The Commercial Organisations and Public Authorities (Human Rights and Environment) Bill places more due diligence obligations concerning human rights and the environment on business and public sector bodies.
The Commercial Organisations and Public Authorities (Human Rights and Environment) Bill defines the commercial organisations that would be within scope as:
The bill contemplates obligations with extra-territorial effect, both in terms of potentially applying to certain non-UK companies and also to acts or omissions that take place overseas.
This article breaks down the bill and highlights the due diligence concerns and responsibilities of business and public sectors.
UK companies are already required by law to report on some environmental and social issues. For example, under section 141 of the Companies Act 2006, large, listed and certain other types of companies must produce a ‘non-financial and sustainability information assessment’. This must include information on the company’s development, performance and position and the impact of its activity relating to environmental matters, social matters, respect for human rights and anti-corruption and anti-bribery matters. The 2006 Act also requires listed and large companies to include in their annual directors’ report disclosures in energy and carbon usage and efficiency.
Further, commercial organisations that supply goods or services and have a turnover of £36 million or more are also required by the Modern Slavery Act 2015 to produce a slavery and human trafficking statement.
Clause 2 of the bill introduces a duty on commercial organisations and public authorities to prevent human rights and environmental harms ‘so far as is reasonably practicable’. This duty is described broadly, extending also to environmental harms and to potential harms that take place in a company's ‘own operations, products, and services, those of their subsidiaries, and throughout their value chains’.
Reference to the terms ‘products’, ‘services’ and ‘value chain’ (as opposed to ‘supply chain’) indicate that the duty might extend beyond an organisation’s own operations to impose a duty on companies in relation the use to of their goods and services by customers. In some sectors, including manufacturing, technology, telecoms and media businesses, the imposition of such a duty could be very challenging.
In addition, the imposition of such a duty on a parent company in relation to the operation of its subsidiaries could introduce the type of group-wide responsibility, going further than any current law does in terms of parent company responsibility.
The duty to prevent human rights and environmental harms would apply to all businesses in scope of the bill, irrespective of their size.
Clause 3 of the bill sets out the scope of the proposed duty of due diligence. Here, ‘reasonable’ due diligence includes ‘as a minimum’:
The bill also refers to the need for informed engagement with stakeholders. It also states that certifications, audit reports and membership of industry or multistakeholder initiatives are not sufficient, on their own, to fulfil the due diligence requirement.
Like the duty to prevent human rights and environmental harms, these due diligence requirements are proposed to apply to all businesses in scope of the bill, irrespective of their size.
Clause 4 of the bill describes a framework by which a business might terminate a relationship in a responsible manner in order to discharge its due diligence obligations.
Best practice in circumstances where a human rights harm is found or suspected within a business partner is ordinarily to work with the business partner to help the victim(s) and to assist the business partner in improving their own practices.
Clause 5 sets out a reporting requirement according to which organisations in scope would be obliged to publish on a government registry, a report setting out the plan for the human rights and environmental due diligence to be conducted over the next 12 months, as well as an assessment as the effectiveness of the actions taken in the previous year.
Clause 5 also sets out an information request mechanism, a proposed civil penalty for failing to publish the report, as well as a duty on the secretary of state to create a regulatory offence for knowingly or recklessly including false or misleading information in either the report or in response to any information request.
The bill proposes that the reporting requirements should be subject to a turnover threshold, to be set by the secretary of state.
Clause 6 sets limitations on public procurement, based on compliance with the bill. In particular, a public authority must set out human rights and environmental due diligence requirements at the tender stage and a contract should not be awarded to a supplier who is not conducting, or does not have a plan for conducting, human rights and environmental due diligence. The bill also states that every public authority must also publish a blacklist of excluded suppliers.
Clause 7 seeks to compel the secretary of state to establish a regulatory authority to oversee compliance with the bill.
Clause 8 seeks to create a new form of civil liability for any business that ‘fails to prevent human rights or environmental harms in its own operations, products, and services, those of its subsidiaries, and throughout its value chains’. Liability under this provision is proposed to be subject to a defence that the business took ‘all reasonable steps’ to prevent the harm from occurring.
Clause 9 seeks to make the board collectively responsible for compliance with the bill. It would be an offence if the business conducts no human rights and environmental due diligence, or if a person knowingly or recklessly includes false or materially incomplete information in the company's public reporting. It would be a defence if that person took all reasonable steps to comply with the bill and informed the regulator as soon as practicable after becoming aware of the error in the reporting.
Clause 10 sets out the proposed regulatory enforcement steps available, including fines of up to 10% of the organisation's global turnover. It is worth noting that 10% of global turnover is the same level of maximum fine as Ofcom has recently been empowered to impose under schedule 13 of the UK Online Safety Act 2023. Curiously, the bill is lacking an appeals process.
Clause 11 would make a commercial organisation guilty of an offence where a person ‘associated with the organisation’ commits one of one of a series of offences listed in the bill in order to retain business or a business advantage for the commercial organisation.
The bill has a long way to go to become law but it is another reminder of the increasing expectation on business in relation to human rights and environmental due diligence.
For further information about the Commercial Organisations and Public Authorities (Human Rights and Environment) Bill, please contact the business risk and regulation team.
