Written by Luke Musto, Associate
As corporations worldwide face increasing scrutiny from investors, regulators, and consumers, Environmental, Social, and Governance (ESG) issues have taken an increased prominence as players become more aware of the importance of these issues and the impact that corporate responsibility has on the day to day lives of the people where companies operate. While environmental concerns often dominate the conversation, the Social aspect of ESG, particularly human rights, is becoming equally critical. Human rights due diligence (HRDD) is now seen as a vital part of a company’s commitment to sustainable and ethical business practices.
Failing to conduct proper HRDD can expose companies to legal risks, reputational damage, and investor dissatisfaction, particularly as governments across Latin America and Australia begin to tighten regulations on corporate accountability. As the “S” in ESG grows in importance, it is crucial that businesses integrate HRDD into their governance frameworks, ensuring compliance while protecting corporate reputations and shareholder value.
What is Human Rights Due Diligence?
Human Rights Due Diligence is the process by which companies identify, prevent, mitigate, and account for how they address adverse human rights impacts in their operations and supply chains. HRDD is grounded in the United Nations Guiding Principles on Business and Human Rights (UNGPs), which call on businesses to respect human rights as part of their corporate responsibility.
This framework requires companies to:
- Assess actual and potential human rights impacts.
- Take action to prevent or mitigate those impacts.
- Track and monitor the effectiveness of their efforts.
- Communicate how they address these impacts to stakeholders.
This originated as voluntary guidance for companies, but it is now being backed by legal frameworks, particularly in Latin America and Australia, where governments and courts are beginning to strengthen corporate accountability in human rights matters. In particular, transnational companies should be particularly aware of their responsibilities under the UNGPs.
Emerging Regulatory Requirements in Latin America and Australia
While Europe has taken a leading role in implementing mandatory HRDD, countries in Latin America and Australia are also moving towards heightened regulation and enforcement of corporate human rights responsibilities.
Chile has made significant strides in incorporating human rights principles into its business environment. The National Action Plan on Business and Human Rights (2017-2021) serves as a foundation for corporate HRDD expectations, aligning with the UNGPs. Chilean companies, particularly in sectors like mining and forestry, are under increasing scrutiny for human rights impacts, especially regarding indigenous communities and labour rights.
Labour Laws in Chile are also evolving to hold businesses accountable for labour practices that infringe on human rights, and with the newly implemented Karin Law (effective August 2024), companies need to strengthen their internal policies on workplace harassment and violence, as this directly links to corporate compliance with human rights.
Across Latin America, countries like Colombia, Mexico, and Brazil are tightening their focus on corporate human rights, particularly in industries such as agriculture, manufacturing, and resource extraction. Colombia’s 2019 National Action Plan on Business and Human Rights serves as a model, with its focus on human rights due diligence as a preventive measure. Additionally, Latin American companies must increasingly contend with community rights, where failure to consult and respect the rights of indigenous peoples can lead to legal challenges and reputational damage.
In Australia, human rights due diligence is reinforced by the Modern Slavery Act 2018, which requires companies with an annual consolidated revenue of AUD $100 million or more to report on the risks of modern slavery in their operations and, critically, within their supply chains. This legislation has broad implications for industries such as mining, agriculture, and manufacturing, which are heavily involved in global supply chains. It also places much greater responsibility on Australian companies operating internationally and particularly for those operating in developing countries where there is a higher risk of human rights violations.
Australian companies must submit Modern Slavery Statements, detailing the steps taken to address human rights risks. Non-compliance can lead to reputational harm, as companies are publicly listed on a government registry, exposing those who fail to meet their obligations. Moreover, as human rights litigation becomes more prevalent, companies face growing legal risks, especially where human rights violations are linked to supply chains as this means that companies can be held accountable in Australia for violations in other jurisdictions.
Why Corporations Must Act Now
For corporations operating in Latin America and Australia, implementing HRDD isn’t just about compliance—it’s about mitigating risk and also creating value for investors. The failure to conduct proper due diligence can expose a business to severe consequences:
- Litigation Risk: Human rights violations in a company’s supply chain or operations can lead to costly lawsuits, especially in jurisdictions with a strong legal framework around human rights.
- Reputational Damage: Companies linked to human rights abuses often suffer public backlash, loss of consumer trust, and damage to their brand. This is especially true in industries that are highly visible in these regions, such as mining and agriculture.
- Investor Value: Institutional investors are increasingly concerned with Environmental, Social, and Governance (ESG) issues, and human rights are a critical component of ESG. A failure to address human rights risks could deter investment and lower stock value, and conversely, having strong HRDD policies in place will create value for investors.
Practical tips for businesses
As regulatory scrutiny intensifies, there are some key ways that corporations can ensure that they are compliant with their human rights obligations.
- Conducting Human Rights Risk Assessments: Businesses should conduct risks assessments to identify human rights risks in their operations and supply chains, ensuring they are fully aware of the potential impacts.
- Developing HRDD Frameworks: Comprehensive HRDD processes tailored to the specific risks and needs of the business should be developed. This includes drafting policies, guidelines, and procedures for identifying and addressing human rights impacts.
- Training and Awareness: One of the most significant challenges businesses face is ensuring that HRDD processes are effectively implemented across all levels of the organisation. Training should be provided to executives, compliance officers, and employees to ensure they understand the importance of HRDD and how to execute it in practice.
- Monitoring and Reporting Compliance: It is important to stay on top of emerging legislation and ensure that businesses are meeting reporting requirements under relevant international and domestic frameworks. Additionally, it is important to continuously communicate the company’s HRDD efforts to stakeholders, including through mandatory reports and public disclosures.
- Crisis Management and Litigation Support: In cases where human rights violations are alleged, it is critical to carefully manage the response and fallout—whether through strategic litigation defence or negotiation with affected stakeholders.
Conclusion
The shift toward mandatory human rights due diligence in Latin America and Australia represents a significant evolution in corporate governance. Particularly for transnational businesses, integrating HRDD into operations is no longer just good practice—it is becoming a legal necessity. It is critical to engage expert legal teams to ensure that companies not only comply with emerging regulations but also protect their reputations, mitigate risks, and promote a corporate culture of responsibility.
If your business is looking to implement or strengthen its human rights due diligence practices, get in touch with our expert team today to assess your company’s level of compliance and risk.
