Commercial Organisations and Public Authorities Duty (Human Rights and Environment) Bill [HL]

Lord Browne of Ladyton Excerpts

2nd reading
Friday 10th May 2024 Lords Chamber

[Lord Browne of Ladyton (Lab)]

My Lords, it is a pleasure to rise in support of this Bill. In doing so, I congratulate the noble Baroness, Lady Young of Hornsey, not just on introducing the Bill but on the lucidity and moral force that characterised her opening speech.

In opening, I feel bound to observe that the Bill, or rather—I am anticipating, but I think I will be proved right—the Government’s reluctance to accept it, is part of a regrettably familiar pattern. The Government identify an injustice and vigorously concur that it must be remedied before declining to act, even when a proportionate and measured solution is offered to them.

Even if I restrict myself to the last couple of months, the Bill takes its place as but one example of this apparently contradictory approach to policy. It is true of the Employment and Trade Union Rights (Dismissal and Re-engagement) Bill, which had its Third Reading in your Lordships’ House earlier today. It was true of my amendment to the Rwanda Bill, on which the Government were forced to concede only after weeks of self-inflicted delay. Several recently departed Ministers, and a couple of incumbents, have admitted that they understand the necessity of reversing persistent cuts to the size of our Armed Forces—but again the Government have failed to rally to a clarion they themselves have sounded. So while the Government once more offer their imitation of the deaf adder of scripture, what opportunities are they missing in refusing to support the Bill?

The Bill engages a real moral imperative. It replaces a patchwork of admittedly valuable provisions under the Companies Act 2006 and the Modern Slavery Act 2015, among others, with something that is at once clearer and more effective. Crucially, it is proportionate and realistic in what it demands. Clause 2, which establishes a duty for commercial organisations to prevent humanitarian and environmental harms in their own activities and those of supply chains

“so far as is reasonably practicable”,

is hardly demanding Promethean levels of ambition from responsible agencies. It is simply establishing in law the very least that anybody should expect.

Likewise, I point to the Bill’s stipulations around reporting requirements for companies whose income exceeds a certain level as a welcome adjustment to the current regime. The requirement that they must be both backward-looking and forward-looking is essential if they are to mean anything. Too often, reporting under the current regime involves an annual compilation of aspirations in respect of the environment and modern slavery, with far too little, if any, accountability in terms of their translation into reality.

In adopting the measures in the Bill, we would not blunt our attractiveness to inward investment or stultify our economy but ensure future regulatory alignment with France, Germany, the wider EU and south-east Asian economies that are working on similar provisions. Of course, I understand the need to avoid stultifying regulation, but in many cases it is the companies themselves that have asked for the promulgation of these measures. These include Jupiter Asset Management, Tesco, Charles Stanley plc, Legal & General, Investec Wealth & Investment, and Microsoft. If these are agents of what the current Prime Minister’s predecessor enjoys referring to as the “anti-growth coalition”, its parameters must be much wider than even she has suggested.

In 2022 the noble Lord, Lord Callanan, sent a letter to Darren Jones, now the shadow Chief Secretary to the Treasury, explaining why the Government are not minded to introduce a comprehensive due diligence framework like that proposed in the Bill. In it, he asserts that any attempt to mandate due diligence in law must be “practical” and “proportionate”, and must

“deliver tangible improvements to human rights and the environment”.

He goes on to outline the Government’s preference for “voluntary due diligence approaches” and voluntary compliance with the UN guiding principles on business and human rights and the OECD guidelines on multinational enterprises. What severe punishment awaits businesses that fail to meet this test of voluntary compliance? It is the grim prospect of the national contact point for businesses making “voluntary recommendations” and following up with businesses to implement these. Where companies or public bodies are indifferent to environmental and humanitarian concerns, or where they are an afterthought, it seems unlikely that these powers of the national contact point will be a stimulus to action.

Although I understand that there are supply chain transparency requirements in place for large UK companies under the Modern Slavery Act and some due diligence requirements because of the Environment Act, it is increasingly clear that we will be an international outlier in failing to adopt mandatory, as opposed to optional or anaemic, due diligence. We have been told of the possible unintended consequences of a more robust regulatory regime, but equally we must examine the conspicuous failures of the current approach.

Mindful of time, I will remind your Lordships’ House of just one notable public procurement failure that this legislation would have prevented. In 2015, a UK subsidiary of the Malaysian Supermax Corporation received a contract of around £350 million from the NHS. As the pandemic loomed, the NHS bought a further £311 million of PPE from a Supermax healthcare brand. By December 2021, the UK Government, in the shape of NHS Supply Chain, had named Supermax as an approved supplier, entitled to pitch for contracts worth £6 billion of UK taxpayers’ money. This was even though, three months earlier, the US Government had decided to institute a ban on Supermax products, owing to concerns around forced labour, detention, inhumane living conditions and passport confiscation. It was a further year before a High Court challenge compelled NHS Supply Chain to place a ban on Supermax products and to review their procurement processes. That is but one consequence of our current regime.

YouGov polling suggests that four-fifths of UK adults support mandatory—and active rather than passive—due diligence in terms of human rights and environmental concerns. Many of the companies upon which these obligations would devolve have requested rigour and certainty. Why do the Government neither accept this Bill nor seek constructively to amend it? In so doing they could provide far greater reassurance that neither British companies nor, more seriously still, British taxpayers’ money can ever inadvertently support the destruction of our planet or the exploitation of workers. I look forward to supporting this Bill as it makes its way through your Lordships’ House.

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[The Parliamentary Under-Secretary of State, Department for Business and Trade (Lord Offord of Garvel) (Con)]

My Lords, I join your Lordships in thanking the noble Baroness, Lady Young, for tabling the Bill, and I thank all noble Lords for their valuable contributions today. This debate is timely given recent developments in the European Union, and I share noble Lords’ views on the abhorrent practice of slave labour. I therefore welcome the opportunity to explain the Government’s current thinking on mandatory due diligence and why I am unable to support the Bill today.

I begin by noting that the Government are committed to tackling human rights and environmental abuses. The Government have consistently supported the UN guiding principles on business and human rights, which the noble Baroness referred to in her opening remarks. We are a signatory to the OECD guidelines on responsible business conduct for multinational enterprises, and for some time we have encouraged businesses to conduct due diligence voluntarily. Importantly, as the noble Lord, Lord Browne, mentioned, the UK also operates the national contact point, which provides a non-judicial mechanism for cases to be brought to when a company contravenes the OECD guidelines. The national contact point does important work and many of the cases that it mediates result in positive change.

Although the contact point does valuable work, the Government recognise that it is a non-binding mechanism and that harder legislative requirements also have a role to play. Some 13,000 statements have been submitted to the modern slavery statement registry under the Modern Slavery Act 2015, but the Government recognise that there is more to do. The Government have therefore committed to take forward an ambitious package to strengthen the Modern Slavery Act, which includes a proposal to mandate the topics covered in the modern slavery statement. This would mean that a company must publish details of its due diligence processes in cases where it has them.

Pressures on parliamentary time mean that these new measures have not been taken forward as quickly as many in this House would like. I understand that frustration, although I note that the Home Office has recently taken steps to update the modern slavery registry. I also urge noble Lords to consider that the Modern Slavery Act sits alongside a wider set of initiatives that are designed to tackle environmental harms and human rights abuses. Specifically, three initiatives are pertinent to this debate.

First, the 2013 timber regulations already require due diligence from organisations that place timber products on the market. Defra is building on these by taking forward new due diligence legislation in relation to specific commodities at risk of being produced following illegal land use and illegal deforestation. These regulations will be published shortly, and I encourage noble Lords to review them when they are available.

Secondly, noble Lords will be aware of significant reforms occurring in relation to public procurement and supply chains. Following a review of NHS supply chains, the Department of Health will be introducing regulations in relation to them. I note that the noble Lord, Lord Browne, drew attention to the case of Supermax, which the Government investigated. Since then, steps have been taken through the Procurement Act 2023 to strengthen the rules on modern slavery and environmental misconduct in relation to those supplying public authorities. Among other things, the Act will allow procuring authorities to exclude suppliers where there is evidence of modern slavery, even in cases where a conviction has not taken place. I appreciate, given his speech, that my noble friend Lord Deben has some concerns about this Act, and I will be happy to ask my colleagues in the Cabinet Office to take this up with him further.

Finally, the Government recognise that corporate transparency can be a powerful tool, and we are taking forward a process to assess the suitability for use in the UK of the IFRS Foundation’s recently published international sustainability disclosure standards. The IFRS Foundation’s initial standards focus on climate issues, but companies that choose to use the standards would also report on nature-related risks where they are material to their business, thereby raising greater awareness of potential environmental harms.

These initiatives demonstrate that the proposed Bill enters a crowded landscape, interacting with a wide range of existing and forthcoming legislation. I therefore worry that it would create confusion and cost for businesses, which would need to wrestle with multiple requirements articulated in competing ways. That is at odds with this House’s desire for a coherent legislative framework.

Turning to the proposed Bill, I start by observing that the evidence base for the success of mandatory due diligence remains extremely limited. A small number of jurisdictions have enacted similar legislation to the proposed Bill, but those pieces of legislation are relatively recent and their complexity can make them hard to implement, partially due the global nature of the supply chains that noble Lords have referred to.

Rather than introducing legislation to tackle both environmental harm and human rights abuses, the Government intend instead to observe how new developments unfold while taking targeted due diligence measures in relation to forest risk commodities and testing their effectiveness following implementation. For instance, Defra’s legislation will focus on a specific list of products that are connected to illegal deforestation. By contrast, the proposed Bill would require companies to make complex assessments for a potentially unlimited range of goods and services.

Moving on to the detail, I have several concerns about the Bill’s contents and I share many of the sentiments expressed on the Benches opposite by the noble Lord, Lord McNicol. Unlike the EU and German legislation, which applies only to the largest businesses, this Bill would apply to all 5.5 million companies in the UK. This would include 3 million sole traders and 2.5 million SMEs, many of which will lack the resources of the 8,000 larger organisations in our country to undertake the required checks. As a result, it runs a very real risk of creating an unlevel playing field in the UK economy, as well as creating real difficulties for suppliers in developing nations, which might struggle to provide the data required by companies in developed nations. I understand this all too well, having observed some of these difficulties just four weeks ago while undertaking—

[Lord Browne of Ladyton (Lab)]

I am concerned that the Minister or his officials have perhaps misunderstood this legislation’s provisions. It proposes that the threshold for these obligations will be set by regulations, which will emanate from a Secretary of State in government and be approved by this Parliament. You cannot just aggregate all the businesses in the country and say that they will all be subject to this, when the Government themselves will have the ability to make it cut at a particular point.

[Lord Offord of Garvel (Con)]

I thank the noble Lord for that point. I think that proves the point that there is complexity here. We have a very wide matrix of businesses in this country, which need to be legislated on quite separately. That is not what is currently in the Bill.

As I was saying, there is also the issue of suppliers in the developing nations having to provide data to developed nations. I saw that myself in Colombia and Bolivia recently, in the context of discussions on climate change and sustainable development.

The Bill would also impose an obligation to conduct reasonable due diligence, with Clause 3(3) listing a series of contextual factors that are relevant when determining what can be considered “reasonable”. As drafted, this list means that companies would find it incredibly difficult to know whether they have complied with the Bill. In practice, the application of the term “reasonable” could be debated in the courts for years, leading to an unsatisfactory situation in which companies within the Bill’s scope face significant legal uncertainty. When combined with the fact that criminal offences and substantial fines rest on this term, this undermines the goals the noble Baroness seeks to achieve, as it may incentivise well-run but risk-averse companies to terminate commercial relationships entirely rather than seek to remediate issues when they find them.

Clause 8(1) would introduce civil liability for businesses that fail to prevent human rights abuses or environmental harms in their operations, subsidiaries or value chains. The Bill attempts to give businesses grounds for defence where they have conducted due diligence, but I am concerned that this provision, when applied in practice, would shift legal responsibility to UK companies, with cases being introduced against UK companies in UK courts in the first instance. It would be preferable for claims against individuals and companies that are directly responsible for harms to be brought in the jurisdiction in which they occur.