The Private Members Bill, if passed, would establish the UK’s first law mandating business due diligence on human rights and the environment.

By Paul A. Davies, Michael D. Green, and James Bee

On 28 November 2023, Baroness Young of Hornsey (Baroness Young) introduced the Commercial Organisations and Public Authorities Duty (Human Rights and Environment) Bill (the Bill) to the UK House of Lords. The Bill seeks to establish the UK’s first law mandating certain companies to conduct human rights and environmental due diligence, and would also introduce an overarching duty for companies to prevent environmental and human rights abuses within their operations and value chains.

The Bill aims to level the playing field among businesses, provide clarity on legal obligations, and enable a greater level of access to justice. It also aims to align UK law with voluntary international standards, such as the United Nations (UN) Guiding Principles on Business and Human Rights, the Organisation for Economic Co-operation and Development (OECD) Guidelines, and the International Labour Organization (ILO) Multinational Enterprises Guidelines.

The Bill comes at a similar time to other proposed UK legislation under the Environment Act, which seeks to address environmental supply chain issues associated with deforestation in particular, by prohibiting certain supermarkets from selling products that contain materials sourced from areas associated with illegal deforestation.

Key Elements of the Bill

Organisations in scope: The Bill would apply to any “relevant commercial organisation” within the meaning of Section 7(5) of the Bribery Act 2020 and any “public authority” within the meaning of Section 2(2) of the Procurement Act 2023.

Content: The Bill outlines a comprehensive due diligence process, including risk identification, policy development, grievance mechanisms, monitoring, auditing, stakeholder engagement, and reporting. It also includes provisions for responsible disengagement as a result of such due diligence, and a reporting requirement for commercial organisations that meet a turnover requirement (to be set by the Secretary of State) and public authority procurement duties.

Penalties: The Bill would introduce civil liabilities for organisations and their directors which are joint and several, and criminal liabilities for organisations and their directors with provisions for imprisonment, fines, and director disqualification.

Specific Provisions

Duty to protect human rights and environmental harms: This duty would mandate in-scope organisations to conduct due diligence and integrate concerns into policies and management systems, in order to identify and address potential harms, establish grievance mechanisms, monitor the effectiveness of measures, and enable public reporting.

Responsible disengagement: If a commercial organisation decided to end a business relationship owing to due diligence findings where such due diligence was undertaken pursuant to the Bill, the decision should involve stakeholder engagement and prioritise mitigation before considering termination. Rapid disengagement is considered as an option only in cases of severe harm.

Reporting requirements: Commercial organisations with a specified annual worldwide turnover (as determined by the Secretary of State) would be required to publish and submit an annual report detailing their due diligence plans and actions taken.

Public authority procurement duties: Procurement processes for public authorities would be required to include due diligence requirements, award criteria, and contract conditions related to these duties, with provisions for remediation of harms. Public authorities would also need to report their suppliers, including any that have been excluded or terminated from procurement, on an annual basis.

Legislative Context

The Bill introduced in the UK Parliament seeks to align the UK’s corporate responsibility standards with certain existing and developing international standards, and is also broadly consistent with the European Commission’s proposed Corporate Sustainability Due Diligence Directive (CSDDD) (discussed in this Latham blog post). Despite the UK government’s historical reluctance to adopt measures akin to the CSDDD and the stalled progress of amendments to the UK Modern Slavery Bill, the proposed legislation would, if adopted, represent a significant shift in outlook.

This comes at a time of increasing pressure on companies to engage in human rights and environmental due diligence. Reflecting this change in expectations, the UK’s Environment Secretary announced new measures on 9 December 2023, under the Environment Act. These measures would ban businesses with a global turnover exceeding £50 million from sourcing commodities from land associated with illegal deforestation, specifically targeting products containing palm oil, cocoa, beef, leather, and soy. The legislation mandates these firms to perform thorough due diligence on their supply chains and to provide annual reports on their findings.

As such, the introduction of the Bill by Baroness Young is part of a broader movement urging the UK to address the negative impacts of its business sector and to keep pace with evolving global legal frameworks. Although the trajectory of the Bill through Parliament is far from guaranteed given the challenges Private Members’ bills often face in becoming law, its proposal may assist in raising awareness about critical issues and influencing the legislative agenda of the UK government.

Conclusion

Companies should monitor the progression of mandatory ESG due diligence legislation in the UK, including the Bill, as these developing legal frameworks will redefine the extent and manner of due diligence that businesses conduct concerning their global operations and supply chains.

Latham & Watkins will continue to monitor developments on supply chain due diligence legislation and guidance, both in the UK and internationally.