Introduction
Over the past few decades, the global economy has undergone an unprecedented transformation. The expansion of international trade, global supply chains, and multinational corporations has driven significant economic growth, but has simultaneously raised numerous concerns regarding human rights and environmental protection. While companies gained substantial profits from the globalization of business, increasing attention was drawn to cases of environmental pollution, labor exploitation, child labor, forced labor, and other negative consequences of corporate activities.
The traditional approach to corporate responsibility was largely based on voluntary standards and corporate social responsibility (CSR) principles. However, growing awareness of climate change, environmental degradation, and human rights violations have led to the development of a new regulatory concept known as Corporate Environmental and Human Rights Due Diligence (CEHRDD).
This concept represents a shift from voluntary to mandatory corporate accountability for the negative impacts of business operations. Rather than merely reacting after damage has occurred, the modern regulatory framework requires companies to proactively identify, prevent, mitigate, and remedy risks associated with human rights and environmental protection throughout their entire business cycle.
The Concept and Evolution of Due Diligence Obligations
The term “due diligence” was traditionally used in corporate transactions, investments, and the financial sector to denote the process of a detailed investigation into a company’s business activities before making an investment decision. However, in the field of human rights and environmental protection, this term has acquired a significantly broader meaning.
The adoption of the UN Guiding Principles on Business and Human Rights in 2011 represents a pivotal moment. These principles, developed by Professor John Ruggie, established a framework based on three pillars: the state’s duty to protect human rights, the corporate responsibility to respect human rights, and the right of victims to an effective remedy.
Under this framework, companies must establish a system to identify and assess the potential adverse impacts of their operations on human rights. This obligation extends not only to the activities of the company itself but also to its subsidiaries, suppliers, and business partners.
In parallel with the evolution of human rights standards, the Organization for Economic Co-operation and Development (OECD) developed the Guidelines for Multinational Enterprises, which also mandate the implementation of risk-based due diligence.
Over time, voluntary standards revealed certain shortcomings. Many companies formally adopted sustainability principles but failed to implement concrete measures to apply them. Consequently, individual states began introducing statutory due diligence obligations.
The European Regulatory Framework
The European Union currently stands as a global leader in the development of mandatory due diligence standards. The most significant milestone is the adoption of the Corporate Sustainability Due Diligence Directive (CSDDD).
The objective of the Directive is to ensure responsible business conduct by large companies and their accountability for adverse impacts on human rights and the environment. The Directive requires companies to establish a system for identifying, preventing, mitigating, and bringing to an end the negative consequences arising from their own operations or those of their business partners.
The distinct value of the Directive lies in the fact that its obligations are not limited solely to the company’s direct activities. They encompass the so-called “chain of activities,” including raw material suppliers, component manufacturers, logistics partners, and other participants in the value chain.
In addition to the Directive, the European Union has adopted a series of other instruments that contribute to strengthening corporate responsibility. Notably among these are the Batteries Regulation, the Deforestation-free Products Regulation, and the Corporate Sustainability Reporting Directive (CSRD).
Together, these regulations create a new regulatory ecosystem in which sustainability becomes an integral part of corporate governance.
Human Rights as a Subject of Corporate Responsibility
One of the most critical aspects of the due diligence system pertains to the protection of human rights. Modern companies operate within complex international supply chains where there is a significant risk of violating the fundamental rights of workers and local communities.
The most common risks include:
- child labor,
- forced labor,
- discrimination,
- unsafe working conditions,
- denial of the right to organize and form trade unions,
- inadequate labor compensation,
- forced displacement of local populations.
Companies are expected to identify these risks before they materialize. This entails a detailed assessment of business partners, regular supplier audits, and the establishment of whistleblowing mechanisms.
Global supply chains present a particular challenge. A company headquartered in Europe can be held accountable for human rights violations occurring thousands of miles away if it has failed to take reasonable measures to prevent them.
Environmental Protection and Climate Obligations
The second key component of the due diligence system relates to the environment.
In recent years, climate change has become one of the central issues of international politics and economics. The scientific community warns that greenhouse gas emissions have reached levels that seriously threaten global ecosystems.
Companies play a significant role in this process, as their activities can lead to:
- air pollution,
- water pollution,
- soil degradation,
- biodiversity loss,
- carbon dioxide emissions,
- overexploitation of natural resources.
Consequently, due diligence obligations include the assessment of environmental risks and the impacts of business activities.
The modern regulatory framework increasingly links corporate responsibility with the climate targets of the Paris Agreement. Large companies are expected to adopt transition plans towards climate-neutral business operations and to continuously monitor their carbon emissions.
Thus, environmental protection becomes not only a matter of regulatory compliance but also a strategic issue for corporate governance.
Corporate Governance and Management Accountability
Due diligence is not merely a technical or administrative process. It demands fundamental changes in the way companies are governed.
The traditional model of corporate governance was primarily focused on maximizing shareholder profit. The modern approach originates from the concept of stakeholder capitalism, according to which a company must also take into account the interests of its employees, consumers, local communities, and the environment.
In this context, boards of directors and executive directors are assigned new responsibilities.
They are expected to:
- adopt sustainability policies,
- oversee due diligence processes,
- ensure adequate resources for the implementation of measures,
- monitor outcomes and report to stakeholders.
Increasingly, the question of the personal liability of board members is being raised regarding failures to manage risks associated with human rights and the environment.
Legal and Business Challenges of Implementation
Although the concept of due diligence brings numerous benefits, its implementation is not straightforward.
The first challenge is risk identification. Large multinational companies often have thousands of suppliers worldwide. Gathering relevant information and assessing risks require significant financial and organizational resources.
The second challenge relates to compliance costs. Establishing procedures, training employees, engaging experts, and conducting audits can place a substantial burden on companies.
The third issue is the question of liability for the activities of third parties. Companies frequently lack direct control over all participants in the supply chain, yet they are expected to influence the behavior of their business partners.
Despite these challenges, an increasing number of companies recognize that an effective due diligence system can mitigate regulatory, reputational, and financial risks.
Significance for Bosnia and Herzegovina
Although Bosnia and Herzegovina is not a member of the European Union, European due diligence standards will have a significant impact on the domestic economy.
A large number of companies from Bosnia and Herzegovina operate as suppliers to European firms. Consequently, these companies will be increasingly required to prove that they comply with human rights and environmental protection standards.
The following sectors will be particularly affected:
- the metal industry,
- the wood industry,
- the textile industry,
- the energy sector,
- mining,
- agriculture.
European buyers will demand information regarding working conditions, environmental protection, carbon emissions, and other sustainability aspects. This means that due diligence standards will become a competitiveness factor for companies from Bosnia and Herzegovina as well.
At the same time, the European integration process implies the gradual alignment of domestic legislation with the acquis Communautaire (the EU acquis). Therefore, it can be expected that the principles of corporate responsibility will progressively become an integral part of the legal system of Bosnia and Herzegovina.
The Role of Law Firms
The evolution of due diligence obligations also creates new opportunities for the legal profession. Today, law firms play a pivotal role in:
- regulatory risk assessment,
- drafting sustainability policies,
- conducting due diligence procedures,
- reviewing supplier contracts,
- designing whistleblowing mechanisms,
- representing companies in regulatory proceedings.
Multidisciplinary cooperation among lawyers, environmental experts, auditors, and human rights specialists is of paramount importance. In the coming years, a significant surge in demand for legal services in this field is anticipated.
In Bosnia and Herzegovina, this issue carries particular weight due to the complex legal system, divided jurisdictions, and differing regulations at the state, entity, cantonal, and Brčko District levels. Consequently, a practical question arises: is it preferable to engage a law firm or a sole practitioner for this type of due diligence?
In most cases, preference should be given to a law firm. The reason lies in the highly multidisciplinary nature of this field. A high-quality analysis encompasses corporate law, labor law, environmental protection, personal data protection, supplier contracts, regulatory matters, and potential litigation. It is difficult to expect a sole practitioner to cover all these areas with equal expertise.
Furthermore, due diligence typically requires reviewing a vast number of documents, interviewing management, analyzing internal procedures, and drafting a comprehensive report. A law firm can deploy multiple team members, thereby ensuring efficiency, meeting deadlines, and providing a broader professional perspective.
A sole practitioner may be a suitable choice for smaller or highly specialized tasks, particularly if they possess specific experience in a particular industry. However, for larger projects, foreign investors, infrastructure ventures, or complex supply chains, a law firm generally offers greater security, continuity, and institutional capacity.
Therefore, for a comprehensive Corporate Environmental and Human Rights Due Diligence in Bosnia and Herzegovina, it is most often advisable to engage a law firm with a multidisciplinary team.
Conclusion
Corporate Environmental and Human Rights Due Diligence represents one of the most significant shifts in modern corporate law. This concept reflects a transition from voluntary social responsibility to mandatory risk management associated with human rights and the environment.
The evolution of international standards, and particularly the regulatory initiatives of the European Union, demonstrates that sustainability is becoming an integral part of corporate governance and business strategy. Companies can no longer view the protection of human rights and the environment as secondary issues or solely as a reputational challenge. Instead, they are becoming the subject of concrete legal obligations and regulatory oversight.
For Bosnia and Herzegovina, this process represents both a challenge and an opportunity. Domestic companies will have to adapt to the new requirements of the European market but will simultaneously have the opportunity to enhance their competitiveness and access international value chains by upgrading their business standards.
Ultimately, the goal of the due diligence system is not merely to mitigate legal risks, but to create a more sustainable economic model in which economic development is achieved with full respect for human rights and the preservation of the environment for future generations.
Author: Aleksandar Sajic
