In recent times, there has been a significant shift in understanding the role that businesses play in society. In the past, there was an accepted understanding that the objective of a company was to maximise short-term profits and returns for its shareholders. However, businesses can no longer absolve their duty towards the public at large under the garb of existing only to make profits. The purpose of a corporation is no longer seen only from an economic and market perspective. Non-financial indicators, like social performance and how a company manages human rights risks in its operations, have become increasingly important in deciding how well the company has performed.
Given below are recent judicial developments that have taken place in France, which are a clear indication that businesses are increasingly becoming accountable not only to shareholders, but also to employees and the international community at large.
In a landmark decision [in French] by the Court of Cassation in France in September 2021, the Court held that Lafarge, a leading French cement company, could be prosecuted on the grounds of being complicit in crimes against humanity in the Syrian civil war. It held that the company knowingly made large payments to an organisation whose primary objective was criminal and that this was enough to constitute complicity. These payments were made to armed groups to keep the cement factory running in the early years of the Syrian war. While this decision does not translate into an automatic trial for Lafarge, the matter has been sent back to the investigation magistrates in order to re-evaluate the charges of complicity.
In July 2021, the French judiciary announced the launch of a preliminary investigation into several multinational footwear and garment companies for their alleged connection with factories operating in the Xinjiang Uyghur Autonomous Region that were using forced labour for their operations. This has come in response to a complaint that was filed by Sherpa and a Uyghur victim. The complaint highlights the possible involvement of leading companies like Inditez, Sketchers, and Uniqlo with suppliers in the Xinjiang Uyghur Autonomous Region. While the outcome of the case is yet to be concluded, launching the investigation is a crucial step in ensuring legal accountability for these multinational corporations.
What is interesting in both of these cases is that even if the human rights abuse were occurring outside the company’s country of incorporation, the French judiciary has been very firm in ensuring that they remain accountable for abuses that are taking place in their international supply chains.
Several regulatory developments have also taken place along the same lines with states such as Germany, Norway, France, and California in the US passing human rights due diligence legislation to make companies operating in these regions accountable for the risks to society and the environment due to their operations. The European Commission has also recently released a guidance document on “Due Diligence for EU Businesses to Address the Risk of Forced Labour in Their Operations and Supply Chains”. While the European Union is yet to pass mandatory environmental and human rights due diligence law, the publication of the guidance document has clearly set the tone in the region toward ensuring corporate accountability.
It will be interesting to see how proactive businesses are in response to regulation, as well as judicial decisions across the world, requiring companies to address the human rights risk in their supply chains and operations. A whopping 101 investors, representing over US$4.2 trillion in assets under management, believe that all business actors have a responsibility to respect human rights. These statistics reiterate that embedding responsible business practices into business operations increases how competitive a business could be in the international market. Businesses that delay instituting robust human rights management systems to mitigate potential and existing human rights risks could face potential litigation and reputational harms going forward.
Sanjini Jain is a Business and Human Rights Lawyer currently based out of India. She holds an LL.M. in Sustainable International Development Law from University of Washington School of Law, Seattle, and B.A.LL.B. (Hons) from India.
Chirag Jain is an Independent Advocate practising before the Supreme Court of India. He has wide experience in providing litigation and regulatory advisory to a diverse range of clients. He holds a BBA LL.B. (Hons) from India.