Clifford Chance

A COP26 inter-governmental statement confirms that the private sector has a role in achieving climate and social policies, including through supply chain due diligence on human rights.

On 4 November 2021, during COP 26 in Glasgow, a declaration "Supporting the Conditions for a Just Transition Internationally" (the "Declaration") was published, outlining its signatories' objectives to deliver green growth, decent work and economic prosperity in the transition to net zero. The aim is to ensure that 'no one is left behind' in the transition to a climate resilient future.

The Declaration, signed by the European Commission and fifteen states, including the United States, Canada, Germany, France and the UK, sets out six principles which, when implemented, are intended to support developing and emerging economies to diversify away from dependence on carbon-intensive industries in ways that support ambitious sustainable development priorities.

The six principles cover:

• Support for workers in the transition to new jobs.
• Support for effective and inclusive social dialogue and strengthened stakeholder engagement.
• Development of economic strategies towards sustainable economic growth and diversification, reducing poverty and inequality.
• Promotion of local, inclusive, and decent work taking account of reskilling and training needs and with a focus on vulnerable and marginalised groups.
• Addressing the effects of the transition on global supply chains, including those economically reliant on them, and advancing business respect for fundamental human rights, particularly labour rights. The signatories also intend to consider ways to build climate resilience into supply chains.
• Reporting by signatories on relevant just transition efforts in the context of states' policies and measures to achieve Nationally Determined Contributions (NDCs).

The Declaration acknowledges that the impacts of the transition to net zero could disproportionately affect certain states, communities and vulnerable groups. It is of interest for the private sector in signposting policy priorities of the signatories, as well as the acknowledgement of the role of business in addressing potential impacts on global supply chains and the economic and labour-related issues those will raise.

Businesses urged to undertake human rights due diligence in their supply chains.

The Declaration urges businesses to carry out corporate due diligence in line with:

(i) the OECD Guidelines for Multinational Enterprises,

(ii) the UN Guiding Principles on Business and Human Rights, and

(iii) the ILO’s Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy.

Many businesses already align their corporate policies and practices with such standards, which also are increasingly reflected within legal measures requiring corporate due diligence and accountability across businesses and value chains. (See further below.)

Climate action and human rights – a shared challenge for the public and private sectors

The Declaration is an important recognition of the need for coherence between climate action and social outcomes, including respect for human rights. Climate change can lead to severe adverse human rights impacts and there will also be human rights implications from efforts to mitigate climate change including by the transition to net zero, as well as adaptation efforts. The just transition concept promotes efforts to achieve the transition to net zero in equitable and socially inclusive ways.

While acknowledging the differing roles of the private and public sector, there is no doubt that State commitments to meet the net zero goals of the Paris Agreement require the involvement of business, including through private sector finance and investment in new technologies. The Declaration confirms that private sector support extends to the effective management of human rights risk within global supply chains.

The Declaration's references to the UNGP and OECD Guidelines are important. The EU has been a strong proponent of these, and they are a recurring theme within other initiatives advancing the EU's sustainability agenda. For example, the EU Taxonomy, includes alignment with these standards as one of the minimum safeguards an activity must meet to qualify as "environmentally sustainable". They are also referenced in the EU's proposals for a Corporate Sustainability Reporting Directive.

New laws impose mandatory human rights and environmental due diligence requirements

The Declaration's supply chains-focused principle is also consistent with a regulatory shift under way within Europe. A long-awaited legislative proposal to introduce EU-wide mandatory due diligence requirements for business to respect human rights and prevent environmental harm across their global supply chain is currently expected in February 2022.

Already, the French Vigilance Law imposes due diligence obligations on certain French companies to identify and prevent risks of serious violations to human rights, health and safety and the environment, see our most recent update on this law. Other jurisdictions, including Belgium, Germany, the Netherlands and Norway have adopted or are considering mandatory due diligence measures reflecting UNGP and OECD Guidelines approaches.

Responsibilities and legal duties – a blurred line?

International norms and standards on human rights are not only being drawn upon within legislation defining the scope of businesses' legal duties in the sphere of human rights and climate change. Earlier in 2021, a Dutch court became the first to refer to the corporate responsibility to respect human rights as articulated in the UNGP and the OECD Guidelines to interpret what is to be regarded as proper social conduct – and therefore to define a legal standard of care - in the context of the impact of CO2 emissions – see e.g. Milieudefensie v RDS. This may encourage claimants in other litigation contexts to argue for an expansive duty of care on corporate defendants even in the absence of specific legislation.

Challenges for business in a fast-moving legal landcape

With the speed of legal and policy evolution unlikely to slow post-COP 26, the Declaration is just one of numerous developments demonstrating an ever-increasing need for the private sector to put in place coherent internal ESG policies not only to anticipate compliance requirements, but also to meet the expectations of investors, financiers and other stakeholders. There are now clear imperatives to align management of business opportunities and risks across the spectrum of environmental (including climate), social (including human rights) and governance considerations relevant to the business.

For more information on the Just Transition concerning the financial sector see our White Paper jointly authored with the Institute for Human Rights and Business and the CDC Group.