International Regulatory Enforcement (PHIRE)
Our Top 10 Predicted Business and Human Rights Issues for 2023
The explosion of global business and human rights continued to resonate across the globe in 2022. Some of the business and human rights trends have been evident and growing for several years; others are relatively new. Many are present in familiar jurisdictions; new locales increasingly see business and human rights regulation and litigation creeping across their borders. The dynamic rise of business and human rights, both as a distinct field and as part of other areas of international regulatory compliance – such as AML, sanctions, export controls, and trade – makes it difficult to identify only 10 areas of focus for 2023. Indeed, many issues that did not make our list – from public procurement laws and regulations that integrate human rights, to the continued recognition of gig and contract workers as employees with a right to a variety of benefits, to transition minerals – were prominent in 2022 and will be in 2023. In recognition of Human Rights Day (and just in time as a holiday stocking stuffer or emergency eighth night gift), and despite the challenge of winnowing our list to just 10 topics, as in years past we offer our top 10 human rights issues for 2023. The list below includes some old and some new, and is in no particular order.
- Right to Information
Transparency has been a clear and tangible theme in business and human rights legislation and regulation for several years. Examples include modern slavery acts and conflict minerals regulations, as transparency approaches seek to shape company behavior and consumer decision making by compelling disclosures of potential human rights risks and the steps companies are taking to address them.
A close cousin to these disclosure laws is a “right to information.” Right to information laws permit stakeholders to inquire into how relevant issues and risks are being managed, and a range of bodies have recognized their close connection to human rights. As an example, the Escazú Agreement, covering countries in Latin America and the Caribbean, recognizes the link between human rights and the environment, and includes provisions to ensure the public’s right to information on environmental issues. While to date the “right to information” largely has been applied by and to governments, it is increasingly in scope for company obligations. Proponents can look to the Norwegian Transparency Act, which went into effect in 2022, as an example. That law includes broad mandatory human rights due diligence requirements for companies doing business in Norway, but also allows any member of the public, including investors, NGOs, and trade unions inside or outside of Norway, to ask for information about how a covered company is addressing actual and potential human rights impacts. While 2023 will continue to see proposed and adopted regulations pressing for corporate human rights transparency, they will be accompanied by a new focus on the inclusion of a “right to information.”
- Greenwashing & Honing Disclosures
The transparency push in 2022 helped create the apex of two trends in tension. Companies are being pressured or compelled to provide increasing amounts of information about their human rights and ESG performance, yet those same disclosures increasingly are being attacked in litigation or regulatory actions asserting that the statements cannot be supported, are exaggerated, or are outright false.
There is little sign that tension will abate in 2023. Nor the vociferous debate over the desired content in company human rights disclosures, a debate unlikely to subside unless there is a convergence in the competing efforts to develop non-financial reporting standards by the European Union (“EU”) and its expert body, the European Financial Reporting Advisory Group, and the International Sustainability Standards Board (“ISSB”). Nonetheless, the pressures will quickly lead companies to alter their human rights disclosures. There will be a greater reliance on objectively verifiable data, including metrics and statistics. Companies will scrub non-financial disclosures, as they do with financial disclosures, to avoid embellishment and mischaracterizations, and only include statements that have clear backup. Those efforts will be supported by the EU’s Corporate Sustainability Reporting Directive, recently adopted, which will apply to a broad swath of EU and non-EU companies, require human rights and broader sustainability disclosures, mandate that the disclosures are included alongside financial reporting, and mandate third party audits. A draft of the initial set of reporting standards has just been issued, and is expected to be finalized by June – though potentially competing standards being developed by the ISSB may create further discussion. For better or worse, 2023 will bring more rigor and precision to human rights reporting, which will bear greater resemblance to the highly disciplined approach afforded to financial reporting.
- The Link Between Corruption and Human Rights
In 2022, the UN General Assembly recognized the Right to a Healthy Environment as a human right. Given the impacts that such areas as climate, deforestation, biodiversity, and air and water pollution have on people, the Right to a Healthy Environment is seen as fundamentally intertwined with numerous other human rights. It thus comes as little surprise that the EU’s draft Corporate Sustainability Due Diligence directive focuses on both the environment and human rights within its substantive scope.
What has received less attention is the link between corruption and human rights. As originally conceived, the EU draft directive introduced by the Legal Affairs Committee, which was unanimously endorsed by the EU Parliament, included corruption as part of a “governance” category. The category was omitted in the February 2022 draft issued by the EU Commission, although less than a week before the draft due diligence directive was announced, the EU Parliament recommended an EU global anti-corruption strategy in light of the impact corruption has on human rights. The EU Parliament declared that corruption is a major obstacle to the enjoyment of human rights, with impacts often felt most strongly by the most vulnerable and marginalized members of society. Recent proposed amendments reinsert corruption into the draft, and in her State of the Union, the EU Commission President announced that the Commission will put forward a proposal to include corruption in the EU Global Human Rights Sanctions Regime. With the environment now firmly ensconced within the human rights framework, 2023 will see increased attention on the link between corruption and human rights, and pressures to add corruption as another issue inextricably linked to the ability to experience and enjoy human rights.
- Mandatory Due Diligence
As we predicted in our last top 10 list, throughout 2022, the prospect of mandatory corporate human rights due diligence laws being enacted throughout Europe was a dominant theme. Under mandatory diligence laws, consistent with the UN Guiding Principles on Business and Human Rights, companies must undertake affirmative assessments to identify their risks, institute measures to mitigate any negative impacts, assess the effectiveness of their measures, and publicly report on their approaches. The EU draft Corporate Sustainability Due Diligence Directive, proposed in February, has mandatory human rights diligence as its core requirement. It is currently undergoing active debate and may be adopted next year. Germany’s Supply Chain Due Diligence Act will go into effect next year, and 2023 will represent the first full year of Norway’s due diligence law being in effect. Switzerland’s conflict minerals and child labor due diligence ordinance also becomes effective. While France’s Duty of Vigilance has been on the books for several years, proposals to strengthen the law will be actively considered, and litigation under the law is increasing and will continue to generate headlines. The Spanish government took comments on a draft bill, and a new bill was just introduced in the Netherlands. Other countries outside the EU, such as New Zealand and perhaps Brazil, seem likely to advance their own legislative initiatives, while Japan recently issued a set of voluntary guidelines on respecting human rights.
Indeed, even in countries that have modern slavery acts, such as the UK, a campaign has begun to strengthen the protections to include broad mandatory human rights due diligence requirements. And in Canada, which is poised to adopt a modern slavery act, the government is considering incorporating human rights and environmental due diligence provisions. In fact, the G7 leaders issued a communique stating that they “are committed to working towards an international consensus on business and human rights to strengthen compliance with international standards, including through mandatory measures that protect rights-holders, provide for greater multilateral cooperation, address abuses, and support remedy, thus enhancing predictability and certainty for business.” Mandatory human rights due diligence will remain a headline issue in 2023 in Europe and across the globe.
- Free Trade Agreements
Human rights protections included in free trade agreements (“FTA”) and trade preference programs are gaining attention at a rapid pace. FTAs offer reduced import duties, making it easier and cheaper to export products or services. The goal of including human rights provisions in FTAs is to incentivize developing countries to adopt and enforce human rights protections, enhancing a human rights focus at the raw material and manufacturing phases of product creation. While the inclusion of human rights in FTAs slid under the radar for many years, the EU, United States and other countries have long been proponents. Today, one scholar estimates that over 75% of governments participate in preferential trade agreements that contain human rights provisions, including the world’s most substantial trading nations and blocs. They may be included in various ways, including through references to international standards or conventions, domestic human rights laws, specific areas such as labor rights, or more generally. For instance, in 1993, the North American Free Trade Agreement included labor rights in a side agreement. Its successor, the United States-Mexico-Canada Agreement, specifically includes forced labor import bans and worker rights protections, which are being enforced by the U.S., Canada, and Mexico to different degrees.
In 2022, the US Trade Representative (“USTR”) announced the development of a focused trade strategy to combat forced labor, which includes a review of trade policies and tools to combat forced labor. Throughout the year, USTR has been seeking and receiving comments in its strategy to combat forced labor, and joining with other ministers in making pronouncements regarding forced labor. In the UK, a leak that the country would not insist on human rights provisions in its trade agreements drew howls of criticism, and attention has focused on including human rights terms in the UK-India trade deal being negotiated. There is similar consideration of the issue in the EU, Germany, and elsewhere. The inclusion of human rights in trade agreements can have a range of impacts for global businesses, from new laws that apply to local subsidiaries and suppliers, to enhancing the likelihood of human rights being part of international arbitrations. 2023 will bring increased attention to and focus on human rights in free trade agreements, including in the rollout of the USTR strategy, and the impacts will be quickly felt by multinational businesses.
- Holistic Approaches to Addressing Forced Labor
Governments are taking a variety of steps to prevent and deter forced labor along the commercial spectrum. Indeed, at each material stage – from the generation of raw materials up through sales and usage – governments are pursuing initiatives to address forced labor in value chains. In addition to FTAs, at the raw material and production stage, the rapidly growing body of supply chain due diligence laws requires companies to take affirmative steps to identify potential human rights violations within their supply chains, and where risks or impacts are identified, institute mitigating measures. Modern slavery acts, adopted in the UK and Australia and likely coming in Canada, impose a lighter touch, but similarly require companies to disclose the steps they are taking to address forced labor and modern slavery in their operations and supply chains, extending to the raw material and production phases.
Post-manufacturing, laws are being proposed and adopted to prevent goods from being imported into markets if they are made wholly or in part with forced labor. While Section 307 of the U.S. Tariff Act of 1930 has been on the books for many years, Canada’s Customs Tariff Act similarly excludes from import forced labor goods, and the EU recently proposed a regulation with similar provisions. Like proposals will be forthcoming from other markets, in addition to continued active enforcement of the U.S. Uyghur Forced Labor Prevention Act. Post-import, the EU proposal bans the sale of goods produced with forced labor, just as governments around the world increasingly are banning public procurement of such goods, placing pressure on government contractors to conduct diligence to ensure their goods are forced labor-free. Finally, the EU proposal would ban the export of forced labor goods, and an increasing number of laws and proposals, including Norway and the EU’s proposed mandatory due diligence directive, focus on downstream due diligence and seek to mitigate potential risks and impacts of their products and services by customers and end-users. From the raw material and manufacturing stage, to importation, sale, export, and downstream usage, governments are taking comprehensive and holistic approaches to prevent and disincentivize the use of forced labor – a trend that will continue in 2023.
We are deeply entrenched in an era of “dataveillance.” Governments around the world are amassing giant biometric databases of individuals, gathering iris scans, DNA, voice samples, facial images, and fingerprints. The information is being used by law enforcement and public security to identify and track a range of individuals, from legitimate criminal suspects to political dissidents. In addition to monitoring all forms of communication and internet usage, governments are starting to demand the algorithms that social media and ecommerce companies use to help target customers. In their security practices, governments are also relying on facial recognition tools to engage in “predictive policing,” on emotion recognition software to analyze sentiment, and to calculate the number of visits by migrants to identify potential risks.
The pace of change is dizzying. Statements of principles and a few specific laws have been promulgated, including a UNESCO Recommendation on ethical AI signed by 193 countries. But the questions are far outpacing the answers. The direct and indirect human rights issues are profound and broad, encompassing privacy, freedom of expression, freedom from discrimination, and a host of other rights. For governments, the questions range from the most basic – like permissible and impermissible uses, and how to evaluate product reliability – to the far more complex, like accepting intelligence from security agencies obtained through dubious means, algorithmic bias and similar concerns arising from AI, and the ethics of initiating security responses based on a prediction of future behavior. For businesses, the questions focus on the extent to which their technology, parts, and labor are employed for potentially controversial purposes by customers including governments. While we are far from adopting an international convention that can help shape behaviors, 2023 will see a rise in demands for legal responses as well as pressure on companies involved in furthering the dataveillance era.
- Conflict Affected Areas
In last year’s list, we predicted 2022 would see increased focus on how and why a company might choose to remain in a conflict-affected area and try to adopt a position of neutrality, or exit responsibly. That proved true. Companies exited Russia in droves following its invasion of Ukraine. Deeply troubling reports from Myanmar and an extremely difficult operating environment led many more global companies to exit that country last year. High-profile legal settlements and criminal investigations of companies that engaged with armed groups have been in the headlines. The International Committee of the Red Cross opined that a company will never be perceived as a neutral actor in conflict-affected contexts, and the UN issued a guide to conducting heightened due diligence in conflict-affected areas. Businesses that choose to sell their interests or abandon their investments in conflict zones may face accusations of forsaking domestic employees who may face physical and economic threats, or helping to finance conflicts, depending on the purchaser and/or how equipment left behind is used. Those that choose to stay face risks of being connected to gross human rights violations.
For 2023, there is little sign that the critical dynamics that underlie this business and human rights issue will abate. The focus continues to sharpen for businesses that invest and operate in conflict-affected and high risk areas. The number of global conflicts remains high – 110 armed conflicts involving at least 55 states and 70 armed non-state actors, according to Geneva Academy of International Humanitarian Law and Human Rights. Several investigations and prosecutions will remain open, new ones likely will be initiated, and several cases are pending before OECD National Contact Points, discussed in further detail here. As in 2022, there will be intense scrutiny in 2023 on companies in conflict zones and high risk areas, as well as their decisions to stay or go.
- SLAPP Suits
Attacks on human rights defenders continue at an alarming rate, amidst continued reported concerns surrounding a closing of the civic space. Part of those attacks have come in the form of Strategic Lawsuits Against Public Participation, or “SLAPP suits,” which are designed to intimidate individuals and entities from publicly reporting issues that are matters of public interest, such as human rights abuses, environmental destruction, or corruption. Regulators have been considering means of addressing such abusive lawsuits, which reduce public discourse, deter the identification of serious harms, and attack freedom of expression, while nonetheless protecting those with legitimate claims of defamation and libel. Indeed, the International Covenant on Civil and Political Rights (Art. 17) also recognizes the right to protect one’s honor and reputation against unjust attacks.
In 2022, the international community began coalescing around regulations to address SLAPP lawsuits. The European Commission issued a Directive Proposal to address abusive lawsuits against journalists and human rights defenders, allowing judges to demand an evidentiary showing at an early stage and dismiss lawsuits that lack merit, with penalties for bringing such cases. The UK Justice Secretary has announced a similar approach, which tracks strategies in several U.S. states and other jurisdictions. A similar federal bill was introduced in the U.S. Congress. In 2023, at least some of these proposals will become laws, offering additional protections to those who voice legitimate concerns about corporate malfeasance. While these laws do not address more troubling aspects of human rights defender attacks, including physical violence, they are a positive step forward and push back against a shrinking civic space.
- The Anti-ESG Movement
The attack on ESG began in 2022, and will continue in 2023. While focused in the U.S., it impacts U.S. and non-U.S. companies alike. The anti-ESG movement is to some extent politically driven, representing a pushback against a perceived “woke” culture and efforts to tackle climate change and embed diversity, equity and inclusion (“DEI”) commitments. To some extent, it is more substantive, as state attorneys general have questioned whether methodologies that rate company ESG performance, which in turn is fed into ESG-related investments in global companies, are unreliable – matching longstanding company criticisms, which have cited the subjectivity, unpredictability, and lack of consistency in ESG benchmarks and ratings.
Except for areas like DEI and the intersection of climate change and human rights, the anti-ESG movement currently is not centered on the “S,” where most business and human rights issues reside. However, the anti-ESG movement will not stop with the 2022 U.S. mid-term elections, and may receive more attention as the 2024 presidential election comes into focus. In addition, just as the momentum for business and human rights increased with the rise of ESG over the past few years, to the extent the ESG movement slows, it could have some impact on business and human rights regulatory activities. Perhaps more significantly, it is possible that 2023 will spread to other markets or bring a focus on additional areas of the “S,” including resistance to supply chain due diligence in the face of continued disruptions and labor and workplace rights as two obvious examples.