Remedy and Leverage: Addressing Human Rights Risks in Corporate Supply Chains

Key Takeaways

• Companies must provide or facilitate remedy where they have caused or contributed to human rights harm, engaging meaningfully with those affected to ensure the remedy addresses the actual harm suffered.
• Good remedy serves two purposes: making good the harm that has been caused, and diagnosing root causes to reduce the likelihood of recurrence and strengthen risk management.
• Leverage is a company's ability to influence the practices of business partners, and it can be built through commercial mechanisms, collaborative industry action, and engagement with governments and civil society.
• Where leverage appears limited, companies are expected to take active steps to build it, including collaborating with peers, adjusting purchasing practices, and partnering with suppliers to increase trust and capacity.

The corporate responsibility to provide remedy for human rights harm

According to the UN Guiding Principles on Business and Human Rights (UNGPs), which have set the benchmark for best practice in human rights risk management since 2011, if a company has caused or contributed to harm, it should provide, or cooperate in providing, remedy to those affected. A company's role depends on its degree of connection to the harm. In some cases, it leads the provision of remedy; in others it supports a supplier to do so. In either case, it remains responsible for ensuring that remedy happens. Similarly, under the recently revised EU Corporate Sustainability Due Diligence Directive (CSDDD), a company must provide remedy to those affected where it has caused or jointly caused an adverse impact.

What effective remedy looks like in practice

Good remedy achieves two goals. The first is making good the harm that has been caused. To achieve this, it is essential to engage with those adversely affected, either directly where this is possible and appropriate, or through dialogue with unions, worker representatives, or trusted community organisations, in order to make the remedy meaningful. The second goal is reducing the chances of the harm happening again. This means companies should take the opportunity to diagnose the root cause of the harm and put in place effective systems to reduce recurrence and strengthen risk management.

Understanding leverage and its role in mitigating human rights impacts

Leverage is a company's ability to influence another entity's practices, those of suppliers, for example, to prevent or mitigate adverse human rights impacts. Leverage may be commercial in nature, including the ability to set contractual obligations, carry out audits, impose penalties, or provide incentives and training. It may also be created through collaborative action by companies or through industry-wide initiatives that raise standards and build the capacity of suppliers. Direct engagement with governments and civil society to identify solutions to complex problems is a further means of building leverage.

How international and EU frameworks treat leverage

Under the UNGPs, if a company causes or contributes to harm, it must stop or prevent its contribution and use its leverage with business partners to mitigate remaining impacts as far as possible. Even where a company has not caused or contributed to a harm but is nonetheless directly linked to it through a business relationship, it must take appropriate action based on its degree of leverage. The principle of leverage is also reflected in the CSDDD, which provides that a company may use its ability to influence a business partner that is causing an adverse impact to provide remediation.

Why purchasing practices are central to building and exercising leverage

The key is to analyse the degree of connection to harm, whether caused, contributed to, or directly linked and then to use any leverage available. Purchasing practices are often a key factor in companies contributing to harms, even where they have not directly caused them. Unrealistic lead times, last-minute changes to orders, aggressive pricing, and long payment terms push risks and costs onto suppliers, and then onto workers through excessive hours, speed-ups, or wage suppression. Acknowledging and reforming these practices is itself a form of leverage.

Strategies for building leverage when influence appears limited

Where leverage appears low, for example where a supplier would not be materially affected by losing a single buyer, the expectation is that the company will take steps to build its leverage. This includes collaborating with peers, engaging industry platforms and public authorities, adjusting purchasing practices, and partnering with suppliers to increase trust, capacity, and problem-solving capability. Multiple practical frameworks are available to guide this process.

Ensuring remedy is meaningful and sustainable

Effective remedy requires understanding a company's role in an adverse impact and the leverage that it has, or can build, to address it. Listening to those affected is essential to ensuring that remedy is effective in practice. Companies should also take the opportunity to improve systems and processes in order to strengthen risk management and prevent recurrence.

For more detail on the topics explored in this article, please watch the accompanying video. If you would like tailored advice on developing or enhancing your human rights due diligence approach, please contact Kerry Stares or your usual Charles Russell Speechlys adviser.