Supply chain risk: New developments in corporate human rights responsibility

Key insights:

• • • An uneven regulatory environment — While some nations (like Chile, Thailand, and South Korea) are implementing ambitious new laws for corporate human rights and environmental due diligence, the EU’s CSDDD, which is facing significant delays and potential weakening, creates a fragmented regulatory environment.

    • Litigation risk is increasing — Companies are facing growing litigation risk from both greenwashing claims and climate-related human rights cases, and this highlights the legal and reputational dangers of failing to meet stakeholder demands.

    • Disclosure risk is an issue — Companies are facing a dilemma in that while proactive compliance and transparent reporting can build trust and avoid disputes, voluntary disclosures can also become legally binding and expose them to liability.

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The year 2025 has brought changes to the global landscape of supply chain risk management and corporate responsibility for human rights. Countries such as Chile, South Korea, and Thailand are actively considering or are drafting and introducing ambitious new rules that raise the bar for corporate accountability. At the same time, the Europe Union’s Corporate Sustainability Due Diligence Directive (CSDDD), which was once seen as a benchmark for responsible supply chain management, has faced delays and significant pushback.

In the meantime, companies face challenges in how they should move forward without harmonization and specificity in the regulatory and legal landscape.

Positive and negative legislative steps

So far this year, several countries have advanced strong new laws to hold corporations accountable for human rights and environmental impacts, says Gregory Berry, Senior Policy Associate at Accountability Counsel, which is a global non-governmental organization that helps communities defend their environmental and human rights.

For example, the National Congress of Chile is considering bills that propose requiring corporations of a certain size to implement and report on due diligence efforts with respect to human rights, the environment, and climate change; and the Thailand’s Ministry of Justice is drafting a mandatory due diligence law to ensure products are free from exploitative labor and environmental harm, Berry explains.

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Advocates in human rights climate cases contend that the adverse effects of climate change undermine fundamental human rights, including the rights to life, health, food, water, and liberty.

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South Korea’s new legislation enacts corporate requirements through mandates in comprehensive due diligence, a Victim Support Fund, and robust grievance procedures. “The legislation is progressive because of its broad applicability, even to financial sector actors,” Berry says. “It requires accountability for human right due diligence at every stage of a supply chain, and it mandates that business enterprises of a certain size are equipped to proactively respond to grievances and facilitate remedy where harm is found.”

This legislation is significant because it would require actors across global supply chains to engage with human rights and environmental abuses regardless of whether impacts are deemed financially material.

Other regions may be moving the other way on corporate accountability, however. Recent developments in the CSDDD may have weakened its impact, with the first occurring in early 2025 and referred to as the stop the clock directive that has delayed implementation by a year. In addition, a proposal was made to raise company size thresholds, meaning that fewer companies would be mandated to report under CSDDD if this change takes effect.

The final requirements are unlikely to be defined until early 2026 “because of the lengthy legislative process in the European Union,” says Ferdinand Fromholzer, Partner at Gibson Dunn. “The directive must be negotiated and agreed upon by three EU bodies, which are the European Commission, the European Parliament, and the Council (representing Member States). Each body needs to develop and present its own proposal, and only after all proposals are on the table, which is expected by the end of October 2025, will the trilateral negotiations begin.”

Companies in a tough spot

Litigation risk, referred to in sustainability circles as greenwashing, is growing for corporations as civil society organizations become more active in bringing claims related to environmental claims and human rights abuses. Consumers, especially younger generations like Gen Z, are increasingly expecting higher standards and greater transparency from businesses.

Community participants are also active in bringing climate-related litigation. Advocates in human rights climate cases contend that the adverse effects of climate change undermine fundamental human rights, including the rights to life, health, food, water, and liberty. Indeed, high-profile lawsuits, such as the one recently decided in Germany, illustrate the expanding global threat of legal action for companies that fail to meet stakeholder expectations.

“There was recently a case in Germany where a Peruvian farmer was trying to get damages from a German utility provider,” Fromholzer explains. The farmer argued that the utility provider’s greenhouse gas emissions contributed to the melting of glaciers in Peru and that this threatened the farmer’s hometown with flooding. While the claim was not successful, climate change groups hailed it as a win because the judges stated that energy companies could be held responsible for the costs caused by their carbon emissions.

Today, many corporations find themselves in a difficult position as they navigate mounting risks from both proactive and reactive approaches to sustainability and human rights reporting and compliance. On one hand, adopting proactive compliance strategies and robust grievance mechanisms can help companies avoid costly disputes and build stakeholder trust, but it is not without danger. Public disclosures of this information — even voluntarily — can later become legally binding and expose companies to liability.

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Companies face challenges in how they should move forward without harmonization and specificity in the regulatory and legal landscape.

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Yet, adopting proactive compliance strategies could offer advantages to those companies facing evolving regulatory requirements and social expectations. By implementing robust grievance mechanisms and addressing risks early, businesses can avoid costly litigation, reputational damage, and regulatory penalties.

“Accountability mechanisms and grievance mechanisms aren’t scary,” Berry says. “They help to harmonize relationship with these communities… rather than approach these issues defensively [and] litigiously, why not approach them proactively?” Indeed, early action can often future-proof operations and build trust with stakeholders.

At the same time, publishing corporate statements on a voluntary basis without the specifics of final legal requirements in legislation holds risk as well. Fromholzer cautions that in the case of CSDDD, voluntary disclosures made today may become legally binding statements required by the EU’s Corporate Sustainability Reporting Directive (CSRD) that could be used in future litigation.

A published statement based on the requirements of CSRD “is now a legally binding statement which you really must be able to defend at the risk of liability,” Fromholzer says. “It is no longer marketing but now is part of the annual accounts with all the liability attached to it… [companies] are cornered from both sides. Again, one is the greenwashing approach, and the other one is the legally binding nature of the statements they are now forced to make.”

Recommended steps for companies

Either way, companies implementing robust grievance mechanisms and publishing accurate statements backed by auditable data with assurance is a pathway forward through the complex terrain of risk. To effectively address human rights and environmental risks, Berry suggests considering the expectations outlined by the Global Initiative for Corporate Accountability’s guide for lawmakers advancing human rights and environmental due diligence laws.

To begin, companies should conduct a comprehensive mapping of their entire supply chain, including subsidiaries and business partners, to identify and evaluate potential risks. Then, companies must create and publicly release comprehensive due diligence policies that align with international standards, such as the UN Guiding Principles and OECD Guidelines. Finally, companies must implement effective grievance systems that provide accessible, safe, and responsive channels for stakeholders to raise concerns and seek redress. Maintaining ongoing dialogue with affected communities and rights-holders cultivates trust and guarantees their substantive involvement in business decision-making.

Once this implementation phase is complete, companies should regularly monitor their operations and publicly report on both adverse impacts and the effectiveness of remediation efforts. They should also consider assurance by a third party for risk mitigation.

Despite ongoing changes and uncertainties in global legislation, the movement toward greater corporate accountability continues to gain momentum. By aligning their practices and obtaining assurance for corporate reporting, companies can stay ahead of regulatory developments, build trust with stakeholders, and reduce their risk exposure.

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You can find out more about how companies are navigating disclosure and reporting rules here