Social governance in the clean energy sector

Modern slavery in the Clean Energy Supply Chain

Norton Rose Fulbright Partner, Abigail McGregor is a leading business human rights lawyer in Australia and globally. Abigail was the only private practice lawyer to give evidence before the Commonwealth Joint Parliamentary Inquiry in relation to whether Australia should introduce a Modern Slavery Act. More information on Abigail’s insights below were originally published in her co-authored white paper with the Clean Energy Council (CEC).

The clean energy supply chain

With governments and investors around the world scaling up efforts to tackle climate change, the roll-out of renewable energy is on track for a rapid acceleration across the globe. Beyond decarbonisation, this transformation of the energy sector brings significant job creation and investment.

In recent years, evidence has emerged linking supply chains for renewable energy products to modern slavery. While renewable energy is not unique in this regard – with long and complex supply chains, the production and distribution of many products in today’s economy are increasingly being linked to modern slavery – it is an issue that the renewable energy industry must take seriously. The undisputed benefits of clean energy when it comes to climate change do not absolve the industry of its impacts in other areas.

Points of exposure

The main points of exposure include the manufacture of components and the extraction of raw materials. In some instances, the renewable energy sector is the primary market for products linked to modern slavery (such as polysilicon, a key component in solar panels). In other cases, such as copper, renewable energy is just one of many end uses. For some raw materials, such as cobalt and nickel, renewable energy currently consumes only a small fraction of global output, but the accelerating energy transition will make renewable energy a dominant end user over the coming decades. This creates the potential for the clean energy sector to wield greater influence over the integrity of these supply chains.

Geopolitical constraints

Challenges of geopolitics and lack of transparency add to the complexity of finding effective strategies for reducing (and ideally eliminating) modern slavery from Australia’s clean energy supply chains. This can pose practical limitations for conducting supplier due diligence, where independent auditing of facilities in certain locations is not possible.

Carefully considered strategies aimed at reducing or eliminating modern slavery should be developed through collaboration between government agencies, industry and civil society stakeholders. These strategies should also aim to minimise any disruption to the transition to clean energy.

Response by business and industry

Business entities operating in the renewable energy sector can play an important role in mitigating the risks of modern slavery in their supply chains. It is the responsibility of business enterprises to respect internationally recognised human rights, which would require a business to take adequate measures to prevent, mitigate and account for its impacts. The actions taken to meet the responsibility to respect human rights will depend on a business’s size and leverage. Strategies include the implementation of polices, supplier due diligence measures, remediation processes and stakeholder collaboration.

More information on this topic is available in the CEC’s white paper.

Importance of strong and sustainable relationships with First Nations groups for successful renewables projects: A legal perspective

Gavin Scott, Partner in charge of Native Title and Aboriginal Cultural Heritage for Norton Rose Fulbright Australia recently presented at a global conference in relation to trends in engagement with First Nations groups when developing major projects.

When things go wrong …

It is apparent that poor relationships and poor engagement strategies can lead to negative outcomes in the development and operations of projects. These can include protest and media campaigns, actions taken by First Nations groups, mitigation and regulatory enquiries and the associated delays because of those matters. In addition financers, investors and shareholders get extremely concerned about loan documentation conditions in relation to non-compliance with environmental and social impact conditions, and investigations and information requests from institutional investors can ensue. We have also seen a direct rise in shareholder activism at annual general meetings, including removal of directors where a project’s reputation and relationship with First Nations groups have been tarnished. Regulators are keen to investigate and prosecute for any unlawful impact on First Nations’ rights and interests including where there has been damage to cultural heritage and this can lead to threats of cancellation of approvals, licences and tenures.

When things go right …

Conversely, when a project actually develops a global best practice standard for engaging with First Nations groups, projects have the space to develop innovative commercial arrangements that can provide ongoing support for the project. Further, these arrangements can help the First Nations’ community deliver energy justice to the community and can provide good reputational standing about the relationship with and impact on First Nations. Financiers, investors and shareholders can be satisfied through review of annual compliance reports in relation to social and environmental impacts and regulators will be less likely to have any cause for concern about the project.

Moving to better standards of engagement

Most successes that we are seeing in this space come down to moving from base level legal compliance to go to the highest standard of engagement with First Nations groups.

This can be through adherence to numerous international standards such as the UN Guiding Principles on Business and Human Rights or the International Finance Corporation Performance Standards on Environmental and Social Sustainability.

As an example, Performance Standard 7 released by the International Finance Corporation provides for a ready reckoner, step by step process to ensure that engagement with First Nations groups achieves best practice and moves away from base level compliance. The process suggested under that regime includes:

• adequate resourcing and time to understand the baseline information of the First Nations group that is being impacted;
• a very thorough and detailed assessment of the environmental and social impacts that the project may cause;
• substantial time to progress through a pre-development consultation process including a plan for future engagement;
• developing a strategy to avoid and mitigate negative impacts and more importantly to enhance positive impacts.

We are also seeing a lot of time spent on co-existence possibilities so that there is not just indigenous values on one hand and corporate values on the other but indigenous values and corporate values working collaboratively and in partnership. This can include ensuring there are culturally appropriate measures to enhance opportunities and culturally appropriate grievance mechanisms that work when things do not go right.

It is important, regardless of the types of guidance used to achieve these best practice standards, that adequate resourcing and time are invested and that there is good evaluation and reporting.

Trends in best practice First Nations engagement

Some of the key trends that we are seeing in all levels of major projects in relation to First Nations are as follows:

• More innovative projects are seeing First Nations groups as partners and not just stakeholders. First Nations groups do bring significant value to a project which may include statutory rights, such as the right to give consent to a project, land access rights, knowledge including being able to speak to cultural heritage artefacts and landscapes that might be impacted as well as knowledge of the potential social impact of a project on the wider First Nations groups. Treating First Nations as partners rather than stakeholders in a project can be a very good relationship building step as well as delivering good commercial outcomes for the First Nations group that is impacted by the project.
• A further innovative step that we have seen in engagements with First Nations groups for early development projects revolves around equity participation. A number of projects in Western Australia have already announced that there is an equity component in relation to agreements with First Nations groups for renewable projects and we see this as something that will continue to grow as more renewable projects engage with First Nations groups as partners. This equity participation can take a number of forms, including as pure compensation under an Indigenous use agreement, or in more sophisticated ways by ensuring that the First Nations group is properly represented in any constitution and shareholders agreement regarding the manner that they hold the equity, the right that that equity brings, dilution rights and impacts on that equity in leading up to and post-Final Investment Decision.
• For existing projects we are also seeing that there is a drive to review agreements that were put in place a number of years ago by the next generation leaders of First Nations’ groups. For projects that are considering agreements, there are opportunities to ensure there are good review processes and to think about intergenerational equity in the development of agreements moving forward. Best practice, by its very nature, continually advances and flexible agreements are now including regular review points to ensure that not only is the agreement working and engagement is still strong and sustainable, but that it also meets current community expectations.
• Finally. there has been a significant increase in consideration of the manner in which First Nation groups can be engaged in relation to decommissioning, rehabilitation and restoration of landscapes at the conclusion of any renewables project. To date we have not seen a renewable project decommissioned but there is a lot of thought going into how a First Nations group might be engaged in that process, not only for the physical rehabilitation but for issues such as land handbacks and transfers, recycling of used infrastructure and ensuring that the cultural landscape is also “healed” from a First Nations’ perspective.

A final request: Listen!

The key aspect for any project that is starting on the journey of engagement with a First Nations group is to really stop and listen to the concerns of the group when developing an engagement plan. This will be for the betterment of the project in the long run.

Published at GasTech 2023