The third revised draft of the proposed UN treaty on business and human rights, released August 17, retains the diplomatic progress and concessions made to date. It focuses on business activities with at least some transnational element, recognizes the contributions of the UN Guiding Principles on Business and Human Rights, directly regulates States and not business, and improves the technical drafting.

Even so, the heart and soul of the treaty – preventing human rights abuses and providing remedies for victims of abuses – needs fundamental revisiting.

Optimizing Incentives to Prevent Harm:

To prevent human rights harm, what is needed is a set of carrots and sticks that incentivize companies to do serious and effective – but not impossible -- human rights due diligence. They should have incentives to get right both key aspects of due diligence – serious risk assessment, and effective preventive action. This means rewarding companies who do both aspects responsibly, by not penalizing them or holding them liable for risks they could not reasonably have foreseen. In contrast, costs should be raised for companies which fail to assess risks responsibly or which fail to act reasonably on the identified risks. Those companies should be penalized and held legally liable for resulting harm (including through reparations to victims)...

Human Rights Due Diligence:

The main means to prevent harm is to carry out effective human rights due diligence. With respect to the first key aspect of due diligence – risk assessment -- the draft requires companies to identify, assess and publish “any” actual or potential human rights abuses that may arise from their business activities or relationships. (Article 6.3.a.)

However, identifying “any” actual abuse, let alone any potential abuse, is too demanding a task for even the most ambitious (and expensive) program of due diligence. Requiring a company to identify “any” abuse, no matter how minor, is neither realistic nor efficient; no company could ever comply. Due diligence should focus on “significant” abuses (those which pose a risk of significant harm) which are “salient” (most likely or frequent) for a particular industry or company...

Degrees of Due Diligence:

In principle the treaty applies to “all” business activities. (Article 3.1.) However, its due diligence requirement is subject to a potentially enormous limitation....

[Article 3.2.'s] vague wording leaves the incentives unclear. Until national implementing legislation is adopted, companies will not know what degree of human rights due diligence they must carry out. National laws will no doubt be the subject of aggressive lobbying. It will be a near miracle if the resulting incentives, guided by nothing more than this vague treaty language, are well aligned with the treaty goal to optimize prevention of human rights abuses.

The vague language could also open the door to abuse...

Legal Liability

... This convoluted provision [ Article 8.6] is not easy to interpret. However, it appears to impose liability in some situations where companies could not reasonably have foreseen or prevented an abuse.

A plausible reading is that the provision imposes liability in two situations: (1) where a company failed to prevent abuses by entities under its control, management or supervision, or (2) where a company should have foreseen risks of abuses, including in its business relationships, but failed to take “adequate measures” to prevent them...

But what if a company does what it reasonably can, but the other party in a business relationship refuses to act? Is the company then liable for the other party’s abuse? That would not give the company a constructive incentive.

The ambiguities should be clarified. Companies which adopt adequate measures should not be penalized or held liable, merely because their measures fail to achieve the desired result...

Due Diligence Defense:

If a company engages in serious and robust human rights due diligence, it should not later be held liable for adverse impacts that were unforeseeable, i.e., impacts that could not have been foreseen through genuine and reasonable due diligence...