Risk, Uncertainty, and the Future of Corporate Human Rights Due Diligence

Corporate human rights due diligence is now a social fact; it is no longer merely an idea or aspiration. This paper uses economist Frank H. Knight’s famous, albeit controversial, distinction between risk and uncertainty to help elucidate foundational concepts and challenges for the theory, practice, and future regulation of HRDD. The EU, France, and Germany, among other jurisdictions, have recently adopted laws requiring large businesses to conduct human rights due diligence (HRDD) in their supply chains. The specific details of these laws, as well as their proper motivations, are contested vigorously in public deliberation. There is no overarching consensus about how legislators should define the scope of HRDD or about what rules should apply to businesses. When it comes to assessing human rights risks, the key question that both corporate decision makers and policy makers must contend with is one that Knight identified a century ago: “how far to go?” There is no definitive answer. This paper clarifies what is at stake. The uncertainties that surround HRDD should not be a cause of paralysis for businesses nor should they prevent policy makers from developing powerful and impactful regulatory tools. The paper concludes that policy makers should give priority to the normative-ethical motivation for corporate HRDD over any instrumental- economic business case that may be made in specific circumstances. Giving priority to ethics does not negate economic reasoning; rather, it recognizes that, when it comes to HRDD, economic reasoning must be led by ethical reasoning, and nested within it, not the other way around