US Letting EU Define ‘Rules of Game’ With Human Rights Due Diligence
The United States needs to start catching up to European countries that are expanding their legislative frameworks to mandate corporate accountability for human rights, a new report has warned. Doing anything else not only risks undermining its long-held commitment to protecting fundamental freedoms but it also allows foreign powers to dictate the standards under which its largest and most influential companies operate.
Published last week by New York University’s Stern Center for Business and Human Rights, the report argues for what it describes as “enhanced U.S. government engagement” in the development and enforcement of metrics by which human rights risks and compliance can be assessed and those responsible for them made liable. With the European Union’s corporate sustainability due diligence directive poised to go into effect in a couple of years, setting a direction from which there is “no turning back,” the United States is clearly “lagging behind,” said Cecely Richard-Carvajal, the Masiyiwa-Bernstein fellow who wrote the paper.
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What this also means is that it’s ceding its position as a business and human rights leader despite early moves in adopting everything from the 1930 Tariff Act to the Dodd-Wall Street Reform Act to the California Transparency in Supply Chain Act to the Uyghur Forced Labor Prevention Act, she said. And perhaps nowhere is this more clearly demonstrated than in the Biden administration’s updated National Action Plan on Responsible Business Conduct, which articulated earlier this year an “expectation”—not a requirement—that businesses assess human rights-related risks in their operations and supply chains in line with international norms such as the United Nations Guiding Principles and the Organisation for Economic Co-operation and Development guidelines for multinational enterprises.
“An expectation really isn’t enough,” Richard-Carvajal said. “Companies need a requirement. That’s where the world is moving.” She noted that while the UFLPA is an important legal lever, it narrowly focuses on one region—China’s Xinjiang Uyghur Autonomous Region—and a single human rights issue—forced labor—without addressing the roots of abuse and mandating remediation. Import bans are valuable, she added, but as part of a package of legislative mechanisms that can go further in tackling corporate human rights responsibility.
That U.S. companies are falling short isn’t mere conjecture, according to one 2022 World Benchmarking Alliance study, which found that 84 percent of America’s biggest names failed to demonstrate the initial steps of human rights due diligence—including identifying, assessing and acting on risks and adverse impacts in their operations and supply chains—compared with 59 percent of their counterparts from other Group of Seven nations. Even more telling: 91 percent of U.S. firms did not identify and engage with stakeholders whose human rights were or could have been affected by their activities, versus 78 percent of those based in other G7 countries.
Without a U.S. mirror to European developments, the gap between American and foreign companies will only grow, Richard-Carvajal said. For large U.S. firms that operate in or sell into the EU, the 27-nation bloc will effectively be “defining the rules of the game” with the standards it has set. While Richard-Carvajal welcomes regulation in whatever form it takes, it’s in the interest of the United States to set U.S. laws for U.S. businesses, she said. Unless companies are required to do so, they can—and will—only invest “so much time, resources and energy into these kind of processes.” Those that are “caught” by EU legislation could also be at a competitive disadvantage to businesses that are not beholden to it.
Richard-Carvajal also pointed out that human rights protection was foundational to the establishment of the United States 200 years ago and remains a pillar of its constitution. What the U.S. government needs to do is provide an “avenue of redress” for affected rights holders that hews to this cornerstone belief and lives up to the “new standard of behavior” that consumers are increasingly expecting from corporations, she said.
Mandatory due diligence laws may be one of the strongest regulatory interventions, but all forms of legislation are important, Richard-Carvajal said. So is government buy-in as the most crucial first step, she added. If the world is truly serious about tackling the issue of human rights abuse, however, it needs greater international alignment, which involves deeper diplomatic engagement buoyed by meaningful civil society and industry involvement.
“We don’t want a situation where there’s EU legislation telling companies to do one thing and U.S. legislation telling companies to do another, and they’re completely different at their expectations,” she said. “And then companies have to try and spend so much energy reconciling these two systems that they’re not actually fixing a problem.”
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