UNGPs: Respect

Shift General Counsel and Senior Advisor John Sherman chaired the IBA Business and Human Rights Working Group that developed the guide over an 18-month global consultation process.

The text below is excerpted from the resource. For more information on this guidance, see our news announcement on its publication and our Guest Viewpoint from IBA President David W. Rivkin.

Also see: International Bar Association Handbook for Lawyers on Business and Human Rights (July 2017)

Introduction 

At its Annual Conference in Vienna in October 2015, the IBA Council adopted its Business and Human Rights Guidance for Bar Associations (‘Bar Association Guide’). The IBA noted that its founding in 1947 had been inspired by the vision of the United Nations, with the aim of supporting the establishment of the rule of law and the administration of justice worldwide. It described the unanimous endorsement by the UN Human Rights Council of the UN Guiding Principles (UNGPs), drafted by the Special Representative of the UN Secretary General on Business and Human Rights (SRSG), Professor John Ruggie. It recalled the IBA’s significant contributions to and support of the SRSG’s UN mandate, and noted that governments have evidenced strong support for the UNGPs as an authoritative policy framework, including through the development of national action plans to implement them. It described the reflection of the UNGPs in international and industry specific standards. And it noted the growing recognition of a strong business case for respecting human rights and the management of risks, including legal risks, resulting in the need for lawyers to take human rights into account in their practice of law.

In order to help bar associations and lawyers better understand these issues, the IBA committed to prepare a Practical Guide for Business Lawyers on the Guiding Principles (the ‘Practical Guide’) that would ‘set out in detail the core content of the UNGPs, how they can be relevant to the advice provided to clients by individual lawyers subject to their unique professional standards and rules (whether they are in-house or external counsel acting in their individual capacity or as members of a law firm) and their potential implications for law firms as business enterprises with a responsibility to respect human rights themselves.’

At the conference, the IBA Council also adopted a resolution approving the Bar Association Guide, looking forward to the Practical Guide’s presentation for approval in May 2016, and stating that ‘in line with the provisions of the UN Basic Principles on the Role of Lawyers as resolved by the UN General Assembly in its ‘Human rights in the administration of justice’ resolution of 18 December 1990 (Basic Principles), nothing in the Guidance for Bar Associations or in the IBA Practical Guide for Business Lawyers (once approved) shall be interpreted as reducing respect for the fundamental human right of effective access to legal services provided by an independent legal profession to all in need of such services, including that all lawyers should always be able to fulfill their duties and responsibilities and enjoy the guarantees provided for by the Basic Principles, consistent with their legal and professional responsibilities.’

This Practical Guide has been prepared to fulfill these purposes. 

Contents of the Practical Guide

The Practical Guide is intended to provide an accessible summary of a complex and nuanced subject by assisting internal and external lawyers who are involved in advising businesses globally through:

• Explaining the background and core content of the UNGPs, which are also incorporated into other relevant human rights and responsible business practice standards and approaches, such as the OECD Guidelines for Multinational Enterprises, the IFC Performance Standards, ISO 26000 and supports the UN Global Compact responsible business principles (Section 2, infra);
• Exploring how the UNGPs may be relevant to the advice and other services they – both in-house and external lawyers – provide to business clients (Section 3, infra);
• Explaining the implications of the UNGPs for the clients’ right of access to, and representation by, independent legal counsel (Section 4, infra);
• Exploring the opportunities and challenges that the UNGPs present for lawyers who advise businesses, including both internal and external legal counsel (Sections 5 and 6, infra).

Reference Annex

In November 2016, the IBA published additional guidance to support users’ implementation of the Practical Guide. Click here to see the Reference Annex to the Practical Guide.

Also see: Our Viewpoint | Launch press release

This resource was developed by Shift and the UK Equality and Human Rights Commission. It reflects input from directors and other senior corporate officers. The summary below is excerpted from the resource.

What is the aim of this publication?

This guide is primarily for boards of companies, particularly those in the UK (it is published by the UK Equality and Human Rights Commission, the National Human Rights Institution of the UK). It sets out five steps boards should follow to satisfy themselves that their companies identify, mitigate and report on the human rights impacts of their activities. These steps will also help boards to reflect their leadership and fiduciary duties.

This guide also provides advice on how boards can meet the UN Guiding Principles on Business and Human Rights, the global standard, which outline the role of business and governments in respecting human rights. The Guiding Principles do not create any new international legal obligations on companies, but they can help boards to operate with respect for human rights and meet their legal responsibilities set out in domestic laws.

The five steps

[The Equality and Human Rights Commission] recommends that boards should follow five steps to ensure that their company is fulfilling its responsibility to respect human rights in a robust and coherent manner that meets the expectations of the UN Guiding Principles and UK statutory reporting obligations. Boards should be aware of the company’s salient, or most severe, human rights risks, and ensure the company:

1. Embeds the responsibility to respect human rights into its culture, knowledge and practices;
2. Identifies and understands its salient, or most severe, risks to human rights;
3. Systematically addresses its salient, or most severe, risks to human rights and provides for remedy when needed;
4. Engages with stakeholders to inform its approach to addressing human rights risks;
5. Reports on its salient, or most severe, human rights risks and meets regulatory reporting requirements.

Human rights due diligence: questions for boards to ask of their executive teams

(see p.17 of the resource)

Board members may find these questions useful to guide discussions with senior management about the company’s salient human rights issues.

1. What is the company doing to make respect for human rights a part of how it does business?

• Do company functions that pose risks to human rights have sufficient resources and responsibility to manage and mitigate those risks?
• Is there a senior manager actively leading on human rights in the company?
• Are there procedures for human rights risks and impacts to be escalated to the board?
• How are staff encouraged to raise human rights risks and take steps to mitigate and manage them? How are staff rewarded for doing so?
• What indicators assess the effectiveness of human rights risk management processes?
• Does a member of the executive team have expertise on human rights? Is there a board champion for human rights?

2. How does the company know what negative impacts it may have on people’s human rights?

• Does the company assess its human rights risks across its operations and supply chain, geographic locations and decision making processes?
• What has the company identified as its salient human rights issues and on what basis? Has it drawn on the experience and knowledge of a broad range of stakeholders?
• How do senior management know whether the company’s policies and processes related to human rights are effective?

3. What steps is the company taking to reduce and mitigate its risks?

• How does the company use its influence to reduce risks to human rights in its supply chain and other business relationships?
• What does the company do to ensure it is not contributing to human rights impacts through its own actions and decisions?
• Does the company work with others in the industry, or with multi-stakeholder groups to address human rights risks?
• What is the company doing to provide remedy if its own actions or decisions lead to impacts on human rights?

4. How does the company engage with stakeholders to help it understand and address human rights risks?

• Does the company engage with a broad range of stakeholders across its business to inform its understanding of human rights risks and its progress in reducing these risks?
• How do people inside or outside the company raise concerns about human rights impacts, and how does the company know whether these channels work?

5. Does the company explain which human rights issues it is reporting on and why?

• Does the company provide sufficient information to explain its human rights challenges and provide examples of how its actions are improving human rights outcomes?
• Does the report include indicators or other metrics to provide evidence of progress over time?
• Do senior management have enough information to meet regulatory reporting requirements?

This resource is based on Shift’s experience working with companies’ M&A teams on practical steps that can be taken as part of the existing M&A due diligence process. For more explanation and discussion of this topic, we also recommend our webinar with the UN Global Compact, Ericsson and Total.

Summary

Buying new companies and selling to other companies often involves inherent human rights risks – meaning the risk of harm to people. Those risks are steadily on the rise, and there is no shortage of examples of M&A transactions that fail, or cost significantly more for a company in the long term, because of a lack of consideration of human rights issues.

These kinds of inherent human rights risks are leading companies to start to integrate consideration for human rights into their M&A processes. Yet little information is publicly available about how they are seeking to do so. Revising due diligence checklists and crafting template representations and warranties alone will not work.

There is no shortage of examples of M&A transactions that fail, or cost significantly more for a company in the long term, because of a lack of consideration of human rights issues. Prominent examples include:

• Meridian Gold, which acquired Brancote Holdings, the owner of a site in Argentina, for US$320 million. Although legal due diligence did not uncover any issues, Meridian Gold ended up with five years of litigation rising to the Argentinian Supreme Court and lost its entire investment because the surrounding community opposed the use of the land for an open-pit gold mine. The M&A team could have assisted by flagging that the legal title to the land alone may not be sufficient in light of the local dynamics around mining;
• Nokia, which suffered a significant hit to its reputation when news broke that its products and services had assisted the Iranian government’s efforts to track, imprison and harm political dissidents during the 2009 Iranian elections. In reality, Nokia had divested the business six months prior to the elections to Iran Telecom. But public opinion was that if a company sells a business that can cause harm, the seller should seek to limit the risk of such harm by incorporating restrictions during the sales transaction, or seeking to sell to another buyer;
• US company American Sugar Refining, which acquired Tate & Lyle Sugars for £211 million in 2010. Subsequent to the transaction, Tate & Lyle Sugars was subject to a £10 million lawsuit in the UK High Court for alleged connection to land grabbing in Cambodia. The M&A team could have assisted by flagging risks associated with Tate & Lyle Sugars’ suppliers and the fact that legal title to land in Cambodia can mask corrupt practices.

Based on work with companies that are at the leading edge of efforts to integrate consideration of human rights into their M&A processes, this article describes the notable differences between a traditional M&A process – one that seeks to identify and address risks to the company – and one that seeks to identify and address risks to people that play out throughout the M&A transaction. It describes the steps companies are taking to add the human rights lens when (i) identifying the issues to address in the course of due diligence, (ii) prioritizing the issues in preparation for contract negotiation and (iii) seeking to address these issues.

Although the article is intended primarily for companies and their in-house M&A teams, it will also be relevant for law firms that are increasingly seeking to advise clients in this area as well as other stakeholders interested in advancing business respect for human rights.

The UK’s Modern Slavery Act 2015 received Royal Assent on March 26, 2015. The Act is a critical step forwards in strengthening company disclosure on efforts to prevent some of the most serious abuses that exist in today’s global supply chains as a result of slavery, servitude, forced or compulsory labor and human trafficking.

However, the Act has raised questions for many UK companies about the relationship between its provisions, particularly Part 6, which deals with transparency in supply chains, and their broader responsibility to respect human rights. What exactly are they being asked to report on relating to modern slavery? And how does this new reporting requirement relate to what they are already doing to implement the UN Guiding Principles?

This short analysis by Shift aims to help companies and other stakeholders understand the relationship between the provisions of the Act and the expectations of the UN Guiding Principles. It is not intended as legal advice.

1. Context

The Act asks companies of a certain size to publish an annual “slavery and human trafficking statement” to disclose the steps the company has taken during that year to ensure that slavery and human trafficking is not taking place in any of its supply chains or in any part of its own business (Section 54(4)). Alternatively, a company can state that it has not taken these types of steps. Where a company has a website, it must publish the statement on its website (Section 54(7)). The statement must be approved by the board or its equivalent (Section 54(6)). Unlike a similar law in the state of California in the US, there is no requirement that companies conduct a certain amount of business in the UK for the law to apply. The Act applies if a company is carrying on business, or part of a business, in any part of the UK.

The law applies to a significant number of companies. In line with the general view expressed by both business and civil society stakeholders during the public consultation on this point, the Government announced on July 29 that the law applies to any company with an annual turnover of £36 million – the lowest of the proposed turnover thresholds. As a result, the Act applies to an estimated 12,000 UK active companies; that is more than the number that will be subject to the new EU non-financial reporting directive that is being transposed into UK law this year.

2. Analyzing the Modern Slavery Act through the Lens of the UN Guiding Principles

So what are UK companies that are subject to the Act being asked to do? Section 54(5) provides that a company’s statement “may include” the following:

1. the organization’s structure, its business and its supply chains;
2. its policies in relation to slavery and human trafficking;
3. its due diligence processes in relation to slavery and human trafficking in its business and supply chains;
4. the parts of its business and supply chains where there is a risk of slavery and human trafficking taking place, and the steps it has taken to assess and manage that risk;
5. its effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chains, measured against such performance indicators as it considers appropriate;
6. the training about slavery and human trafficking available to its staff.

The text is, admittedly, potentially confusing for those trying to assess its requirements against the expectations of the UN Guiding Principles. But in essence, paragraph (a) asks for critical context to enable a reader to understand the business; the remainder of the provisions reflect expectations set out under the UN Guiding Principles and apply them to the risks of slavery and human trafficking in a company’s own operations and in its supply chain. This is consistent with the UN Guiding Principles, which expect companies to seek to prevent or mitigate negative human rights impacts that are directly linked to their operations, products or services through their business relationships, even if they have not caused or contributed to those impacts.

In short, companies are being asked to disclose:

• Evidence of a policy commitment in relation to slavery and human trafficking, as well as evidence of the effectiveness of the embedding of this policy specifically through training provided to staff;
• The company’s human rights due diligence processes in relation to slavery and human trafficking in its operations and supply chains. This includes:
  • Identifying the parts of a company’s operations and supply chains where the risks of such impacts are the most salient, that is, where they would be the most severe in terms of the impact on people, were they to occur, and where they are the most likely to occur;
  • Explaining the steps a company has taken to assess and manage those risks and the effectiveness of its efforts, which are all parts of human rights due diligence as set out in the UN Guiding Principles.

The law does not specifically refer to information about companies’ remediation processes where negative impacts have taken place and the company has caused or contributed to them. (Remediation is the third element, together with a policy commitment and human rights due diligence processes, that the UN Guiding Principles expect companies to have place to meet their responsibility to respect human rights in practice.) However, the list of relevant information in Section 54(5) is non-exhaustive.

So companies can rest assured: the law does not introduce anything new. It is not asking for additional information beyond that which is already covered by the UN Guiding Principles. Rather, the Act is asking for evidence of specific policies and processes to prevent and address slavery, human trafficking and related severe impacts.

3. The Relationship between the Modern Slavery Act and Broader Human Rights Reporting

Companies and their stakeholders can now benefit from the UN Guiding Principles Reporting Framework – the first comprehensive guidance for companies to report on human rights in alignment with the UN Guiding Principles – in their efforts to meet the requirements of the Modern Slavery Act.

The table below illustrates the connections between the information asked for under the Act and the guidance provided in the UNGP Reporting Framework.

The UNGP Reporting Framework provides additional resources on how companies can enhance the credibility of their disclosure in relation to their efforts to prevent and address risks related to slavery, human tracking and related impacts, particularly in terms of stakeholder engagement (see C2) and remediation (see C6).

Companies that use the UNGP Reporting Framework for their human rights reporting more generally, and for which slavery, human trafficking or related impacts are a salient human rights issue, will already have addressed the Act’s disclosure requirements by addressing the provisions of the Reporting Framework indicated above. In this way, companies’ disclosure on their efforts to prevent and address these severe impacts can become part of a broader, more coherent approach to human rights reporting.