Due diligence in respect of human rights risks is becoming particularly important for multinational corporations. The basis for human rights due diligence may arise from local laws, international law or custom, or the requirements of lenders and investors. Due diligence allows multinational companies to promote compliance with societal expectations and take precautions to avoid liability for human rights violations.
The purpose of this article is to review the elements of human rights due diligence for multinational corporations and discuss their legal implications.
ELEMENTS OF HUMAN RIGHTS DUE DILIGENCE
The “Protect, Respect and Remedy” framework (the “Framework”) developed by the United Nations Special Representative to the Secretary General for Business and Human Rights, John Ruggie (the “SRSG”), is the most recent effort at codification of emergent international custom on the human rights obligations of business. Due diligence is of central importance to the corporation’s duty to “respect” human rights in the Framework.
The Framework defines “due diligence” to comprise four components: 1) development of a human rights policy statement; 2) periodic assessment of actual and potential human rights impacts of company activities and relationships; 3) integrating commitments and assessments into internal control and oversight systems, and; 4) tracking and reporting performance.
The Framework builds upon international instruments including the “Norms on the responsibilities of transnational corporations and other business enterprises with regard to human rights” which adopted by the United Nations Commission on Human Rights in 2003, as well as international human rights standards encapsulated in the International Bill of Rights and other human rights treaties, the core International Labour Organization (“ILO”) treaties, as well as local laws pertaining to human rights, and the human rights laws of highly developed country legal systems.
The process of due diligence goes beyond minimal “compliance” with local laws. It instead requires a more proactive effort to comply with the letter and spirit of state laws, as well as to comply with international norms and best practice standards that define the parameters of human rights compliance, whether or not such rules are likely to be enforced by local government, or even conflict with local laws. In the event state based and international obligations conflict, corporations must be even more vigilant in their actions, and possibly reconsider their ongoing involvement in that particular jurisdiction.
HUMAN RIGHTS IN THE WORKPLACE
One of the most easily overlooked areas of human rights obligations is in the management of the workplace, and in particular the management of human resources. Discrimination in employment on the basis of gender, age or disability is prohibited by international instruments such as the ILO convention, 1958. It is also often the subject of local human rights legislation. Due diligence should include a review of internal corporate practices in respect of human resources, where perhaps the greatest likelihood of human rights violations exists.
Discrimination in employment may often be done inadvertently. Avoidance of inadvertent discrimination may necessitate efforts to accommodate employees to allow for their full participation in the workplace, despite vulnerability or disadvantage. The establishment of due diligence practices can mitigate the risks of such human rights violations in the workplace and allow for the avoidance of discrimination, facilitation of accommodation, or elimination of workplace harassment or violence.
COMPLICITY IN HUMAN RIGHTS VIOLATIONS
Human rights due diligence also requires evaluation of human rights risks that may arise from association with third parties, including business partners or host governments.
The test for “responsibility” in the Framework is the “actual or potential human rights impacts” resulting from a company’s own business activities as well as through its relationships with other parties. This responsibility may therefore extend through a company’s supply chain relationships or even to relationships between the corporate actor and sovereign governments. Human rights violations committed by these actors can become a human rights violation of the corporation under the doctrine of “complicity”.
Civil or potentially even criminal liability (local or international), or social disapprobation impairing corporate reputation, may flow where a company enables, exacerbates or facilitates human rights abuses of other entities which were foreseeable and ought to have been known by the company. The more “proximate” the company is to the perpetrator of human rights abuses, the more likely that complicity may be found. As the International Commission of Jurists has noted, complicity will not be avoided through wilful blindness to the human rights violations of business partners or host governments.
Due diligence allows companies to “know” what they “ought to know”, and to identify potential complicity in human rights violations before it occurs. Such knowledge can allow the company to advertently manage and mitigate such risks in the course of corporate decision making, and avoid the risks of “wilful blindness” that may lead to complicity in human rights violations.
TRANSPARENCY AND REPORTING
The Framework incorporates transparency and reporting as part of the human rights due diligence process. Transparency regarding corporate policies and practices in the area of human rights may (and often is) a requirement of securities disclosure obligations. While such obligations are often tied to the concept of “materiality”, a growing consensus is emerging in the investment community that the risks (both legal and reputational) presented by actual or potential human rights violations is inherently “material” to the long term viability of the corporation. Failure to fully disclose in securities filings material risks facing the corporation, including those arising from human rights practices, can provide the basis for civil liability in many jurisdictions, including Canadian jurisdictions.
Corporate reporting and transparency on human rights practices may also be a condition of contractual relationships amongst business partners. Non-financial or “sustainability” reporting may also be adopted voluntarily by corporate actors that through frameworks such as the Global Reporting Initiative, to meet industry standards or stakeholder expectations.
Due diligence ensures that reporting is complete and accurate, and to reduce the likelihood that unforeseen risks will turn into uncontrollable liability. It can also allow corporations to more effectively assess the materiality of risks, and make better decisions regarding the appropriate level of disclosure.
Human rights due diligence is an important element of the emergent international custom that corporations “respect” human rights. The creation of policies, incorporation of policies into decision making, monitoring, assessment and transparency are the essential elements of a human rights due diligence program. Due diligence may be required by local laws, or simply be adopted as international best practices. The objective of due diligence is to identify, assess and mitigate risks to the extent possible, and to avoid the potential for liability or reputational damage that can result from a strategy of wilful blindness to human rights issues.