What is Human Rights Due Diligence?

What is Human Rights Due Diligence?

Human rights due diligence (HRDD) is a systematic, ongoing process through which companies identify, prevent, mitigate, and account for how they address actual and potential adverse human rights impacts in their own operations, supply chains, and business relationships. The concept was established by the UN Guiding Principles on Business and Human Rights (UNGPs), adopted unanimously by the UN Human Rights Council in 2011. HRDD goes beyond compliance with national labor law—it requires companies to assess the full spectrum of internationally recognized human rights and take proactive steps to address risks, regardless of whether local law requires it.

Why It Matters

The transition to a sustainable economy has created new human rights frontiers even as it addresses environmental ones. Cobalt mining in the Democratic Republic of Congo—essential for electric vehicle batteries—involves documented child labor and hazardous working conditions. Solar panel supply chains have been linked to forced labor in China's Xinjiang region. Wind turbine manufacturing depends on rare earth minerals extracted under conditions that expose workers and communities to toxic waste. The clean energy transition cannot claim moral authority if it is built on human rights abuses in its supply chains.

Regulatory pressure is transforming HRDD from a voluntary best practice into a legal requirement. The EU Corporate Sustainability Due Diligence Directive (CSDDD), adopted in 2024, requires large companies to conduct human rights and environmental due diligence across their value chains, with civil liability for failure. Germany's Supply Chain Due Diligence Act (2023) imposes similar obligations on companies with 1,000+ employees. France's Duty of Vigilance Law (2017) has already generated litigation, including a landmark case against TotalEnergies regarding a pipeline project in East Africa. These laws create compliance obligations with financial teeth—fines, liability exposure, and exclusion from public procurement.

Investor expectations have escalated in parallel. The Investor Alliance for Human Rights, representing $10 trillion in assets under management, has made HRDD a central engagement theme. The Principles for Responsible Investment (PRI) identifies human rights as a systemic risk factor. ESG rating agencies—MSCI, Sustainalytics, ISS—evaluate companies on human rights policies, due diligence processes, and controversy exposure. Companies that fail to conduct adequate HRDD face ratings downgrades, increased cost of capital, and shareholder activism.

The financial materiality is well documented. Business and Human Rights Resource Centre tracks over 10,000 allegations of corporate human rights abuse. Companies involved in serious human rights controversies experience average stock price declines of 4–6% in the week following disclosure, with sustained underperformance for repeat offenders. Operational disruptions from supply chain human rights violations—import bans under the Uyghur Forced Labor Prevention Act, consumer boycotts, loss of major contracts—can cost hundreds of millions. HRDD is not a cost center; it is a risk management function.

How It Works / Key Components

The UNGP framework establishes four core components of HRDD. First, identifying and assessing actual and potential human rights impacts: this requires mapping operations and supply chains, engaging with affected stakeholders, and analyzing which rights are most at risk. Salient human rights issues vary by sector, geography, and business model—a mining company faces different risks than a technology company, and risks in one country differ from those in another. The Danish Institute for Human Rights' Human Rights Impact Assessment Guidance provides a structured methodology.

Second, integrating findings into company decisions and taking appropriate action: this means embedding human rights considerations into procurement policies, supplier contracts, investment decisions, and operational procedures. It requires senior management ownership, cross-functional coordination (procurement, legal, sustainability, operations), and allocation of resources commensurate with risk severity. Action may include changing suppliers, remediating existing harm, investing in supplier capacity building, or engaging with governments to strengthen regulatory enforcement.

Third, tracking effectiveness: companies must monitor whether their actions actually reduce human rights impacts, using both quantitative indicators (audit findings, grievance data, working condition metrics) and qualitative assessment (worker interviews, community feedback, expert evaluation). Tracking must go beyond first-tier suppliers—many serious human rights risks are concentrated in sub-tier supply chains where visibility is weakest. Technologies including blockchain traceability, satellite monitoring, and worker voice platforms are improving visibility, but no technology substitutes for direct engagement with affected people.

Fourth, communicating how impacts are addressed: transparency is both an accountability mechanism and a driver of continuous improvement. The UN Guiding Principles Reporting Framework provides a structured disclosure methodology. Mandatory disclosure under the CSDDD, UK Modern Slavery Act, and Australian Modern Slavery Act requires companies to report publicly on their HRDD processes and findings. Effective communication goes beyond compliance—it signals to stakeholders, including affected workers and communities, that the company takes its responsibilities seriously.

Council Fire's Approach

Council Fire helps clients integrate human rights due diligence into sustainability strategy and climate transition planning, with particular attention to the human rights dimensions of clean energy supply chains, coastal development, and natural resource management. We recognize that climate action and human rights are mutually reinforcing—a just transition to a sustainable economy must respect the rights of workers, communities, and indigenous peoples throughout the value chain. Our approach combines risk assessment methodology with stakeholder engagement expertise, helping clients build HRDD processes that are operationally practical and aligned with emerging regulatory requirements.

Frequently Asked Questions

How does HRDD differ from traditional corporate compliance?

Traditional compliance focuses on meeting legal requirements in jurisdictions where a company operates. HRDD goes further in three ways. First, it applies international human rights standards regardless of local law—if a country permits forced labor, HRDD still requires companies to address it. Second, it extends beyond the company's own operations to its full value chain, including suppliers, subcontractors, and business partners. Third, it is prospective and ongoing rather than reactive—companies must proactively identify and address risks, not just respond to violations after they occur. The CSDDD codifies this distinction, creating legal obligations that go well beyond traditional compliance in scope and rigor.

What are the biggest challenges in supply chain human rights due diligence?

Visibility is the primary challenge. Most companies have limited knowledge of their supply chains beyond tier-one direct suppliers, yet the most severe human rights risks—forced labor, child labor, hazardous conditions—are typically concentrated in raw material extraction and early-stage processing, multiple tiers removed from the buyer. Audit fatigue and fraud are persistent problems: social audits can be gamed, and the sheer volume of audits in global supply chains diverts resources from genuine improvement. Geopolitical complexity adds another layer—conducting due diligence in countries with weak rule of law, restricted civil society, and government complicity in abuses requires different tools and greater courage than in well-governed contexts. The most effective approaches combine risk-based prioritization, multi-stakeholder initiatives, worker voice technologies, and direct engagement with affected communities.

How should companies prepare for mandatory HRDD legislation?

Start now. Map your value chain to understand where your most salient human rights risks are concentrated. Conduct a gap analysis comparing current practices to CSDDD and equivalent national legislation requirements. Establish governance structures—board-level oversight, cross-functional coordination, adequate staffing and budget. Engage with suppliers to set expectations and build capacity. Establish or strengthen grievance mechanisms accessible to affected stakeholders. And build stakeholder engagement into your process—regulators, investors, and civil society will evaluate not just whether you have a policy, but whether your HRDD actually reduces harm to people. Companies that wait for legislation to be enforced will find themselves scrambling; those that build robust processes now will have a competitive advantage.