The pressure on companies to demonstrate respect for human rights is increasing as the link between long-term value creation and a prudent approach to human rights risks is becoming more and more established.

It is, therefore, increasingly important for companies and investors alike that companies demonstrate that they understand and navigate the business opportunities and risks related to the corporate duty to respect human rights and labour rights throughout the entire value chain. Failure to do so may leave the company vulnerable to operational disruptions, litigation risk and increased scrutiny by supervisory authorities as well as reputational risk and loss of license to operate in the eyes of customers, employees, investors, and business partners.

The corporate duty to respect human rights is derived from the United Nations Guiding Principles on Business and Human Rights (UNGPs) , adopted in 2011. The UNGPs have set out the international standard of practice for companies to respect international human rights (including labour rights) by identifying, preventing, mitigating, remedying, and accounting for human rights impacts associated with their business activities – commonly known as human rights due diligence . Companies that are operating (directly or through the value chain) in conflict-affected areas are, furthermore, expected to perform heightened human rights due diligence in light of the increased risk of human rights violations in these areas.

Though a soft law requirement under international law, the corporate duty to re-spect human rights has been an expectation of companies since the UNGPs was adopted in 2011. This is particularly the case for companies that publicly subscribe to these international norms.

This expectation has in recent years been underlined by the European Union’s introduction of a range of regulatory initiatives which, in different ways, seek to address the impacts that businesses have on human rights and labour rights. Two of the main developments in this area are the Corporate Sustainability Due Diligence Directive (CSDDD) , which includes a mandatory due diligence obligation with respect to human rights, and the Corporate Sustainability Reporting Directive (CSRD) , which concerns disclosures on a range of sustainability matters including human rights from a double materiality perspective. The EU regulatory initiatives are largely based on the corporate duty to respect human rights as described in the UNGPs, though the human rights due diligence requirement under the UNGPs will likely be more comprehensive than the national implementation of the EU directives.

Though the corporate duty to respect human rights has been long-established, studies show that companies have not taken the necessary steps to demonstrate sufficient implementation of human rights due diligence processes in their opera-tions. The Danish Institute for Human Rights (DIHR) has examined the public re-porting of a number of large Danish companies and provided an analysis of the human rights policies and disclosed human rights due diligence practices of these companies in 2020 and again in 2022 . The analyses indicate that more progress needs to be made in this area. This is also the case for FLSmidth.

FLSmidth is a signatory to the UN Global Compact and has committed to respecting human rights in line with the UNGPs. This includes identifying, mitigating, and remedying adverse impacts in the entire value chain, both on the supply side and on the customer side. Given that FLSmidth through its business partners operate in conflict-affected geographic territories and depend on sectors with a high risk of adverse impacts on human rights, it is important that the company can account for the necessary due diligence processes applied to handle these risks.

Furthermore, FLSmidth already employs and discloses a well-developed risk management process and identifies several risk topics that are potentially related to human rights risks, such as supply chain, compliance, geo-political, safety, sustainability, and attracting and retaining employees, but currently with no or limited connection to this in its human rights disclosures and sustainability report.

By strengthening its ability to document its human rights due diligence and risk management processes, FLSmidth would stand to benefit. Not by preempting the regulatory requirements in the EU legislation, but by staying ahead of the curve in order to gain a competitive advantage.

We therefore encourage the board and fellow shareholders to consider their support for this proposal.