Achieving sustainability is possible. However, to achieve sustainability, we need to change the way business operates. Business needs to shift away from the unsustainable business models and be encouraged to create value and innovate sustainably.
In the SMART Project, ensuring that business respects human rights is an integral part of our work on reforms to support the transition to sustainability.
We assume that human dignity – manifested in respect for and fulfilment of human rights – is a fundamental component of social sustainability, and as such a necessary foundation for any policies and practices that seek to ensure economic development within the boundaries of our biosphere.
Yet, human rights are already under threat from economic activity that transgresses the planetary boundaries and social foundations that define our approach to sustainability. All indications point to a further rise in human rights risks, and a shrinking of human rights protections worldwide, unless sustainability is achieved.
SMART reform proposals
In recent months, the SMART project has been working on reform proposals for presentation to EU policymakers early in 2020. These proposals have as their overarching ambition the reshaping of key elements of the business environment, in particular to ensure business is operating in a regulatory framework that is consistent with the aims of sustainable value creation.
These comprehensive proposals all assume that human rights cannot be protected without also securing the very basis of all of humanity’s existence; and that political progress towards achieving sustainability is dependent upon protecting human dignity and progress towards social justice, including human rights.
Our proposal aims to dismantle regulatory barriers and to reinforce positive trends, to make it possible and easy for business to create value in a sustainable manner.
These reforms have clear echoes in the business and human rights field, including notions of smart regulatory designs that combine:
- public regulation and support with private regulation and practice;
- changes to company policies and governance;
- the integration of due diligence practices to company systems; and
- tracking/disclosure mechanisms that seek to ensure both best practice and accountability.
In other words, the reform proposals from SMART not only integrate human rights into an understanding of sustainability, but also suggest legal reforms compatible with the approaches to regulation and responsibility adopted by the business and human rights field.
Purpose of business: to create sustainable value
The SMART reforms proposals presently under consideration include, but are not limited to, the following:
We propose that the purpose of the company is defined as creating sustainable value within planetary boundaries. As noted above, the reference to sustainability here includes respect for human rights.
This redefinition of the purpose of the company explicitly seeks to balance the interests of its members and other investors and other involved and affected parties. Within this overarching purpose, the company can set out more detailed goals.
Redefine the duties of the board
We further propose to operationalise this through a redefinition of the duties of the board. This will include a duty to commit to the overarching purpose of sustainable value creation within planetary boundaries, again including human rights.
Second, it entails adjusting the business model of the company where necessary. Third, it will require developing a strategy to implement the purpose throughout the business and its internal control and risk management systems, including, where relevant, its global value chains.
Two tools for managing sustainability
We propose two tools for integrating sustainability to management processes. One involves an obligation for the board to ensure that a stringent sustainability assessment is undertaken at regular intervals (e.g. every five years). In addition, we propose sustainability due diligence as both component of the overall assessment as well as a stand-alone tool for addressing specific human rights or environmental risks.
The sustainability assessment and sustainability due diligence encompass:
- environmental issues, including greenhouse gas emissions; impacts on biodiversity; water use; land use; biogeochemical flows (nitrogen and phosphorus); atmospheric aerosol emissions; introducing novel entities (including chemical pollution, plastics and nanomaterials) into nature; and contributions to ozone depletion and ocean acidification.
- social issues, including human rights and labour rights, decent work and equality, and encompassing affected communities and people. As part of this, businesses should ensure that also the needs and concerns of especially vulnerable groups and persons affected by their operations are identified.
- governance issues, including anti-corruption and anti-bribery, anti-tax evasion, and inclusion of workers and other affected people and communities in open, participatory processes.
Both the sustainability assessment and sustainability due diligence would form the basis for the board to identify ongoing negative sustainability impacts and principal risks of future negative sustainability impacts.
Where the negative impacts or risks thereof are caused by or commensurate with lack of legal compliance, the board must ensure that this is rectified as soon as possible. For other issues, a system for an ambitious continuous improvement process towards the overarching purpose must be put into place and accounted for.
The company should account for these annually as a part of the management report. The regular assessment should be subject to assurance requirements and the annual reporting to full audit.
Human rights due diligence
We see human rights due diligence as one aspect of ‘sustainability due diligence’, which companies and regulators apply to particular risks of company involvement in human rights abuses.
We see the moves towards mandatory human rights due diligence regulation as constructive steps forward and will propose to the EU that these be the foundation for including sustainability due diligence as an integrated aspect of an EU company law reform.
Sustainability due diligence
In our research, we have sought to identify the ways in which human rights due diligence can be integrated into a sustainability perspective.
We have successfully tested an integrated, risk-based approach to ‘sustainability due diligence’, with a focus on complex product lifecycles. This has shown that it is possible to conduct integrated human rights and environmental due diligence at the level of particular products and services.
We also believe that, where relevant, human rights due diligence should be an important element in ensuring corporate sustainability, and that it should become an integrated aspect of a broader reform of the purpose of the company and the duties of the board.
EU should issue guidelines for sustainability assessments
We suggest that the European Commission should issue guidelines for how the sustainability assessment and due diligence requirements are to be carried out. The guidelines should be revised every five years, through an open participatory process that integrates expertise and affected communities.
We also propose that both public and private enforcement mechanisms are made available at the national level, to ensure multiple avenues for public agencies and private parties to respond to non-compliance. These must be flexible enough to adapt to changing business models.
In order to ensure coherence across the business environment for EU companies, the SMART project is also developing reform proposals addressing other areas.
These include reforms to trade and investment agreements, the EU Sustainable Finance Initiative, banking, procurement, the EU Circular Economy Package, and consumer protection law.
By formulating reforms that pursue these objectives as one, integrated definition of sustainability, we hope to contribute to securing a safe and just space for humanity now and in the future.
