriate remediation can be provided.
Why Do We Need Laws if Voluntary Frameworks Already Exist?
In December 2016, the German Federal Government adopted the National Action Plan on Business and Human Rights (NAP). The aim was for at least 50 per cent of all companies based in Germany with more than 500 employees to voluntarily introduce a process for respecting human rights by 2020.
The result of a representative company survey conducted in 2020 was unequivocal: fewer than one in five of the companies concerned adequately fulfilled their due diligence responsibilities. Voluntary commitments were not sufficient – and paved the way for the LkSG in Germany and the CSDDD at European level.
