Nine-year check-in: Draft Binding Treaty on Business and Human Rights

A snapshot of the proposed treaty and its potential impact on businesses 9 min read

For nearly a decade, a United Nations working group has been debating and negotiating the scope and content of a proposed binding treaty on business and human rights. If agreed and ratified, the treaty will represent a major leap forward in the regulation of business activities and will propel business and human rights issues to an even more prominent place on companies' agendas.

This Insight provides a snapshot of the current draft treaty and its implications for businesses.

Key takeaways

• Three drafts of the treaty have been published to date. Agreement on the final text and scope is some way away.
• Whatever the final wording, the potential treaty would expand and formalise the responsibilities and obligations businesses have in relation to human rights.
• Once agreed and implemented into domestic law, businesses would be subject to a suite of new 'hard law' obligations, building upon the 'soft law' obligations contained in instruments like the United Nations Guiding Principles on Business and Human Rights (UNGPs).
• It would likely set the new global standard and raise the highwater mark for businesses' obligations to respect human rights.

Summary of progress to date

In 2014, the UN Human Rights Council adopted a resolution to establish the Open-Ended Intergovernmental Working Group (Working Group) to draft an international, legally binding instrument to regulate, in international human rights law, the activities of businesses with respect to human rights (Binding Treaty).¹ The rationale for developing a treaty is that it is better equipped than domestic law to regulate transnational business activities, and that it would create a level playing field for companies globally.

The Working Group has met annually since 2015 and is a forum for States and stakeholders to express views on the draft. In general terms, States and civil society organisations in the Global South, in particular, have been proponents of a strong treaty, while the more economically developed countries in the Global North—where transnational corporations are often headquartered—have been more measured in their support.² As with all instruments that require consensus to be effective, the challenge is to develop a treaty that will progress the advancement of human rights while not being so onerous that States do not ratify it. 

An expansion of responsbilities

The treaty is far from settled, however the current draft, if agreed, would signal a major expansion of responsibilities for businesses. The present draft treaty would:

• apply to all business activities,³ including local businesses. Many States have expressed concerns that this is too broad, and that the treaty should focus on business enterprises that have a transnational character;⁴
• cover all internationally recognised human rights and fundamental freedoms binding on the relevant State;⁵
• require businesses to undertake human rights due diligence (HRDD);⁶ and
• impose sanctions where businesses have caused or contributed to human rights abuses. Civil liability would not be contingent on the acts attracting criminal liability.⁷

The treaty would require States to legislate so that these obligations are imposed upon businesses in their domestic law.⁸

Interplay with domestic legislation

The treaty process has arguably been overtaken, in some respects, by the patchwork of business and human rights legislation implemented at State level around the world since 2014, eg with respect to human rights due diligence and modern slavery-related laws. Taking HRDD as an example, we consider below how any future treaty would sit alongside existing domestic legislation.

The present draft treaty would require states to implement HRDD legislation that would require businesses to, amongst other things:

• publish regular human rights impact assessments,⁹ which would likely include environmental and climate change impacts;
• consult with Indigenous peoples in accordance with the standards of free, prior and informed consent (FPIC);¹⁰ and
• take steps to prevent human rights abuses by third parties that the business controls, manages or supervises,¹¹ which could involve, for example, integrating HRDD requirements into contracts.

These obligations are not insignificant, especially in a country like Australia where mandatory HRDD legislation does not yet exist. Major legislative reform would be required to implement these obligations into Australian law. For example, while Australia has endorsed the UN Declaration on the Rights of Indigenous Peoples (UNDRIP), which requires states to consult with Indigenous peoples to obtain FPIC in certain circumstances,¹² and some stakeholders refer to UNDRIP as setting the benchmark for expectations on business in terms of obtaining FPIC, there is no hard law obligation to obtain FPIC in Australia at present as UNDRIP has not been implemented into domestic law.

By contrast, states where HRDD has recently been under the spotlight domestically are pushing for the Binding Treaty to be consistent with, and not exceed, their domestic legislation. For example, the EU is seeking to ensure that the Binding Treaty aligns with the requirements in its proposed Corporate Sustainability Due Diligence Directive,¹³ and Germany is advocating for consistency with its Supply Chain Due Diligence Act.¹⁴

Whatever the final form of the treaty text, it should ideally be conceptually consistent with the existing layers of regulation in this field, as it would sit alongside the current suite of obligations contained in hard law instruments such as domestic legislation and existing binding treaties, and soft law instruments such as the UNGPs and OECD Guidelines for Multinational Enterprises.

Implications for business

International legal developments, including the Paris Agreement, the UNGPs and the OECD Guidelines for Multinational Enterprises, have real implications for business and it is expected that the Binding Treaty will have similar tangible impacts. A treaty, if ratified, would be the most significant milestone in the regulation of business and human rights since the adoption of the UNGPs in 2011. 

A treaty, if ratified, would be the most significant milestone in the regulation of business and human rights since the adoption of the UNGPs in 2011.

While the Binding Treaty would need to be incorporated into Australian domestic law to have direct legal effect in Australia, regardless of whether Australia ratifies the treaty and what any domestic implementing legislation looks like, it would have the following impacts:

• provide greater certainty for businesses as to the scope and content of their responsibilities and create a global, level playing field for companies;¹⁵
• see an expansion of obligations for businesses that goes beyond the current high watermark set primarily by the UNGPs, eg more prescriptive requirements in relation to human rights due diligence (as described above);
• constitute the new global benchmark for businesses to respect human rights, with consequences that would filter through to Australian companies; and
• further the objectives of the UNGPs.¹⁶

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The treaty process is a signal that business and human rights will continue to be the subject of increasing regulatory focus. It is just one example of the regulatory trend towards the introduction of laws in this field.

Businesses should continue to monitor both international and domestic developments and continue to strengthen their practices to respect human rights. Investment in strong governance systems and human rights frameworks now will place companies in a strong position to comply with future treaty obligations.