The ‘Bill on Human Rights and Environmental Protection for Sustainable Business Management (HREDD Bill hereinafter)’ was introduced to the National Assembly of Korea on September 1st, 2023. The HREDD Bill is a legislation which obliges corporations to respect the human rights and the environment for their business activities throughout their supply chains by conducting human rights and environmental due diligence (HREDD hereinafter). The Bill aims to prevent outsourcing of human rights and environmental risk to the other business entities in the supply chain and ensure the participation of the stakeholders throughout the human rights and environmental due diligence. Failure to comply with the law will entail the administrative sanctions; and severe violation can lead to the criminal sanction. The civil action to seek compensation for the damages can be brought against the company if the damages are caused by the violation of the law. The HREDD Bill is the first mandatory HREDD legislation proposed to the National Assembly for the first time in Asia. KTNC Watch welcomes the submission of the bill and urges the National Assembly of Korea to pass the legislation.
Proposed HREDD Bill requires companies with 500 employees or more or annual revenue of 200 billion KRW or more to carry out the human rights and environmental due diligence. The Bill excludes the SMEs from the obligation except for the following cases: where the business activities are directly or indirectly involved in illegal activities under the international criminal law; where the business activities are directly or indirectly linked to child labor; or where the business activities are carried out in the conflict/high-risk areas. In these cases, the companies shall identify the actual or potential human rights and environmental risks in their own activities and their supply chains and take measures to address the human rights and environmental risks.
Scope of the due diligence obligation
The companies have obligations to conduct the human rights and environmental due diligence in their business activities as well as their supply chains. The activities of the subsidiaries as well as of the business under the de facto control of the same person under the Monopoly Regulation And Fair Trade Act are also considered as the activities of their own business.
Supply chains cover both upstream and downstream and financial services are also considered as business activities in the supply chain.
Human rights and environmental risks indicate the adverse impacts to the human rights and environment ensured by Korean law, Constitution of Korea, international customary law and the international human rights, labor and environmental Conventions ratified by Korea. The severe adverse impacts such as climate crisis can be also considered as the human rights and environmental risks.
Companies are obliged to establish the internal system to carry out HREDD such as HREDD policy, the officer in charge for HREDD, the committee under the Board of Directors and the complaint mechanism. Corporations shall identify the actual or potential human rights and environmental risks at least once a year. However, the human rights and environmental risks should be immediately addressed in the following cases: if the concern is raised that the business activities are directly or indirectly involved in war crime, crime against the humanity, genocide and child labor; if the company is about to start the business activities in the conflicts/ high risk areas.
Necessary measures may vary depending on where the human rights and environmental risks are identified. If the human rights and environmental risks are identified in the activities of their own business, the corporations need to cease or change their business activities to mitigate the HRE risks, to prevent the recurrence of the risks and to provide the remedies to the victims.
In cases where the HRE risks are identified in the business activities of the direct suppliers, the company needs to notify the direct supplier about the occurrence of the HRE risks and to request the direct supplier to establish and implement the measures to address HRE risks. For the HRE risks identified in the business activities by the indirect suppliers, the company needs to use leverage over the suppliers of the indirect suppliers to take the measures. However, the indirect supplier should be considered as the direct supplier if the HRE risks caused by the indirect supplier are directly linked with the business activities of the company or the company’s business relationship with the indirect supplier was established in order to avoid the obligation under this law. HRE risks identified should be prioritized according to the severity and the probability, and the measures need to be taken based on the priority.
The companies shall disclose the HREDD report with HRE risks identified, measures taken for the HRE risks and evaluation on the measures. The HREDD reports need to be submitted to the Committee on Human Rights and Environment and Corporations (Committee on HREC hereinafter) in the following cases: if the stakeholder raises appeal to the Committee on HREC regarding the adequacy of the HREDD or the factual findings in the HREDD report; if the company is conducting business activities in the conflict/ high-risk area; or if the Committee on HRED decides to conduct ex officio investigation considering the severity of the case.
The HREDD Bill stipulates that the stakeholders as the individuals or organizations or organizations representing those individuals whose rights or legal status was affected due to the HRE risks. The companies are required to hear the opinion of the stakeholders throughout the course of HRDD. The companies may also request the cooperation of the stakeholders to ensure the effectiveness of the HRDD.
The stakeholders are entitled to request the disclosure of the information regarding the overall HRDD procedure. The company may refuse the disclosure of the information if the information is confidential or private. However, the company cannot refuse to disclose the information if the information is necessary to protect the life, body, health, property of the people and the appeal may be filed to the Committee on HREC upon the company’s refusal to the disclosure of the information.
The Committee on HREC will be established to monitor the companies for their compliance with the law. The Committee will investigate the complaint regarding the HREDD of the corporation, designate the conflict/ high-risk area and support the HREDD of the companies. The Minister of the Economy and Finance will be the Head of the Committee and other members of the Committee will be appointed by the Prime Minister by the request of the Minister of the Economy and Finance. Labor unions, Business Associations and Civil Society Organizations are to recommend the members of the Committee. The Fund to support the victims of human rights and environmental damages will be formed and the Committee will manage the Fund.
The Committee on HREC can issue the recommendation of correction for any noncompliance found. The order of correction can be issued by the Minister of the Economy and Finance upon request by the stakeholder, ex officio or the report from the Committee on HREC. The Committee on HREC may also prohibit the company under order of correction from participating in a bid for procurement. Administrative fines may be imposed up to 10 million KRW for failure to report the HRDD implementation, for failure to identify the HRE risks, for failure to establish the HREDD measures, for providing the false information in the HREDD report or for failure to hear from the stakeholders’ opinions.
In case of the severe violation of the HREDD obligation, the criminal penalty such as imprisonment up to five years or penalty up to 50 million KRW can be imposed. Failure to identify the HRE risks in the following cases will be considered as severe violation: if the business activities are directly or indirectly involved in the international crimes or child labor; if the company is about to start the business activities in conflict/ high-risk areas. The criminal liability can be also imposed if the company refuses to implement the order of correction.
The companies must compensate the damages caused by the violation of the law. In cases where the companies designate the third party to carry out the HREDD obligation under the law, the activities of the third party will be considered as the activities of the companies.
If the complainant proves the possibility that his or her damage is related to the activities of the company or companies in its supply chain, the damage is considered as to be caused by the violation of the law. Thus, the burden of proof is shifted to the company to prove that it did not violate the law or the compliance with the law would not have prevented the damages. This is to ensure the right to seek remedies as the victims have difficulty to find concrete evidence of the breach of the law by the corporation due to the discrepancy of the information and resources. The litigation cost can be exempted if it is considered as public interest litigation.