Due diligence is an important tool which can assist companies to manage risks and compliance with laws, regulations and standards. The UN Guiding Principles on Business and Human Rights state that organisations have a responsibility to respect human rights by acting with due diligence to avoid infringing on the rights of others.

Beyond this, alongside the rise of ESG, a number of legal regimes have developed with an aspect of mandatory human rights due diligence, imposing an obligation on businesses to take this into account.

Understanding what type of due diligence to conduct, and when to conduct it, is critical to fulfilling this responsibility and effectively managing risks and impacts. We have helped our clients develop bespoke systems and methodologies to manage this process and advise on how to manage due diligence findings and challenging situations.

The UN Guiding Principles on Business and Human Rights provide that businesses should carry out human right due diligence to identify, prevent, mitigate and account for how they address their actual or potential adverse human rights impacts.

In certain circumstances, enhanced and bespoke human rights due diligence, in the form of a Human Rights impact assessment, may be required. This is particularly the case where there is a foreseeable risk of human rights impacts, for example if there is something inherent in the goods or services being provided which entails a risk of harm or if the activities or reputation of the counter-party to whom they are being supplied gives rise to such a risk.

We have helped a number of organisations with human rights impact assessments in a variety of complicated and difficult situations. Our expertise in this area allows us to provide our clients and their business teams with succinct, plain English and practical impact assessments that help them properly identify, understand and assess the implications of the proposed contractual arrangement and make informed business decisions.

A range of soft law standards require businesses to respect human rights and set clear practical expectations by providing a framework within which companies can build structured processes to identify and manage their impacts.

We have long advised companies on the review of their risk management and compliance systems to ensure that they take human rights issues into account. Where gaps are identified, we have helped them design and implement new measures, or upgrade existing systems, to ensure that they are able to manage their impacts and eliminate or mitigate risks to their, and their stakeholders’, satisfaction.

Linklaters has also partnered with the UN Global Compact to interview General Counsel across a wide range of organisations to develop two Guides for General Counsel on Corporate Sustainability. These provide practical guidance on how to advance corporate sustainability issues, while reinforcing the UN Global Compact’s Ten Principles that focus on human rights, amongst other things.

Ethical sourcing and supplier compliance with human rights standards are rapidly attracting greater scrutiny from a range of stakeholders, including investors, customers and NGOs, who are looking for companies to demonstrate a more responsible and sustainable approach to business.

This has pushed companies to look beyond more traditional methods of supply chain management, which have focused on the commercial aspects of procurement and on contingency planning, with a view to ensuring favourable supply terms and business continuity.

Also driving this change in approach are developments like the “transparency in supply chains” provision of the UK’s Modern Slavery Act 2015. We have led the charge in advising companies on applying these reporting requirements, which have recently helped inspire similar developments globally, including the Devoir de Vigilance, Dutch Child Labour Due Diligence Law and Swiss Responsible Business Initiative.

Linklaters has long advised a range of corporates on the human rights aspects of their M&A activity, recognising the potential for it to represent a material risk of a transaction, as well as advising on applicable international environmental and social requirements in relation to a large number of project financings on both the sponsor and lender-side.

Furthermore, as financial institutions increasingly recognise that ESG issues are relevant to credit and reputational risk, sustainable finance is fast becoming the benchmark for global financial and investment transactions particularly in the extractive and infrastructure sectors. Recent revisions to soft law standards in this area explicitly incorporated references to human rights.

We have the leading team on soft law standards, and we are acutely aware of the need for corporates (as businesses and borrowers) and financial institutions to consider and report on the environmental and social impact of their activities and to frame contractual requirements in a practical and commercial way. 

Increasingly companies are required to be transparent about and report publicly on their business practices. This trend has gained significant momentum over recent years. Regulatory reporting requirements are expanding to cover social, community and human rights issues as well as information about related policies, processes and their effectiveness. The “transparency in supply chains” provision of the UK’s Modern Slavery Act 2015 is a more established example, as is the EU’s Non-Financial Reporting Directive. There have also been numerous developments in recent years across the globe demonstrating the heightened need for companies and financial institutions to engage with this topic and ensure that their public commitments and statements align with their business practice.

We have an in-depth understanding of this area, from the systems that may need to be put in place to gather information, to the drafting and preparation of reports and statements and addressing any follow-up action taken by stakeholders.

As human rights garners more stakeholder and public interest and scrutiny, we are seeing a rise in the number of actions brought (in a variety of fora) against companies that involve allegations of adverse human rights impacts or failures to prevent or manage such impacts. This includes the recent trend of claims being brought against parent companies in respect of the actions of foreign subsidiaries.

Our team understands that such actions represent more than just liability risk and that a “win” for claimants does not necessarily require a court judgment in their favour. Our approach is therefore both to help with claims, complaints and other forms of action when they are brought but also to provide advice and assistance in advance to help minimise the risk of your business facing such actions in the first place. This includes providing advice on putting in place processes, policies and procedures to help avoid instances which could give rise to claims and advising in relation to operational level remediation mechanisms to help clients respond appropriately where impacts have been caused. 

In certain jurisdictions, businesses also have human rights of their own. There are circumstances in which they may wish to take action to enforce those rights as protection against certain forms of State intervention, in the context of legal proceedings and/or regulatory investigations.