For investors
Go to MyFondia

Human rights due diligence and the law – navigating the rapidly changing landscape

Companies across the world are to an increasing extent facing obligations to identify, prevent and mitigate human rights risks linked to their operations. Swedish and Finnish companies have much to gain on taking a proactive and systematic approach to human rights issues while awaiting potential future Swedish, Finnish and/or EU-legislation.


Human rights due diligence legislation

The business sector’s role in ensuring respect for human rights is gaining increased importance. Normative frameworks, such as the United Nations Guiding Principles on Business and Human Rights (UNGPs), require companies to respect human rights and to ensure access to remedies for adverse human rights impacts. We are now witnessing a global shift towards mandatory legislation regarding human rights due diligence for businesses in the UNGPs’ spirit, requiring companies to identify, prevent and mitigate human rights risks.

In several countries, human rights due diligence legislation of some sort has already been proposed or adopted. France is one of the trailblazers in this area with its Corporate Duty of Vigilance Law. Other countries that have adopted human rights due diligence legislation include the UK, the Netherlands and Australia. Legislative proposals have been seen in Germany, Norway and beyond. Human rights due diligence was also, as a part of the Swiss Responsible Business Initiative, subject to a referendum in Switzerland in late November last year.

In Sweden, there are no human rights due diligence legislation in place. However, the civil society, trade unions and businesses are calling for such legislation to be adopted. The Swedish Agency for Public Management recommended the government already in 2018 to investigate the possibilities for human rights due diligence legislation.

In Finland, the situation for legislation is the same as in Sweden. The Ministry of Economic Affairs and Employment ordered from a consultancy firm a legal report for a possible corporate compliance act. The Ministry has issued a request for comments on this report, whose due date was 30 September last year. The Ministry will decide on further steps on that basis. According to this report, the human rights due diligence legislation was seen possible to be passed in Finland, but its scope, monitoring, sanctions as well as time for entry into force should be considered.  

Proposal on mandatory human rights and environmental due diligence

The Commission of the European Union has announced that it will present a legislative proposal on mandatory human rights and environmental due diligence in early 2021. Considering the shift towards mandatory legislation that we are seeing in several countries, alongside with the calls from the business sector and civil society organisations to adopt such legislation, we believe that it is only a matter of time before human rights due diligence of some sort becomes mandatory for Swedish and Finnish companies.

Considering the above, should companies wait with identifying and mitigating human rights risks until legislation is in place? Our recommendation is to not wait. It is far better to be proactive than reactive and to take a systematic approach to human rights issues already at this stage. Moreover, despite the current lack of mandatory legislation in Sweden and Finland, to neglect the human rights risks in your company’s operations is not risk-free. Key risks associated with insufficient processes for identifying and mitigating human rights risks leading to adverse human rights impacts include civil liability, reputational damage leading to business disruption, and legal risks in countries where your company conducts business that has legislation in place.

To conduct human rights due diligence, each company must identify, prevent, mitigate and account for potential impacts on human rights linked to its business operations across the world. Key steps, to be taken in consultation with stakeholders, include:

1.       Identifying the risks. Assess actual and potential human rights impacts by finding the vulnerable groups and the risky business activities.

2.       Acting upon the risks. Assess how to prevent and mitigate the identified risks and assign responsibilities to relevant functions and individuals within your company.

3.       Following up on the measures taken. Track the effectiveness of your company’s actions and make necessary changes to policies and procedures.