How mandatory human rights and environmental due diligence can create a sustainable future

As we enter year three of the COVID-19 pandemic, and with the threat of war looming over Europe, protecting people and the planet is not a nice-to-have, it is a must. A consensus is growing: business has a duty to respect human rights, even when and where states waver in their responsibilities to safeguard workers, communities and our natural environment.

Next week the European Commission is expected to release a draft of standard-setting legislation on sustainable corporate governance, designed to ensure that human rights and the environment are respected throughout EU-based companies’ value chains. In spite of multiple delays, this could be a game-changing moment for corporate accountability – provided the EU meets the high ambitions it set for itself two years ago. As EU Justice Commissioner Didier Reynders said in April 2020, it’s time “to make sure that responsible business conduct and sustainable supply chains become the norm.”

Pressure on companies and their boards to identify and address challenges in their value chains has grown, including from investors, and extends to the need to engage more directly with communities impacted by business activities. Business has a key opportunity here to put inclusion into practice. Championing proactive behaviors must come from the top level of a company. My company, Roche, has recognized the benefits of creating an environment in which all people are actively included, treated fairly and respectfully, have equal access to opportunities and resources, and can be themselves while contributing fully to the organization's success. This is only possible through the participation of the company and business partners, and the same approach can extend to respecting communities along the value chain.

A wide range of companies, investors and business initiatives have already recognized that effective mandatory human rights and environmental due diligence is a means for companies to raise the bar and ensure long-term stability and a sustainable business performance.

Over the past decade, business efforts on due diligence have been guided by a voluntary regime prescribed by the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. As a mitigation strategy, due diligence creates a framework for companies to “know and show”, then act upon, their risks. But it has not been widely implemented: according to a 2020 study by the British Institute of International and Comparative Law, only 37% of businesses currently conduct environmental and human rights due diligence. People and nature continue to be at risk from business activity, and abuses persist where visibility is low. As our natural world further degrades, the risks facing vulnerable workers and populations will only rise.

To transform business for the better, we must understand the ways in which business activities impact (and depend on) all forms of capital: natural, social, human and produced. Management systems are the foundation of company performance, yet company boards are critical to this change and must be accountable for due diligence and its consequences. Corporate governance must keep pace with the demands of investors and stakeholders.

In my decades as a board director responsible for corporate compliance, I have learned that corporate responsibility should never be a box-ticking exercise – as is still too often the case today. Embedding due diligence in company culture and practice not only upholds respect for human rights and the environment, but also presents a business opportunity, creating a virtuous circle of business stability and inclusive economic growth. Successful stewardship of our businesses can, and should, exist alongside responsible stewardship of our workforces, impacted communities and the natural world.

Due diligence is a critical step toward understanding and acting on a company’s impacts. Due diligence aligns policy, practice and investment with purpose. Measuring, then investing in, all capitals is the path to sustainable business performance – and gives us a real chance to achieve the European Green Deal and UN Sustainable Development Goals. Impact management can and will offer new business opportunities for company agility and gives a new meaning to the philosophy of business as a force for good. Corporations and their boards must integrate sustainability within their risk management processes and existing corporate governance procedures.

A number of countries in Europe, including France, Germany and Norway, have already begun setting national standards for mandatory human rights and environmental due diligence. The Netherlands and Belgium are setting out their plans as well. It makes sense to align and consolidate these efforts through the EU, elevating Europe as the first region in the world to enforceably mandate such practices. By extension, European companies would significantly raise the bar for addressing human rights and environmental impacts around the world, while also leveling the playing field across regions and among stakeholders. International coherence is eventually needed if we are to advance these efforts at scale.

The time is right for the EU to act – and act boldly. In the upcoming legislation, the EU will set the pace for companies and their boards. For business leaders, the emergence of mandatory human rights and environmental due diligence is a pivotal moment for demonstrating their commitment to both good corporate governance and a sustainable future.