Executive summary of a human rights due diligence project run by Norton Rose Fulbright and British Institute for International and Comparative Law
Business and human rights represents an evolving area of risk for businesses which is assuming an increasingly legal dimension. As in many other areas, the prudent response is due diligence. Indeed, many businesses already conduct due diligence in a variety of contexts, including mergers & acquisitions and project finance. However, the nature of human rights due diligence is different from the due diligence that companies are used to conducting.
The UN Guiding Principles on Business and Human Rights (the Guiding Principles) set out the components of human rights due diligence. Recognizing the unique characteristics of human rights due diligence is fundamental to the effective identification and management of human rights impacts which may be associated with a business’ operations, supply chains or value chains.
Although much has been written about human rights due diligence, there is still a lack of clarity about what is required amongst many businesses. Further guidance is needed to help businesses understand the scope, meaning and consequences of human rights due diligence as described in the Guiding Principles.
With this in mind, Norton Rose Fulbright and the British Institute of International and Comparative Law decided to collaborate on a joint study (the Study) comprising academic research, an anonymous survey and interviews with business representatives, with the aim of clarifying issues of law, principle and practice in the area of human rights due diligence.
- Clarifies the meaning and scope of human rights due diligence.
- Examines its legal basis, developments and underlying requirements.
- Analyses the actual practice currently undertaken by companies through the lens of the core elements of the Guiding Principles.
The primary purpose of the Study is to provide practical recommendations for businesses in relation to their approach to human rights due diligence. The key findings from our Study are set out in this summary briefing, while a detailed 15,000 word peer reviewed article will appear in a forthcoming edition of the Business and Human Rights Journal published by Cambridge University Press.
On October 17, 2016, Norton Rose Fulbright in collaboration with the British Institute of International Comparative Law hosted a forum on human rights due diligence which explored good practices and challenges for business enterprises. The forum discussed the findings of a report released by Norton Rose Fulbright and the British Institute of International and Comparative Law on human rights due diligence. The speakers and audience were made up of legal professionals, academics and representatives of businesses and international organizations.
The following are the key takeaways from the forum.
- Why conduct human rights due diligence: The top incentives for conducting human rights due diligence include brand, reputation, corporate legal risk avoidance and compliance with reporting requirements and applicable laws.
- Focus due diligence on human rights impacts: Focusing due diligence on the impact of the business enterprise on human rights is the best way to implement the United Nations Guiding Principles on Business and Human Rights (UNGPs). Only those businesses which had undertaken specific human rights due diligence processes had identified a significant number of human rights impacts.
- Corporate perspective: When conducting human rights due diligence, companies need to look beyond the impact on the enterprise to the impact on the affected rights holder, as a stakeholder. This means that when conducting human rights due diligence, the concept of ‘materiality’, so ingrained into the mind-set of corporations, is superseded by the actual and potential impact on stakeholders.
- Mind the gap: Normal corporate processes such as audit and record keeping are not usually effective in revealing the impact of the business enterprise on human rights. The board of directors and the C-Suite need to dig deeper and conduct specific human rights due diligence in order to bridge the gap between what is being reported and the reality. They also need to ensure that the legal function undertakes careful verification of companies’ public statements. These steps will serve to mitigate potential liability for actual adverse human rights impacts.
- Nature of the modern corporate group: Global businesses should be aware that there is an increasing trend for companies in countries such as the UK, Canada, Germany and the US to suffer reputational damage and sometimes even legal action because of the acts of their subsidiaries or subcontractors abroad. An enterprise can no longer just look at its own business. It needs to make sure that proper systems and processes are in place in other companies in the group. It also needs to understand the human rights impacts of other businesses within its supply and value chains.
- Cross-departmental approach: In order to have a better understanding of their human rights impacts, business enterprises need to get away from the modern corporate structure where each department is working in a silo and concentrates on its own specific mandate. Human rights due diligence is most effective when it is cross-departmental. To get the best results, a combination of legal, compliance, human resources, procurement and corporate social responsibility teams is desirable.
- Roles, responsibilities and objectives: Human rights is not an ‘add-on’ feature of the organization but should be central to the business strategy. Consequently, it is the responsibility of the board to identify, own, manage and mitigate risks. This means that risk owners need to be clearly identified, resources need to be targeted to the most significant risks and controls, and prevention activities should align with any changes in the risk profile of the organization. The objective of leaders at all levels across the organization should be to build a culture where human rights are respected.
- Look back principle: The law is developing and in many years to come businesses could be held to account for their actions today. For this reason, it is not enough to look only at where the law is now; businesses need to look at the direction in which the law is travelling to influence their current behavior, the so-called ‘look back principle’, which has already been applied in other areas like anti-bribery and corruption and tax avoidance. In the sphere of business and human rights, it would seem that the courts are moving towards enforcing higher standards than those currently set out in the black letter law, so companies should look to these standards as their guiding point.
- Voluntary principles treated as hard law: When determining what standard of due diligence is necessary, it can be helpful to look at the UNGPs, the leading soft law in this area. Although these principles are voluntary, courts are starting to mention these Principles in their rulings.
- An effective system without budget is a myth: It is not enough to ask lawyers to draft human rights policies and risk assessments if there is no budget allocated to the implementation, training and enforcement of these. A business enterprise which is serious about assessing and improving its impacts on human rights will therefore look to allocating a sufficient budget for work in this area.
- Collective action: One of the most effective ways to deal with human rights issues is to work collectively with other companies, NGOs, law firms and experts to address effectively the human rights risks which are most serious and salient. This collaboration can provide a fresh perspective on human rights impacts and can demonstrate, often publically, a company’s commitment to human rights.
- Capacity building: Even though terminating a contract which is particularly problematic in terms of human rights impacts can sometimes seem like the easier option, it is generally a better investment for businesses to work with the relevant companies within their supply chains and value chains in order to improve their human rights standards.
- Potential defence: Effectively addressing potential human rights issues in supply chains can mitigate these risks and can serve as a defence if something does go wrong.
- Be proactive: The best way to protect yourself is to be proactive – prepare human rights specific training sessions, conduct human rights impact assessments and comprehensive human rights due diligence and put in place a human rights policy.
For more information and a detailed analysis by industry sector please see the full report available at our microsite.
British Institute of International and Comparative Law
Professor Robert McCorquodale
Tel +44 20 7862 5151
Research fellow in business and human rights
Tel +44 20 7862 5162