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Assessing and preventing human rights risks: ignorance is no defence
Practical Law UK Articles 1-634-8895 (Approx. 4 pages)
Assessing and preventing human rights risks: ignorance is no defence
by Robin Brooks, Milana Chamberlain, Stuart Neely and Gal Levin, Norton Rose Fulbright LLP and Professor Robert McCorquodale and Lise Smith, British Institute of International and Comparative Law
| Published on 27 Oct 2016 • United Kingdom |
Businesses are increasingly under scrutiny for the impact they may have on the human rights of others, including those in their value and supply chains. However, a recent study by the British Institute of International & Comparative Law and Norton Rose Fulbright LLP has identified that almost half of the surveyed companies had never undertaken a dedicated human rights due diligence process or a human rights impact assessment.
Businesses are increasingly under scrutiny for the impact they may have on the human rights of others, including those in their value and supply chains. Ignorance is no defence and companies could be liable not only for those human rights infringements that they knew about, but also for what they ought to have known about had they been diligent.
A recent study by the British Institute of International & Comparative Law (BIICL) and the global law firm Norton Rose Fulbright LLP has identified that a holistic ongoing human rights due diligence process in accordance with the UN Guiding Principles on Business and Human Rights is currently the most effective tool to identify risks. Yet almost half of the surveyed companies have never undertaken a dedicated human rights due diligence process or a human rights impact assessment.
The need to be aware
There is an emerging body of legal claims in a number of different jurisdictions against companies in respect of their adverse impact on human rights and this is expected to continue. Some claims are funded by strategic litigation funders, which recognise that the majority of those whose rights have been affected do not have the expertise and means to seek a remedy and are prepared to make funding available to promote change in this area. To militate against this, companies need to be aware of the risks of actual or potential adverse effects on the human rights of individuals who are affected by their operations. They must identify and implement systems and processes to minimise these adverse effects.
In addition, many companies carrying on a business or part of their business in the UK with a turnover above £36 million are in the process of publishing their first annual statements on the steps they have taken to eradicate slavery and human trafficking in their business and supply chains under the Modern Slavery Act 2015 (see feature articles “Supply chain reporting: complying with the Modern Slavery Act 2015” and “Modern Slavery Act 2015: the impact on multinational businesses”). The EU Non-Financial Reporting Directive (2014/95/EU), which the UK is obliged to adopt into national law by 6 December 2016, requires large companies to report on their human rights due diligence processes (www.practicallaw.com/0-597-2426).
The study results
The results of the study, which included a survey of 152 major companies, show that only 51% of the surveyed companies performed a dedicated human rights due diligence assessment which took into consideration the full range of companies’ human rights responsibilities (see box “What is human rights due diligence?”). But 77% of those companies identified some actual or potential impact on human rights, and 73% identified adverse effects linked to the activities of their third-party relationships.
In stark contrast, only 19% of those surveyed companies that did not conduct express human rights due diligence and instead used other mechanisms identified potential or adverse effects, and only 29% identified adverse effects linked to the activities of their third-party relationships.
Where human rights considerations are limited to existing due diligence processes, such as those relating to health and safety, equality, or labour rights, the study shows that the majority of companies failed to identify their impact on human rights.
The study findings are particularly relevant as in November 2016 the Corporate Human Rights Benchmark (CHRB) is set to be published. Although this year’s CHRB is a pilot, the next stage will see a ranking of the world’s largest publicly listed companies on their human rights performance.
Other key findings
According to 67% of the respondents to the survey, the two main incentives for undertaking human rights due diligence are the avoidance of legal risk and risk to reputation. Compliance with regulatory reporting requirements, and compliance with other relevant and local laws, were also frequently chosen as incentives (60% of respondents). Of those businesses that had undertaken express human rights due diligence, nearly 60% indicated that their company had in the past been connected to allegations of human rights infringements. This suggests that awareness of the risk of adverse effects on human rights is a driver for conducting a human rights due diligence process.
There was a significant contrast in the use of human rights experts: 93% of those businesses that conducted express human rights due diligence had used human rights experts (whether internal or external), whereas 76% of the other group used no human rights experts.
The main challenges in conducting human rights due diligence processes comprise the lack of information on third parties’ country-specific human rights risks and assessing how deep their supply chains due diligence will need to be.
Practical tips for businesses
A multi-functional approach is required. Human rights due diligence is most effective where it is under cross-departmental management, including involvement from the corporate social responsibility, HR, compliance and legal departments, with the commitment and involvement of the board of directors.
The main methods for identifying human rights impacts are desktop research and studies, independent expert reports, and stakeholder and supplier consultations. Human rights-specific training can enable a company to capitalise on the important preventative impact of training.
Contractual provisions (including specific human rights clauses) and codes of conduct are currently the most common actions used to prevent, mitigate or remedy adverse effects, followed by inspections and training. The effectiveness of these other tools can be facilitated through clauses in contracts with counterparties; for example, requiring inspection rights or compliance with codes.
It is important to realise that codes of conduct and contractual provisions are most effective in pre-contractual stages. At that point the bargaining power of the buyer can bring about changes in supplier behaviour. Ignoring the potential for change before a contract is signed misses the main goal of the obligation of companies to respect human rights, which is the improvement of the lives of millions of people in supply chains globally.
Robin Brooks and Milana Chamberlain are partners, and Stuart Neely and Gal Levin are associates, at Norton Rose Fulbright LLP. Professor Robert McCorquodale is director, and Lise Smith, a research fellow in business and human rights, at the British Institute of International and Comparative Law.
The study is available at http://human-rights-due-diligence.nortonrosefulbright.online/
What is human rights due diligence?
It is important to appreciate that human rights due diligence is not the same process as traditional forms of general due diligence. General business due diligence considers the risk to the company or its business of actions such as acquisitions and investments, and is often voluntary or subject to limited regulation and conducted as a one-off discreet process for a specific purpose. Human rights due diligence, on the other hand, is ongoing and examines the risk to individual rights holders arising from the activities of a company. They include a wide set of stakeholders: not only employees, but also local communities, indigenous peoples, workers in supply chains and others. Many of these groups are simply not being considered by companies.
A dedicated human rights due diligence process should, as a starting point for a human rights impact assessment, take into account all internationally recognised human rights as well as the impact the business has across all its operations and supply chain. It is expected that businesses prioritise their attention on the most severe effects.