Business and human rights

October 2018  |  PROFESSIONAL INSIGHT  |  RISK MANAGEMENT

Financier Worldwide Magazine

October 2018 Issue

Under international law, human rights obligations and the legal consequences arising from a breach of those obligations traditionally have fallen almost exclusively upon states. This is because human rights obligations are derived primarily from commitments voluntarily assumed by states under international treaties and from the development of the customary law of nations binding on all states. In recent decades, however, the greater impact of the activities of businesses worldwide has engendered a debate about the role and responsibilities of these enterprises with regard to human rights. This debate has given rise to the legal concept of ‘business and human rights’. It also has translated into growing pressure for businesses to take measures to avoid infringing human rights, beyond their compliance with national laws and the adoption of voluntary corporate social responsibility programmes.

Certain sectors of civil society increasingly demand that companies be held to internationally recognised human rights standards. In parallel, a number of states are raising their expectations regarding the way in which businesses show respect for human rights, both within and outside of their territories. For example, the UK Modern Slavery Act 2015 requires certain large commercial organisations to prepare a statement describing the steps the organisation has taken during the financial year to ensure that slavery and human trafficking is not taking place in any of its supply chains and in its own business. Further, states regularly embed provisions from international human rights treaties in their domestic legislation on safety, health or discrimination.

In addition, victims of human rights violations are increasingly seeking redress from business enterprises in judicial proceedings before national courts. Their claims, which have been heard by courts in jurisdictions like Canada, France, the Netherlands, the UK and the US, face important legal challenges. For example, plaintiffs frequently struggle to find a legal basis for their claims. And although national courts seem to be extending their reach extraterritorially, plaintiffs often fail to overcome important jurisdictional obstacles. Regardless of the outcome of the proceedings, however, human rights-related claims have the potential to cause substantial commercial damage to a business. They may affect the profits of that business in multiple ways, including by negatively affecting brand reputation and by triggering protests that interrupt operations. Self-evidently, human rights-related claims also increase the projected litigation expenses of a business.

Thus, humanitarian, legal and commercial considerations require businesses to do more to avoid infringing human rights.

In June 2011, the United Nations Human Rights Council endorsed the UN Guiding Principles on Business and Human Rights (UNGPs). The UNGPs are not a legally binding instrument; they do not create new obligations for either states or businesses. Nor do they affect states’ existing human rights obligations. However, they do provide a set of useful guidelines to prevent, address and remedy human rights abuses committed in the context of business operations.

Among other recommendations, the UNGPs indicate that businesses should express their commitment to respect human rights through a public statement of policy approved by senior management. This statement may have a number of advantages. For instance, it might help to clarify the human rights expectations that an enterprise has vis-à-vis its personnel, business partners and other parties directly linked to its operations, products or services. At the same time, it might help meet the expectations of relevant stakeholders and improve the business enterprise’s ability to attract investment. It also might provide a clear advantage over competitors with a poor human rights record.

However, policy statements also involve a number of legal risks. For instance, noting that the “‘Voluntary Principles on Security and Human Rights’…have been adopted by many mining companies over the years”, in Vilca & 21 Ors v. Xstrata Ltd & Anor, an English court recently stated that “something more than lip-service to those principles [was] demanded”. In another case, Angelica Choc v. Hudbay Minerals Inc., et al, the Ontario Superior Court of Justice noted that the defendant had “made public representations” in relation to “its commitment to respecting human rights” and concluded that this “would have led to expectations on the part of the plaintiffs”. Therefore, any policy statement should be made with a firm intention to abide by that statement. It also should be drafted carefully by specialised legal counsel.

Businesses also should set up due diligence processes to identify whether their own activities, or their business relationships, could have any adverse human rights impacts.

Businesses can have an impact on virtually the entire spectrum of human rights. To name just a few examples: a company with low labour standards may interfere with the right not to be subjected to slavery, servitude or forced labour, a company with poor environmental policies may interfere with the right to health and a company’s purchase of public land for its operations may interfere with the right of the populations previously occupying that land to an adequate standard of living.

Notably, the interference of businesses with human rights may be both direct and indirect. A business may cause or contribute to the interference through its own actions. Equally, the interference may stem from business relationships with other parties, including business partners, entities in the business’ value chain and any other entity linked to its operations, products or services.

Due diligence processes should, therefore, be tailored to the specific characteristics and field of activity of a business. In practice, certain industries pose a greater risk to some human rights than others. These rights require specific attention. However, given that circumstances in the operations of a business may change, all human rights should be subject to periodic review. Effective due diligence processes, followed by the implementation of their findings, significantly reduce the risk of being involved in human rights-related disputes.

The UNGPs also state that, where business enterprises identify that they have caused or contributed to impact human rights negatively, they should provide for or cooperate in their remediation through legitimate processes. Among other avenues, businesses may do so by setting up internal ‘grievance mechanisms’. These mechanisms should be accessible to the affected stakeholders and should be based on engagement and dialogue. They also need to be predictable, transparent and equitable. Properly designed and implemented grievance mechanisms may allow the parties to reach a mutual agreement in a non-adversarial manner, putting an end to their dispute. By contrast, a poorly designed or implemented mechanism can risk compounding a sense of grievance among affected stakeholders and, therefore, aggravate the dispute. For those reasons, grievance mechanisms should be prepared by legal counsel with the requisite experience and expertise.

In conclusion, at present, human rights obligations under international law fall almost exclusively on states. However, the legal landscape for businesses regarding human rights is evolving and more rigorous reporting requirements are being implemented already in a number of national jurisdictions. Increasingly, companies are required not only to say more, but also, importantly, to do more about human rights. Companies also are facing growing litigation risks in relation to the impact of their operations on human rights, with courts extending their reach extraterritorially and increasingly citing the UNGPs. In this context, businesses would be well-advised to put in place appropriate mechanisms to identify, prevent and, if needed, remedy any adverse human rights impacts, whether occasioned by their own activities or as a result of their business relationships. Doing so will contribute to reducing human rights abuses and will offer businesses a number of concrete legal and commercial advantages.

Álvaro Nistal is a senior associate and Anastasia Choromidou is an associate at Volterra Fietta. Mr Nistal can be contacted on +44 (0)207 380 3538 or by email: alvaro.nistal@volterrafietta.com. Ms Choromidou can be contacted on +44 (0)207 380 4390 or by email: anastasia.choromidou@volterrafietta.com.

© Financier Worldwide

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Álvaro Nistal and Anastasia Choromidou

Volterra Fietta