Companies can protect themselves from legal risk by conducting human rights due diligence (HRDD) in line with the United Nations Guiding Principles on Business and Human Rights (UNGPs) – the global standard for corporate responsibilities to respecting human rights. By illustrating to would-be plaintiffs and courts that the company is proactively attempting to prevent and alleviate adverse human rights impacts, HRDD can insulate companies from legal liability, rather than exposes them to risk. Though the exact parameters for conducting meaningful and beneficial HRDD depend on company particulars, every HRDD process should investigate and identify salient human rights risks, mitigate adverse impacts, and track and report on the HRDD process.

This post discusses two areas of legal risk and how robust HRDD practices can help shield companies from legal liability in the US, EU, and beyond. First, publicly reporting on actions companies have taken to mitigate any human rights risks in their own operations or supply chains can shield companies from the rising tide of greenwashing and other claims targeting companies over human rights abuses. Second, strong HRDD will help companies prepare to respond to a shifting regulatory landscape.

Greenwashing Lawsuits

In addition to traditional human rights claims – such as Alien Tort Statute (ATS), Trafficking Victims Protection Act (TVPA), or Trafficking Victims Protection Reauthorization Act (TVPRA) cases (which are rare but expensive and time consuming when filed), there are additional emerging risks associated with greenwashing lawsuits, or complaints filed by consumers targeting businesses that mislead them about sustainability achievements or human rights performances. These are typically filed as fraudulent business practices, false advertising, and deceptive trade practice claims. Big name brands have been hauled into court over allegations that their claims of sustainable or ethical production practices were misleading, with no robust protection measures underpinning their claims. Not only are these suits on the rise in number and complexity among consumer groups, but local governments are also joining the fray.

Case law demonstrates that greenwashing claims can be defeated when companies can demonstrate that they publicly identified human rights risks, and are taking active steps to address those risks – even if those risks persist. In one case for example, a District Court of Massachusetts granted the company's motion to dismiss in a greenwashing lawsuit by observing that despite the “humanitarian tragedy” of child labor in the company’s cocoa supply chain, the company had openly acknowledged child labor as a risk, and then took proactive steps to mitigate these risks, such as joining an initiative to eliminate forced and child labor from their supply chains, and launching individual corporate remedial measures as well. The Company’s strong HRDD shielded them from liability. Companies are not punished for disclosure of human rights risks, as their general counsels may advise, nor are they expected to erase all human rights abuses from their supply chains; rather, courts will find that companies with strong HRDD processes and reporting are protected from greenwashing claims.

Savvy corporate attorneys would do well to ensure the companies they advise are staying carefully within the bounds of evolving greenwashing caselaw, publicly report on steps they are taking to mitigate human rights risks in their supply chains, and ensure that a company’s sustainability efforts are accurately depicted. In the same vein, by helping companies identify and disclose risks early, HRDD can not only help shield companies from greenwashing suits, but also from various other legal risks.

Shifting Regulatory Landscape

The regulatory landscape increasingly requires companies to comply with HRDD regulations across various jurisdictions. This is a fast-changing space, marked with uncertainties from our current political and regulatory environment. It is useful to understand the landscape as it stands currently, while also keeping a watchful eye on what’s to come.

Though the US currently does not have comprehensive HRDD legislation, shifts in US policy should encourage astute companies to adopt HRDD. The Uyghur Forced Labor Prevention Act (UFLPA), for example, restricts companies from importing goods that are mined, produced, or manufactured by forced labor in Xinjiang. There are also several US guidelines worth mentioning. First, the voluntary non-binding Export Controls and Human Rights Initiative (ECHRI) Code of Conduct – developed by the State Department and born from the summit for democracy 2023, highlights the importance of reviewing potential exports of goods and services that might be misused to violate human rights. Second, Guidance (in the form of FAQs) by the Department of Commerce (Bureau of Industry and Security (BIS)), makes it clear that exporters are expected to exercise human rights due diligence in line with the UNGPS. Companies that fail to meet this guidance could be placed on an entity list for human rights concerns – making it difficult to obtain an export license and placing them under a higher level of scrutiny.

Companies doing business on a global scale must also contend with more than just US policy; they face the heightened requirements of the global regulatory landscape:

• The Corporate Sustainability Due Diligence Directive (CSDDD) establishes a due diligence duty that apply to EU and non-EU companies. CSDDD allows prosecutors to sue companies for failure to live up to HRDD reporting requirements, and members of the general public can submit requests to those prosectors to pursue a case.
• The Forced Labor Regulation (FLR), will prohibit products and its components (regardless of geographic origin or industry) made with forced labor from being sold in the EU market beginning in 2027. Companies that fail to comply with the FLR, risk investigations and subsequent prohibitions and mandates to withdraw and dispose of their products. If a company fails to comply with an authority's decision, it is subject to penalties.
• HRDD legislation is also established among individual countries. For instance., the French Duty of Vigilance Law places a due diligence duty on certain French companies – impacting US companies controlling subsidiaries in France or acting as suppliers or subcontractors. A court can order a company to developing or improve upon a vigilance plan, and is penalized for non-compliance. Harmed individuals can bring a civil lawsuit under French tort law for damages. Another example is the Netherlands Child Labor Due Diligence Act, which requires Dutch and non-Dutch companies selling or supplying goods or services to investigate for child labor throughout their entire supply chain. It is unique in that it imposes a risk of criminal liability for repeated non-compliance. Though implementation of the Child Labor Due Diligence Act is currently on hold, awaiting developments at the EU level, it will be implemented in some form in the near future. Other laws that expose companies to liability for failure to protect against human rights abuses include the German Supply Chain Due Diligence Act (LkSG), Canada’s Fighting Against Forced Labour and Child Labour in Supply Chains Act, and more.
• Proposed mHRDD legislation is also sprouting up across Asian jurisdictions – South Korea and Thailand are both currently drafting mHREDD bills and Japan published its Guidelines on Respecting Human Rights in Responsible Supply Chains (the Guidelines) – non-mandatory recommendations to conduct HRDD.

Failure to proactively identify, prevent, mitigate and remedy human rights violations not only leaves businesses in violation of international soft law, but vulnerable to potential risk of legal liability. HRDD can help shield companies from that risk.

Please be aware that the information provided is for informational purposes and is not intended as, and should not be taken as, legal advice.