Human Rights Due Diligence

[*]

by
Karin Buhmann, Professor in Business & Human Rights
Department of Management, Society and Communication,
Copenhagen Business School (DENMARK)
kbu.msc@cbs.dk
Overview

What is Human Rights Due Diligence?

Human rights due diligence (HRDD) and other so-called ‘risk-based due diligence’ is concerned with reducing and managing risks caused by a company to society. This differs from the financial or legal liability due diligence concept that is well known to many corporate lawyers and law-students, as well as to many managers and management students. The latter concept is focused on reducing and managing risks to the company by factors in society, for example in the context of corporate mergers or acquisitions. This crucial difference offers a point of departure for understanding and teaching HRDD, and therefore for this teaching note. This teaching note uses the terms human rights due diligence (or risk-based due diligence) to distinguish HRDD from liability-oriented due diligence.

Human rights due diligence is the term introduced by the UN ‘Protect, Respect and Remedy’ Framework[1] and elaborated by the UN Guiding Principles (UNGPs).[2] The approach was adopted by the 2011 revision of OECD’s Guidelines for Multinational Enterprises.[3] Importantly, the Guidelines not only applies the term to human rights. Using the term ‘risk based’ due diligence, the Guidelines expand its application to labour, environment, anti-corruption, and consumer protection. Because much of the guidance available has been developed by the OECD, this teaching note uses the term ‘risk based’ due diligence, except when referencing explicitly the UNGPs, the UN Framework, or other specialized human rights instruments.

Risk-based due diligence refers to a process through which companies identify, prevent, mitigate, account for and remedy their adverse impacts. The process entails a number of steps, each of which warrants specific attention in teaching and practice. Performing a risk-based due diligence analysis moreover presumes that the student or practitioner is familiar with specialized terminology, such as ‘leverage’ and ‘(meaningful) stakeholder consultation’, and is able to distinguish between situations in which a company causes or contributes to adverse impacts or is directly linked through a business relationship.

By reducing its harmful social impact, a firm also reduces the risk to itself that may flow from reputational damage or economic sanctions by stakeholders. Thus, a well-performed HRDD process may also serve as a risk management tool for the firm in reducing risks of reputational damage and potential economic loss.[4] A UN interpretive guide on the corporate responsibility to respect human rights notes:

“Human rights risks” refers to the risks of having an adverse impact on human rights, as against risks to the enterprise itself, although the former increasingly leads to the latter.[5]

As the OECD Guidelines apply to companies that operate in or from the OECD states or non-OECD states that adhere to the Guidelines, this in principle enhances the application of risk-based due diligence in business operations around the globe. Since the revision of the Guidelines in 2011, issues concerning risk-based due diligence have turned out to be a major cause for complaints to National Contact Points (NCPs), which are state-based non-judicial grievance institutions that are set up to handle allegations of non-observance of the Guidelines. (For more information on NCPs, see OECD National Contact Point Complaints.) NCPs have assessed and criticized enterprises’ due diligence processes in various cases[6] and several NCP cases contribute to insights on what is required for a company to conduct risk-based due diligence.[7]

This teaching note is addressed to instructors teaching HRDD and general risk-based due diligence to students at business schools and law schools, or students of political science, regardless of whether the students specialize in management or law studies. The note is structured to provide students of management and politics with basic knowledge of the UNGPs (See Introducing the UN Guiding Principles on Business and Human Rights) that they may not already have; and students of law and politics with an understanding of the business-risk-oriented context that will often be focal point for managers to drive organizational change. 

Origin of Human Rights Due Diligence

The UN Framework presents human rights due diligence as an operational approach for the corporate responsibility to respect.[8] The introduction of human rights due diligence was partly spurred by debates on the understanding and implications of the ‘sphere of influence’ concept, which had been undertaken by managers, scholars, and UN human rights specialists during consultations and in reports[9] that followed the Human Rights Council’s dismissal of the Draft UN Norms in 2004.[10] The UN Framework report argued that while “sphere of influence remains a useful metaphor for companies in thinking about their human rights impacts beyond the workplace and in identifying opportunities to support human rights, which is what the Global Compact seeks to achieve,” another approach was needed for the corporate responsibility to respect human rights.[11] This approach was set out as entailing a risk-based approach to business-related human rights with a view to identifying, preventing and/or mitigating harm. The report emphasised HRDD as relating to risk management in a way that spoke to the rationality of business managers. At the same time, it also argued in a manner that spoke to governments’ interests, partly by explaining that promoting HRDD is relevant for states as a measure to discharge their duty to protect and that they can do this through issuing guidance or requirements on the practice.[12] This duality of argumentative structure contributed to generating support for the HRDD concept with business representatives as well as with states.[13] It also speaks to students of management as well as students of law, and to students of politics with an interest in the discursive dynamics that shape policy change. Instructors may actively draw on this to encourage students to discuss and understand how to communicate and operationalize HRDD.

The social risk-based emphasis does not mean that the HRDD process should only look at risks that have no legal consequences. The UN’s interpretive guide on the corporate responsibility to respect human rights notes that the human rights due diligence process should, for example, uncover risks of non-legal as well as legal complicity and generate appropriate responses.[14] These responses vary according to whether there is a risk that adverse impact may occur, or whether actual impact has occurred. Actual impact requires remediation. Potential impact requires action to prevent a human rights risk from materializing, or at least to mitigate (reduce) as far as possible the extent to which it may do so. Where some residual impact on human rights is unavoidable, this in turn requires remediation.[15]

The interpretive guide also notes that “due diligence has been defined as ‘such a measure of prudence, activity, or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent [person] under the particular circumstances; not measured by any absolute standard, but depending on the relative facts of the special case’. In the context of the Guiding Principles, human rights due diligence comprises an ongoing management process that a reasonable and prudent enterprise needs to undertake, in the light of its circumstances (including sector, operating context, size and similar factors) to meet its responsibility to respect human rights.[16]

The OECD’s guidance for institutional investors[17] explains the societal focus of risk-based due diligence in the following manner, setting it apart from the corporate-orientated focus often associated with the practice of due diligence:

Due diligence has a specific meaning under the OECD Guidelines that differs from how it is commonly perceived in the context of institutional investment. Under the OECD Guidelines, “due diligence” is a process for identifying, preventing, mitigating and accounting for so-called “adverse impacts” on matters covered by the OECD Guidelines (e.g. human rights, labour, environment, bribery and other integrity impacts, etc.). Due diligence under the OECD Guidelines should be continuous and ongoing, and aimed at avoiding and responding to risks related to issues covered in the OECD Guidelines. In the context of investment however, due diligence is generally thought of as a process which is conducted prior to making certain investments or appointment of an asset manager to identify and assess legal and financial risks. Readers of should be aware of different meanings given to the same terms as these can lead to confusion and misunderstanding between investment professionals and stakeholders discussing [responsible business conduct (RBC)] issues.[18]   

The relevance of a risk-based due diligence approach is underscored by the uptake of HRDD by other business governance instruments, including ISO’s 26000 Social Responsibility Guidance Standard[19] the EU’s Non-Financial Reporting Directive, and according to national law in some countries.[20]

HRDD under the UN Guiding Principles

The UNGPs are the basic text for teaching HRDD. Each Guiding Principle (GP) is accompanied by an explanatory commentary. For a fuller understanding of the background for due diligence as such and in regard to its objectives and as a core element under Pillar Two (the corporate responsibility to respect human rights), instructors and students may find it useful to study the UN Framework report and the detailed addendum report that introduced and reasoned the introduction of HRDD.[21] Students of business management and politics who look for theory-oriented texts of a normative and broader social science explanatory type may find those reports helpful. Developed through extensive studies by academically trained authors working according to established academic standards, the reports inform and underpin the specific steps for of corporate conduct set out in the UNGPs. The interpretive guide[22] issued by the Office of the High Commissioner for Human Rights adds further details for implementation of due diligence.

When teaching HRDD, instructors are advised to ask students to read the entire text of the commentaries related to the UNGPs that deal with HRDD. The text of the UNGPs can also be complemented by theoretical discussions and analyses of the application of HRDD, its adequacy, the appropriateness of the approach from various theoretical perspectives, as well as other theory and practice-oriented sources that elaborate on the practice of risk-based due diligence.[23] Statements or reports that apply or elaborate risk-based due diligence in a practical context can help students and managers appreciate the practical implications. Statements issued in the context of ‘specific instances’ (complaints) handled by OECD National Contact Points (NCPs), which are state-based non-judicial remedy institutions that fit the description under Pillar Three of the UNGPs; cases handled by National Human Rights institutions; or complaints handled by operational remedy institutions that are organized within a business context are all relevant.

The UNGPs address HRDD under “Pillar One” as well as “Pillar Two.” Pillar One encourages States to introduce HRDD recommendations or even requirements on businesses as part of the Duty to Protect.[24] This may form part of a State’s provision of guidance to firms on how to respect human rights, something that is also encouraged by the UNGPs.[25] HRDD requirements may be particularly relevant with regard to firms owned or controlled by or otherwise connected to the state, but are not limited to those.[26]

What is HRDD?

Human rights due diligence is a core element of the “corporate responsibility to respect” under Pillar II of the UNGPs. As the UNGPs apply to all States and all businesses regardless of size, sector, location, ownership and structure and whether or not they are transnational or simply have national operations,[27] HRDD is relevant to all companies.

Among the six operational principles under Pillar Two of the UNGPs, five address HRDD, testifying to its importance.

A HRDD process comprises the steps that company takes to identify, prevent, mitigate and account for how it addresses its impact on human rights. This is described by UNGP 15(b), which should be read in the context of the full Guiding Principle 15 and elaborated in Guiding Principles 17-21.

The interpretive guide on the corporate responsibility to respect notes that:

For many enterprises, there will already be processes in place for other forms of due diligence (environmental, health and safety, etc.) that can be drawn on or built on to provide for human rights due diligence. Care should be taken to ensure that such systems are adapted to the particular task of managing human rights risks effectively. It is important for all enterprises to ensure that the personnel responsible for human rights due diligence have the necessary skills and training opportunities. They also need to have sufficient influence within the organization.[28]

A human rights due diligence process should be linked to the business enterprise’s human rights policy.[29]

The Commentary to GP 15 is explains why business should have policies and processes on human rights:

Business enterprises need to know and show that they respect human rights. They cannot do so unless they have certain policies and processes in place. Principles 16 to 24 elaborate further on these.

The Interpretive Guide elaborates:

Respecting human rights is not a passive responsibility: it requires action on the part of businesses. It is relatively easy for an enterprise to say that it respects human rights and it may genuinely believe that this is the case. But to make that claim with legitimacy, an enterprise needs to know and be able to show that it is indeed respecting human rights in practice. That, in turn, requires it to have certain policies and processes in place. The Guiding Principles define these as: a statement of policy commitment, a human rights due diligence process and processes to enable remediation. [30]

The Interpretive Guide also notes that human rights due diligence is not a single prescriptive formula. Enterprises of different sizes, in different industries, with different corporate structures and in different operating circumstances will need to tailor their processes to meet those needs. However, the key elements of human rights due diligence—assessing, integrating and acting, tracking, and communicating—when taken together with remediation processes, provide the management of any enterprise with the framework it needs in order to know and show that it is respecting human rights in practice. [31]

Is HRDD only about identifying harmful impact?

Because the UNGPs were developed with the overall objective that businesses should ‘do not harm’, the HRDD process is generally thought to focus on adverse impacts caused by the company.[32] However, the UN Framework explicitly recognizes that companies may undertake commitments voluntarily to contribute to human rights.[33] An impact assessment involving stakeholder engagement undertaken as part of a due diligence process may serve to identify potential needs of a local community that a company may wish to address as part of it social responsibility commitments. A company should keep in mind, of course, that contributing to societal needs, for example the UN Sustainable Development Goals (SDGs) does not offset harm caused. As Professor John Ruggie has indicated, business impacts on human rights are not like CO2 emission schemes in which a company may ‘offset’ emissions through buying and trading quotas.[34]

What does HRDD entail?

HRDD is a process that entails a range of steps throughout a project or activity. It is ongoing and should be designed in such a way as to dynamically take account of changes, as well as to be able to incorporate new information and insights, and revisions or previously overlooked information.

The UNGPs provide details on HRDD, specifying what the process should cover and take into account contextual issues and dynamic developments (GP17); how it should involve external and internal expertise and meaningful consultation with (potential) victims (‘affected stakeholders’) and other stakeholders (GP 18); how companies should effectively integrate their impact assessment findings across relevant internal functions and processes and take appropriate action (GP 19); track the effectiveness of their responses through using qualitative and quantitative indicators and draw on feedback from internal and external sources, including victims (GP 20); and account for how they address their human rights impacts by communicating this externally, through formal reports and/or in more informal manners (GP 21).

The Interpretive Guide on the corporate responsibility to respect explains:

Human rights due diligence is about people. It reflects the entitlement of every human being to be treated with dignity. It therefore involves relationships— between an enterprise and those on whom it may have an impact.

Hence, the key to human rights due diligence is the need to understand the perspective of potentially affected individuals and groups. Where possible and appropriate to the enterprise’s size or human rights risk profile, this should involve direct consultation with those who may be affected or their legitimate representatives (…).[35]

The OECD’s due diligence guidance for responsible supply chains of mineral sets out a five-step process framework for due diligence:

  • Establish strong enterprise management systems for responsible supply chains
  • Identify, assess and prioritise risks in the supply chain
  • Design and implement a strategy to respond to identified risks in the supply chian
  • Verify supply chain due diligence
  • Report on supply chain due diligence.[36]

The guidance on responsible agricultural supply chains jointly developed by OECD and FAO emphasizes that due diligence in supply chains require a sensitivity to the particular needs and interests of many diverse organisations upstream, as well as the individuals who produce the agricultural goods that are handled by the supply-chain links downstream from them.[37]

Key HRDD Terms

This section introduces key HRDD concepts addressed in detail by the operational Guiding Principles.

Prevention refers to efforts to avoid human rights harm to occur altogether.

Mitigation refers to steps to alleviate human rights harms that cannot be fully prevented, for example because the risks were not identified in time to prevent harm.

Remediation applies to adverse impacts that have already occurred.

Stakeholder engagement is a key element in risk-based due diligence. It connects both to the pro-active and re-active elements of the concept. Meaningful engagement with affected stakeholders is a core source of information for enterprises to understand about their impact and its implications for those potentially or actually affected. Without such understanding, the enterprise may overlook important information to allow it to identify, prevent, mitigate, remedy and account for its impacts.

Cause, contribute or directly linked through business relationships. Companies may be involved in human rights abuse in different ways. A main distinction is among three situations: 1) whether the company caused the adverse impact through its own activities; 2) whether it contributed to the adverse impact through its own activities; or 3) whether the human rights impact is directly linked to its operations, products or services by its business relationship with another entity.

If the company caused the impact, simply put, the company did it. If the company contributed, someone else caused the impact but the company contributed, for example, by changing an order at the last minute without extending the time frame for delivery or the cost of the change. When a company is directly linked, it neither caused nor contributed to the adverse impact, but is in a relationship with an entity that is causing or contributing in another context. When involved in such a business relationship, the company has a responsibility to seek to prevent or mitigate the adverse impact, even if it has not contributed to the impact.

Leverage refers to influence that a business enterprise may have with one or more entities that are involved in a human rights abuse, such as a government or a company down-stream in the value chain. Leverage can take various forms, for example meetings or capacity building. Leverage is related to due diligence in regard to appropriate action to prevent and mitigate adverse human rights impacts in response its findings on its impact.

HRDD According To The Operational GPs

Guiding Principle 17:[38] Parameters for HRDD

GP 17 defines the parameters for human rights due diligence, while GP 18 through 21 elaborate its essential components.[39]

Human rights due diligence can be carried out as a process focused singularly on identifying, preventing, mitigating and accounting for human rights impacts. However, companies often undertake other process to identify risks and may wish to integrate HRDD in such processes. The commentary explains that HRDD can be included within broader enterprise risk-management systems. Importantly, in accordance with the general focus on identifying risks to society (rights-holders) rather than to the company, the process should under all circumstance go beyond simply identifying and managing material risks to the company itself.

In order to identify adverse impacts and manage those, HRDD should be initiated as early as possible when a new activity is planned or initiated, when negotiating a contract, or when a company takes over activities through mergers or acquisitions. There is no one-size fits all approach to risk-based due diligence: the process and specific steps should be appropriate to the particular situation at stake.[40] Moreover, the process and specific steps may be affected by factors such as the size of the enterprise, the context of its operations, and the severity of the impacts.[41]

The OECD Guidelines encourage companies to prioritize their due diligence efforts by using a risk-based approach that assesses the severity of an impact based on its scale, scope and irremediable character. ‘Scale’ refers to the gravity of the impact; ‘scope’ concerns the reach of the impact, for example the number of individuals that are or will be affected by the extent of the damage, and ‘irremediable character’ means any limits on the ability to restore the individuals or their environment to a situation equivalent to their situation before the adverse impact.[42]

The fact that HRDD and other risk-based due diligence is both pro-active and re-active is a core defining element of this type of due diligence. Unlike conventional legal or financial liability-oriented due diligence, risk-based due diligence does not cease when the decision is made to initiative a particular action. On the contrary, as indicated by GP 17(c), the process has to be ‘on-going’, recognizing and taking into account the dynamic character of human rights issues, including the fact that they may change over time, and that perceptions of impact may also change, for example as awareness of the impact increases. OECD’s Guidelines recognize this too, and guidance issued under OECD’s Guidelines expressly notes that risk-based due diligence:

is an on-going, proactive and reactive, and process-oriented activity; it is to be carried out throughout the entire life-cycle of operations, products and services because circumstances change and so will adverse impacts. This means that due diligence should not be limited to an initial investigation of a potential business relationship or transaction, but should also be applied proactively through establishment of systematic measures to identify RBC risk and prevent or mitigate potential adverse impacts, as well as through on-going monitoring of business relationships and related operations.[43]

Law students as well as management students should keep in mind that, as explained by the commentary to GP 17, HRDD can help a business address the risk of legal claims against them by showing that they took every reasonable step to avoid involvement with an alleged human rights abuse. However, conducting HRDD does not mean that the company will automatically and fully avoid liability for causing or contributing to human rights abuses.

The OECD’s and FAO’s guidance for responsible agricultural supply chains observes that enhanced due diligence is warranted in situations deemed to raise ‘red flags’, in regard to operations, products or partners. Amongst others, agricultural operations in locations affected by conflicts or considered as weak governance zones, where national or local governments do not observe relevant national or international standards, where tenure rights are weakly defined or contested or where communities face food insecurity or water shortages require enhanced due diligence. The same applies when the production of the product is known to have adverse environmental, social or human rights impacts in certain contexts or where the agri-food product does not conform to health and food safety standards; and where business partners are known to have sourced agricultural products from a red flag location during the most recent year; or are known to not observe standards of responsible business conduct or have shareholders or other interests in enterprises that do not observe responsible business conduct.[44]

Guiding Principle 18[45]: Identifying Human Rights Risks, Meaningful Stakeholder Consultation

The commentary explains that the initial step in conducting human rights due diligence is to identify and assess the nature of the actual and potential adverse human rights impacts with which a business enterprise may be involved. The purpose is to understand the specific impacts on specific people, given a specific context of operations. Typically, this includes assessing the human rights context prior to a proposed business activity, where possible; identifying who may be affected; cataloguing the relevant human rights standards and issues; and projecting how the proposed activity and associated business relationships could have adverse human rights impacts on those identified.

The commentary emphasizes that in the HRDD process companies should pay special attention to any particular human rights impacts on individuals from groups or populations that may be at heightened risk of vulnerability or marginalization (such as, but not limited to, indigenous groups). They should also be mindful of the different risks that may be faced by women and men.

In line with the UNGP’s reference to the International Bill of Rights and ILO core labour rights as the minimum baseline for corporations’ respect for human rights, the commentary explains that HRDD processes should include all internationally recognized human rights as a reference point, since enterprises may potentially impact virtually any of these rights.

Due to the fact that situations that may cause business-related human rights to arise often have a dynamic character, it is of paramount importance that the HRDD process is also dynamic. HRDD is not a static process that is finished once it has been carried out once, or when a human rights impact assessment has been completed. On the contrary, as the commentary to UNGP 18 explains, assessments of human rights impacts should be undertaken at regular intervals: prior to a new activity or relationship; prior to major decisions or changes in the operation (e.g. market entry, product launch, policy change, or wider changes to the business); in response to or anticipation of changes in the operating environment (e.g. rising social tensions); and periodically throughout the life of an activity or relationship.

Information gained through the steps prescribed in GP 18 form the foundation for further steps in the HRDD process. The initial steps help the manager understand whether harm can be prevented, or whether it must be mitigated or remedied. This requires actions that are set out in UN GPs 19, 20 and 21 as well as 22.

GP 18 encourages companies to consult with experts who may help them identify human rights issues as well as with stakeholders, in particular affected stakeholders (actual or potential victims). Experts may help the company understand human rights issues in their appropriate context, for example taking account of cultural specificities and past historical conflicts that affect the perception of current human rights impacts. Actual or potential affected stakeholders may perceive impacts differently than the company. Companies should take into account that these stakeholders are experts on their own situations. Without such insights, the company may not be able to adequately understand its impacts in context. Moreover, indigenous people have particular rights to consultation due to the principle of free, prior and informed consent.[46]

HRDD should also be designed in a manner that takes adequate account of linguistic and other circumstances affecting the communication with actual or potential victims. The commentary explains that to enable business enterprises to assess their human rights impacts accurately, they should seek to understand the concerns of potentially affected stakeholders by consulting them directly in a manner that takes into account language and other potential barriers to effective engagement. In situations where such consultation is not possible, business enterprises should consider reasonable alternatives such as consulting credible, independent expert resources, including human rights defenders and others from civil society.

OECD’s Guidelines expand on the guidance offered by the UN Framework and UNGPs in regard to stakeholder engagement. The Guidelines note that enterprises should:

Engage with relevant stakeholders in order to provide meaningful opportunities for their views to be taken into account in relation to planning and decision making for projects or other activities that may significantly impact local communities.[47]

The OECD Guidelines elaborate:

Stakeholder engagement involves interactive processes of engagement with relevant stakeholders, through, for example, meetings, hearings or consultation proceedings. Effective stakeholder engagement is characterised by two-way communication and depends on the good faith of the participants on both sides. This engagement can be particularly helpful in the planning and decision-making concerning projects or other activities involving, for example, the intensive use of land or water, which could significantly affect local communities.[48]

The OECD’s Due Diligence Guidance for Meaningful Stakeholder Consultation in the Extractive Sector explains that meaningful stakeholder engagement refers to ongoing engagement with stakeholders that is two-way, conducted in good faith, and responsive. Two-way engagement means, inter alia, that parties express opinions, share perspectives and listen to alternative viewpoints to reach mutual understanding, and that steps are taken towards a joint decision-making process. Good faith engagement depends on the participants on both sides of engagement. It means that the parties engage with the genuine intention to understand how stakeholder interests are affected by enterprise activities. Responsive engagement requires a follow-through on outcomes of stakeholder engagement activities through implementation of commitments that the parties have agreed to. As part of this, it must be ensured that adverse impacts to stakeholders are appropriately addressed. This includes the provision of remedies when enterprises have caused or contributed to the impact, and that stakeholder views are taken into account in project decisions.[49]

The Guidance further explains why meaningful stakeholder engagement is an important means of implementing due diligence. It is an effective activity for identifying and avoiding potential adverse impacts, appropriately mitigating and remedying impacts when they do occur, and ensuring that potential positive impact are optimized for all stakeholders. If stakeholder engagement is not properly carried out, its due diligence function may not be realized, and adverse impacts may not be avoided or addressed. Moreover, poor stakeholder engagement can give rise to actual or perceived adverse impact.[50] The launch of the process as such, or inviting stakeholder to share their views and perceptions of needs to be addressed, raises expectations that stakeholders views will be taken seriously and acted upon. If the stakeholder engagement process is not thorough, impacts may be overlooked.

The Guidance also makes it clear that even within one sector, there is no one-size-fits-all. For example, differences between mining as compared to oil and gas extraction in regard to methods for extraction, processing and transport; the location of resources; licensing and relations to governments; project life-spans and organization may all affect the stakeholder engagement and due diligence required for a particular project. [51] The diversity of tasks carried out in the context of planning an activity, executing it, closing down a project, and following up for example to fill a mine, may all require different steps to be taken for meaningful stakeholder engagement. The diversity of roles of staff may also affect the specific stakeholder engagement for it to be meaningful to the stakeholders. [52] It stresses that asking the right questions is crucial for stakeholder engagement to be meaningful and generate the type of information needed for the due diligence process. The process requires both cultural sensitivity and awareness of the relevant national and international legal frameworks, including if relevant or expected by indigenous peoples a process conforming to free, prior and informed consent (FPIC).[53]

Business enterprises engaged in business relationships that include an element of direct linkage should ensure that they engage in meaningful engagement with their stakeholders. In recent years attention has been drawn to the responsibilities of the financial sector in this regard. OECD’s due diligence guidance for institutional investors observes that

Direct stakeholders of institutional investors will include their beneficiaries. These entities should be involved to the extent possible in shaping due diligence approaches and RBC policy. Additionally, stakeholders may include those most impacted by the behaviour of investee companies, although the extent of an investor’s engagement with these stakeholders will depend on how due diligence is prioritised. Where appropriate, and where there are significant risk of severe adverse impacts, investors may engage with these stakeholders to help shape their response to the risk.[54]

Guiding Principle 19:[55] Cause, Contribution, Linkage, Leverage and Business Relationships

GP 19 relates to two different ways in which the company may be involved in human rights abuse: it may cause or contribute to the impact, or it may be involved only due to impact being directly linked to its operations, products or services by a business relationship.

Where a business enterprise causes or may cause an adverse human rights impact, it should take the necessary steps to cease or prevent the impact. Where a business enterprise contributes or may contribute to an adverse human rights impact, it should take the necessary steps to cease or prevent its contribution and use its leverage to mitigate any remaining impact to the greatest extent possible. Leverage is considered to exist where the enterprise has the ability to effect change in the wrongful practices of an entity that causes a harm.

Where a business enterprise has not contributed to an adverse human rights impact, but that impact is nevertheless directly linked to its operations, products or services by its business relationship with another entity, the commentary recognizes that the situation is more complex. Among the factors that will enter into the determination of the appropriate action in such situations are the enterprise’s leverage over the entity concerned, how crucial the relationship is to the enterprise, the severity of the abuse, and whether terminating the relationship with the entity itself would have adverse human rights consequences.

The OECD Guidelines have also adopted the ‘directly linked’ concept. In view of the Guidelines’ broad usage and coverage even beyond human rights, this further underscores the significance of the distinction between cause/contribute and direct linkage. However, these distinctions and particularly the understanding of ‘directly linked’ and types of business relationships that cause such linkage have given rise to clarifications.

If it is not clear whether a company contributed to an adverse impact, or is directly linked to such an impact, the company should carefully consider the various factors that in the specific case leans against one or the other category. Professor Ruggie has observed that such factors include the extent to which a business enabled, encouraged or motivated human rights harm by another; the extent to which it could or should have known about such harm; and the quality of any mitigating steps it has taken to address it. [56] The assessment must take into account that a company’s involvement can change over time.[57]

UNGP 13,[58] which is one of the foundational principles under Pillar Two, clearly distinguishes between situations in which the company causes or contributes to adverse impacts, or is directly linked through activities or products of a business relationship. The commentary explains that a business enterprise’s “activities” are understood to include both actions and omissions; and its “business relationships” are understood to include relationships with business partners, entities in its value chain, and any other non-State or State entity directly linked to its business operations, products or services. The interpretive guide on the corporate responsibility to respect explains that the focus is not on the risks the related party poses to human rights in general, but on the risks that it may harm human rights in connection with the enterprise’s own operations, products or services.[59]

Business partners are typically organizations with which the company has a contractual relationship, whereas the company may be directly linked with state security forces or investors.[60]

With regard to the type of ‘business relationships’ covered, Professor Ruggie has elaborated that placing the word ‘directly’ before ‘linked’ was intended to stress that the abuse must be linked to the company’s operations, products or services, and not merely to the fact of the relationship itself.[61] That was done to avoid overly broad interpretations of what business relationships would be covered within the meaning of the term. On the other hand, the connection should also not be understood to be so close as to omit situations where a business relationship exists, for example, between a bank and its client.

The OECD’s Guidelines have also adopted the UNGP’s definition of leverage.[62] As is the case for due diligence, the Guidelines treat leverage as part of the General Principles that apply across topical issue areas.

Leverage is considered to exist where the enterprise has the ability to effect change in the wrongful practices of an entity that causes a harm. If the company has not contributed to the adverse impact but the impact is directly linked to its operations, products or services by its business relationship with another entity, the extent of its leverage over the entity concerned is among the factors to be considered for determining what constitutes appropriate action. If it lacks leverage there may be ways for the enterprise to increase it, for example, offering capacity-building or other incentives to the related entity, or collaborating with other actors. If the enterprise lacks the leverage to prevent or mitigate adverse impacts and is unable to increase its leverage, it should consider ending the relationship. In making that decision it should take into account credible assessments of potential adverse human rights impacts of doing so.

Particular challenges in regard to ending a business relationship may arise when the business relationship is considered “crucial” to the enterprise. The commentary explains that a relationship could be deemed as crucial if it provides a product or service that is essential to the enterprise’s business, and for which no reasonable alternative source exists. Here the severity of the adverse human rights impact must also be considered: the more severe the abuse, the more quickly the enterprise will need to see change before it takes a decision on whether it should end the relationship. In any case, for as long as the abuse continues and the enterprise remains in the relationship, it should be able to demonstrate its own ongoing efforts to mitigate the impact and be prepared to accept any consequences – reputational, financial or legal – of the continuing connection.

Linkage will often occur in regard to institutional investors. Based on NCP jurisprudence, supported by the UN’s Office of the High Commissioner for Human Rights, the OECD Guidelines apply to minority investors as well as those that are major shareholders.[63] The Guidance notes that:

investors, even those with minority shareholdings, may be directly linked to adverse impacts caused or contributed to by investee companies as a result of their ownership in, or management of, shares in the company causing or contributing to certain social or environmental impacts. In other words, the existence of RBC risks (potential impacts) or actual RBC impacts in an investor’s own portfolio means, in the vast majority of cases there is a “direct linkage” to its operations, products or services through this “business relationship” with the investee company. [64]

Further, the OECD institutional investor guidance notes that “investors are expected to consider RBC risks throughout their investment process and to use their so-called ‘leverage’ with companies they invest in to influence those investee companies to prevent or mitigate adverse impacts”.[65] This forms part of the exercise of due diligence in order to identify and manage adverse impacts. The Guidance notes:

The approaches investors can employ to use their leverage to influence companies they invest in are broad in scope. These are not limited to direct engagement with investee companies but could also involve, as appropriate, directing capital towards responsible investee companies over time, involvement in industry initiatives targeting certain RBC risks, collective action on specific geographic or company-specific issues, etc. What is appropriate will vary according to the characteristics of an investor, the investment strategy (e.g. active vs. passive investments) and relevant regulatory obligations.[66]

For institutional investors, this means that they should use their leverage, as appropriate, to influence investee companies causing an adverse impact to prevent or mitigate that impact.[67]

Guiding Principle 20:[68] Tracking Effectiveness

Management students will often recognize the steps that must be taken in order to verify whether adverse human rights impacts are being addressed set out in GP 20.

The Commentary explains that tracking is necessary in order for a business enterprise to know if its human rights policies are being implemented optimally, whether it has responded effectively to the identified human rights impacts, and to drive continuous improvement. Tracking should be integrated into relevant internal reporting processes applied by the enterprise, and can involve ‘tools’ that the enterprise already applied for tracking other issues.

For human rights law students may it may be particularly obvious that business enterprises should make particular efforts to track the effectiveness of their responses to impacts on individuals from groups or populations that may be at heightened risk of vulnerability or marginalization. The need for special attention to be paid to such groups is also stated in the commentary.

Guiding Principle 21:[69] Reporting

The HRDD process not only involves steps to identify, prevent and mitigate harm. As importantly, the enterprise needs to account for the HRDD process and steps taken. The reporting requirement set out in GP 21 provides feed-back to stakeholders, including affected stakeholders (victims) and offers a form of accountability through transparency.

The Commentary emphasizes the relationship between ‘knowing’ and ‘showing’. It explains that the responsibility to respect human rights requires that business enterprises have in place policies and processes through which they can both know and show that they respect human rights in practice. (The previous steps in the HRDD process, outlined in UNGPs 18-20, aim at enabling the enterprise to know about its potential or actual human rights impacts.) Showing involves communication, providing a measure of transparency and accountability to individuals or groups who may be impacted and to other relevant stakeholders, including investors.

Importantly, communication can and should take place both during the process to identify potential adverse impacts, and after it, in order to provide stakeholders with feedback and explain about the steps taken to address the knowledge gained. Students should take note of the fact that communication is not only an issue of reporting after the process.

Accordingly, the Commentary makes it clear that communication can take a variety of forms: for example, the enterprise may engage in in-person meetings, online dialogues, consultation with affected stakeholders, and formal public reports. The latter typically takes place after other steps have been taken; whereas the former forms of communication can help a HRDD process identify human rights harm as part of the process towards ‘knowing’.

The Commentary also explains that formal reporting by enterprises is expected where risks of severe human rights impacts exist, whether this is due to the nature of the business operations or operating contexts.

Guiding Principle 22:[70] Remediation

Last but most definitely not least, the company needs to remedy adverse impacts caused. GP 22 relates to remediation as part of the HRDD process. The commentary explains that even with the best policies and practices, a business enterprise may cause or contribute to an adverse human rights impact that it has not foreseen or been able to prevent.

To understand the importance of remedy as part of due diligence, instructors and students may find it helpful to consider how the OECD’s guidance for institutional investors takes a quite matter-of-fact approach to explaining remedy:

While the focus of the due diligence process is on avoiding adverse impacts, enterprises also need systems and approaches that can provide for, or cooperate in, providing remedies, such as, where relevant – fixing the problem, making sure it does not re-occur and providing compensation or rehabilitation for those people or the environment who have suffered harm.[71]

The Commentary notes that where adverse impacts have occurred that the business enterprise has not caused or contributed to, but which are directly linked to its operations, products or services by a business relationship, the responsibility to respect human rights does not require that the enterprise itself provide for remediation, though it may take a role in doing so.[72] OECD’s guidance for institutional investors explains:

Remediation is an expectation in situations where an enterprise causes or contributes to adverse impacts. In some instances investors may be contributing to impacts caused by their investee companies and may be responsible for remediation. These situations could arise where investors wield significant managerial control over a company, for example, in certain General Partnerships. However, in the context of adverse impacts arising from investee companies, investors will in most instances not cause or contribute to, but only be directly linked to the adverse impact. As a result investors would not be expected to provide remedy, but they should seek to encourage the investee company to do so as a component of their responsibility to seek to prevent and mitigate, based on prioritization.[73] 

OECD NCP jurisprudence on HRDD

While OECD’s Guidelines express an expectation of firms to exercise due diligence, the enforcement structure of the Guidelines means that the exercise and effectiveness of human rights due diligence may be monitored and assessed through National Contact Points (NCPs). (For more information on NCPs, see OECD National Contact Point Complaints.) State-based non-judicial remedy institutions established in countries that adhere to the Guidelines, NCPs have extraterritorial powers in that an alleged violation occurring in a country without an NCP may be examined by the NCP of the company’s home State. NCPs issue statements as the end of the handling of a case (a specific instance) and may issue recommendations in this context. An emerging unified jurisprudence among the (currently) 48 NCPs[74] helps clarify the operational implications for companies of the corporate responsibility to undertake human rights due diligence[75]:

  • RAID vs DAS Air[76]

In this case, the UK NCP issues a statement applying the HRDD concept soon after its introduction in the UN Framework, but before it was integrated into the OECD Guidelines. This is seen as an early confirmation of the relevance of due diligence to responsible business conduct.

DAS Air was cargo airline operating out of several places including Entebbe and Lagos. The NGO Rights and Accountability in Development (RAID) complained to the UK NCP that DAS Air was involved in transporting coltan from the eastern Democratic Republic of Congo (DRC), a conflict zone, and through this was benefiting a local rebel group involved in human rights violations in the area. DAS Air argued that they acted as freighters on a contractual basis and were not aware of a DRC origin of coltan transported. The UK NCP’s final statement referred to reports (including UN Security Council reports) on the basis of which DAS Air should be aware of the risk of coltan deriving from DRC. The NCP statement noted that in not checking the source of origin of the mineral transported, DAS Air undertook insufficient risk-based due diligence of its supply chain.

  • Statkraft AS and the Sami reindeer herding collective in Jijnjevaerie Saami Village[77]

In this case, which was handled by the Swedish NCP in collaboration with the NCP of Norway, a group of reindeer herders from a Saami village had complained about the consultation process undertaken by the company Statkraft in regard to its plans to construct a windmill farm. The villagers complained that although some consultation on windmill farm had taken place, “meaningful engagement” had not taken place. The main question for NCPs was whether Statkraft has taken account of the Saami village’s interests and respected their human rights in connection with the wind power project, including carrying out risk-based human rights diligence and consulting with the Saami village. Eventually, the case was solved through negotiations between the village and the company. The NCPs issued a recommendations as to how the company can work in a manner that even more clearly promotes indigenous people’s rights and promote the OECD Guidelines.

  • PWT Group and the NGOs Clean Clothes Campaign Denmark and Active Consumers[78]

This case was handled by the NCP of Denmark. The complaint alleged that PWT Group had not observed the OECD Guidelines for Multinational Enterprises due to a failure to carry out due diligence in relation to its supplier, the textile manufacturer New Wave Style Ltd. which was located in the Rana Plaza, Bangladesh, before the collapse of the factory on 24 April 2013 which killed 1,138 people and injured more than 2,000. PWT Group had stated that the company conducts inspections of the working conditions at the factories that manufacture goods for the company, and that an inspection was conducted at New Wave Style in 2012. The NCP found that PWT Group had not applied processes for due diligence in compliance with the OECD Guidelines. In particular, PWT Group had failed to make demands that New Wave Style ensure employees’ basic human and labour rights. It had failed to take adequate steps to ensure occupational health and safety in their operations, partly because it had monitored compliance with its own CSR policies and check-lists and not followed up, nor ensured the adequacy of the policies to the relevant risks. Moreover, the NCP found that simply following the practice of other (larger) companies in a sector does not fulfill the requirements for risk-based due diligence.

HRDD in the Academic Literature

Despite its potential to increase firms’ respect for human rights, HRDD has been slow to take on as an issue in the academic literature. (See Teaching Resources) Some authors critique the due diligence concept introduced by the UN Framework and elaborated with the UNGP for a flawed inner logic that confuses two meanings of due diligence: a standard of conduct (to discharge an obligation), and a process (to manage risks to businesses).[79] Others argue that the UNGP’s mix risk to society and risk to the firm in ways that can be hard to align for managers.[80] Yet that connection may also be precisely why the concept appealed to business interests in a way that decreased lobbying against the UN Framework[81] such as that which contributed to the demise of the Draft UN Norms.[82] Indeed, some scholars have welcomed the terminological link between HRDD and well-known business practices deployed as financial risk management as an ingenious way to generate support among business organizations.[83] From the philosophically informed business ethics perspective it has been claimed that there is a tension between the philosophical approach to human rights observance as a ‘perfect moral duty’ and flexibility inherent in the HRDD process prescribed by the UNGP.[84] However, while dilemmas are recognised for practical business application,[85] the literature generally welcomes the HRDD approach as a technique for firms to identify and limit adverse impact on human rights. Legal analyses recognize HRDD as useful for making firms assess and take account of potential harmful impacts in time to prevent or mitigate those[86] despite a tension between the public and private approaches to due diligence as an obligation and a risk management tool respectively.[87] Normally concerned with the private side of business conduct, business ethics scholars have also found that governmental regulation plays an important role for firms’ application of HRDD.[88] Law-informed analyses of private or public due diligence initiatives for businesses indicate the emergence of a culture of HRDD in the responsible sourcing of ‘conflict-free’ minerals, acting as a precursor to the hardening of the soft or ‘social expectations’ element of UNGP Pillar Two.[89]

Teaching Approaches

HRDD is a sufficiently robust and comprehensive topic that it can be taught over several sessions in a business and human rights course, or maybe even constitute an entire, dedicated course.

Instructors teaching HRDD may cover:

  • The normative foundations (the UNGPs, and other transnational business governance instruments that apply the risk-based due diligence approach, in particular OECD’s Guidelines for Multinational Enterprises and related guidance instruments)
  • The objectives of HRDD and how it differs from conventional legal or financial due diligence
  • Prevention
  • Mitigation
  • Stakeholder engagement
    • Activities undertaken in order to identify, prevent and/or mitigate adverse human rights impacts, including meaningful engagement with actual or potentially affected stakeholders (victims)
    • Activities undertaken in order to communicate and account for the human rights due diligence process, findings and steps taken to integrate and act on those findings
    • Activities undertaken to further account for and, if relevant, mitigate and remedy impacts
  • The distinction between cause, contribute, and being directly linked to adverse impacts; and between expected responses
  • Types of business relationships that qualify for direct linkage
  • Leverage
  • Integrating and acting upon findings
  • Accounting for the due diligence process (including but not limited to reporting)
  • Remediation

Instructors may wish to include:

  • Economic consequences to business enterprises resulting from inadequate human rights due diligence, including through use of media reports, data on stock price developments, testimonies/presentations by business representatives.
  • Theoretical aspects that challenge the UNGP’s human rights due diligence approach in order to stimulate debate.
  • Cases that offer challenges that involve situations in which a company may cause adverse impacts to society.
  • Cases that offer challenges that involve situations in which a company may contribute to adverse impacts to society.
  • Cases that offer challenges that involve situations in which a company may be directly linked to adverse impacts to society through directly linked to its operations, products or services by its business relationships
    • Such cases can be based on NCP statements, NGO or media reports, or teaching cases developed for such a purpose. Often, teaching cases that have been developed for other purposes but which involve a human rights dilemma or a situation in which a company causes or contributes to adverse human rights impact may also offer very interesting materials for students to apply their due diligence insights and identify the adequacy of steps taken and develop recommendations for additional steps that should have been taken. They can also involve presentations from business managers involved, or testimonies from affected stakeholders or organizations (NGOs) that represent such stakeholders.

Teaching HRDD needs to take account of the fact that students will often approach the issue differently depending on their academic discipline, and that once they graduate and become practitioners they will need to be able to discuss and communicate issues related to risk-based due diligence across disciplines. For example, law students and lawyers may as a point of departure pay particular attention to the legally binding elements in due diligence and dismiss non-binding aspects as irrelevant, whereas students of business ethics may prefer to discuss the moral aspects of what a company can or should do, and management students will focus on the organizational aspects within a company or its value chain and expect that teaching engages with academic theories rather than specific normative standards. Students of accounting may be concerned with materiality issues, whereas those concerned with financial analysis may be interested with the impact on shares that result from reputational risks resulting from a company’s or a financial institution’s inadequate risk-based due diligence. From the practical perspective that graduates meet in corporate practice, HRDD may involve aspects of all of the above, and therefore presumes a broad understanding that allows students and managers to benefit from their own specialization while also appreciating the insights (and, sometimes, constraints) that may result from other perspectives. Moreover, HRDD is not only of relevance to companies, but also to states, in particular in regard to efforts that they may undertake as part of their State Duty to Protect in order to promote HRDD in business practice.

Teaching HRDD offers the instructor interesting as well as challenging opportunities for engaging students in analyses and discussions that help them identify human rights impact to society, appreciate the business managers’ operational perspective, and identify steps that take a pro-active approach in order to identify, prevent and/or mitigate to business related human rights abuse and account for the action taken. To law students and instructors at law schools, the pro-active (or ‘ex-ante’) approach to prevent harm can be a welcome change to the re-active (or ‘ex-post’) approach focusing on sanctions that characterizes much legal theory and practice. To business students, the operational approach of identifying managerial or other business-related actions that may cause human rights abuse can be an interesting opportunity to reflect on the societal impact of business practices. Similarly, it can be an interesting challenge for students to connect this to the normative aspects of human rights, as opposed to the debates and application of academic articles and theories that are typical for much management education.

Instructors may wish to contrast the argument on the potential confusion between risk-based due diligence and social risk management with the explanations provided by Ruggie and Sherman (see Teaching Resources) in regard to HRDD. Moreover, instructors may also take a cue from the argument that the two types of risk may cause confusion in a company, in order to remind students of the absolute differences between, on the one hand, the focus of risk-based due diligence (to identify and avoid risk to society) and, on the other, conventional due diligence (to identify risk to the company). When teaching due diligence in regard to social issues, instructors may wish to apply the term risk-based due diligence to avoid confusion with the understanding of social risk-management outlined the article/teaching note. The point of avoiding terminological confusion can serve to stimulate student’s reflections on the importance of precise communication when they discuss corporate practices and their impacts on society with colleagues, and when they explain the objectives and practices of risk-based due diligence to suppliers or internal managers. Finally, the dual use of the term due diligence can be discussed in the light of the discursive construction of HRDD as introduced in the UN Framework.

One of the challenges in teaching risk-based due diligence is that the term was introduced by text of a policy or soft law character (the UN Framework, the UNGPs) and that major legal instruments of transnational or global application are also of a soft law (e.g., OECD’s Guidelines) or guiding character (e.g., ISO 26000). To law-students as well as management students who are often trained to consider law to be of value only if legally enforceable, the significance of soft law for business conduct typically requires careful explanation that emphasizes the importance for businesses of non-binding international law standards and transnational business governance instruments. These may take on hard law character if explicitly made part of legally binding contractual obligations or similar, but in practice, social expectations play a major role for the significance to business enterprises and their due diligence that international soft law and transnational business governance instruments carry. This can be explained with reference to what the UN Framework refers to as the ‘courts of public opinion’ (“comprising employees, communities, consumers, civil society, as well as investors”) and the “social license to operate.”[90] Moreover, as the OECD notes in a guidance paper for institutional investors in regard to responsible business conduct and due diligence, “although observance of the Guidelines by enterprises is voluntary and not legally enforceable, this does not reduce the expectations that the Guidelines should be observed.”

Both the UN Framework and the UNGPs were required by UN rules to be at the most 30 pages, causing the documents to set out main points but not being able to go into much detail. As a result, for teaching at both business schools and law schools, it may be useful to refer to other texts that provide additional normative detail and guidance. OECD’s Guidelines for Multinational Enterprises and the OECD’s various guidance instruments on risk-based due diligence are of particular relevance as they are intended to be aligned with the UNGPs and not constrained by similar page limitations.

When teaching HRDD, instructors may choose to ask students to read the entire text of the commentaries related to the UNGPs that deal with HRDD.

Learning objectives for students may include:

  • Explaining what a human rights due diligence process entails.
  • Understanding how human rights due diligence differs from other due diligence approaches.
  • Explaining and applying key terms in regard to human rights due diligence, in particular mitigation, remedy, cause or contribute, direct linkage, business relationships, and leverage.
  • Critically assessing the strengths and weaknesses of human rights due diligence.
  • Describing the steps in a human rights due diligence process for a particular project with a defined value chain in a manner that can be applied by others without previous knowledge of what risk-based due diligence entails.
  • Assessing the adequacy of human rights due diligence in specific cases, and developing recommendations to address identified weaknesses.
Key Questions

General

  • How do the UN Guiding Principles define human rights due diligence?
  • How does human rights due diligence differ from other due diligence approaches?
  • What are the main interests to be protected by human rights due diligence? If these interests can be ranked, how would the student rank them, and why?
  • What are the main steps in a due diligence process?

For law students

  • How does risk-based due diligence differ from the due diligence processes typically undertaken by corporate lawyers in a merger or acquisition?
  • How can a pro-active approach to identifying and preventing harm be understood and explained from the perspective of regulatory theory?
  • Who are the main actors in a human rights due diligence process? Why?
  • What are the main sources of norms for human rights due diligence? How do these compare with conventional sources of law? How would you argue the relevance of these sources to a corporate lawyer with no previous knowledge of the BHR regime and its sources of norms?
  • How would you explain a human rights due diligence process to a colleague with a management background and no previous knowledge of risk-based due diligence?
  • How would you explain a risk-based due diligence process to a colleague with a political science background and no previous knowledge of risk-based due diligence? 

For business students

  • How can a pro-active approach to identifying and preventing harm be understood and explained in terms of theory?
  • Who are the main actors in a risk-based due diligence process? Why?
  • How can stakeholder theory be applied to risk-based due diligence? What can be the value of including a stakeholder approach in a risk-based due diligence process? What stakeholder theories or approaches would the student find of particular value for designing and undertaking a risk-based due diligence process?
  • What are the main sources of norms for human rights due diligence?
  • How would you explain a risk-based due diligence process to a colleague with a management background and no previous knowledge of risk-based due diligence?
  • How would you explain a human rights due diligence process to a colleague with a legal background and no previous knowledge of risk-based due diligence?
  • How would you explain a risk-based due diligence process to a colleague with a political science background and no previous knowledge of risk-based due diligence?
  • Evaluate the presumption in GP 22 and its commentary that even with the best policies and practices, a business enterprise may cause or contribute to an adverse human rights impact that it has not foreseen or been able to prevent. Is this presumption acceptable as pragmatic recognition of a fact of life; or does in run counter to the very ideal of the UNGPs that businesses should do no harm? How can one balance such pragmatism and idealism?
  • What could a due diligence management plan look like for a particular company in regard to its own processes (taking its sector into account) and its supply chain? Consider looking at proposals for risk management plans set out in OECD guidance.
  • Do you agree with Fasterling and Demuijnck[91] who criticize the HRDD’s recognition of the ability of businesses to cause harm despite HRDD as being inconsistent with an overall philosophical ideal of human rights as perfect moral obligations? Is this view useful for explaining the relevance of HRDD to business managers? Would it make a difference whether the manager has limited human rights knowledge, or has extensive insights into human rights standards contained in the International Bill of Rights and ILO’s core labour standards? What arguments do you think would be the most useful to convince managers to engage in HRDD?

For policy students

  • How can the benefits of HRDD be perceived and explained from the perspective of governments, business, and civil society?
  • What is the relationship between the state duty to protect and the corporate responsibility to respect in regard to HRDD?
  • Who are the main actors in a risk-based due diligence process? Why?
  • What are the main sources of norms for human rights due diligence?
  • How would you explain a risk-based due diligence process to a colleague with a political science background and no previous knowledge of risk-based due diligence?
  • How would you explain a human rights due diligence process to a colleague with a legal background and no previous knowledge of risk-based due diligence?
  • How would you explain a human rights due diligence process to a colleague with a management background and no previous knowledge of risk-based due diligence?
  • How would you explain why the OECD, and intergovernmental organization distinct from the UN, has adapted the UNGPs’ due diligence approach and decided to expand its application beyond human rights to most issues covered by OECD’s Guidelines for Multinational Enterprises?
  • What governance theories can help explain how regulators can advance risk-based due diligence with business enterprises?
Teaching Resources
Notes 

[*] This Teaching Note may be cited as:

Karin Buhmann, “Teaching Note: Human Rights Due Diligence,” in Teaching Business and Human Rights Handbook (Teaching Business and Human Rights Forum, 2018),  https://teachbhr.org/resources/teaching-bhr-handbook/teaching-notes/human-rights-due-diligence/.

Acknowledgements: The author wishes to thank Anthony Ewing and Professor John Ruggie for their insightful comments to this Teaching Note.

[1] “Protect, Respect and Remedy: A Framework for Business and Human Rights,” Report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises,” UN doc. A/HRC/8/5 (7 April 2008), available at http://www.business-humanrights.org/SpecialRepPortal/Home/Protect-Respect-Remedy-Framework (“UN Framework”).

[2] “Guiding Principles on Business and Human Rights: Implementing the United Nations ‘Protect, Respect and Remedy’ Framework,” Report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises,” UN doc. A/HRC/17/31 (21 March 2011), available at http://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf (“UN Guiding Principles”).

[3] Organisation of Economic Cooperation and Development, OECD Guidelines for Multinational Enterprises, rev. May 2011, (Paris: Organisation of Economic Cooperation and Development, 25 May 2011) (“OECD Guidelines”).

[4] See also UN Human Rights Council, ‘Clarifying the concepts of “Sphere of Influence” and “Complicity”’, A/HRC/8/16 (15 May 2008) (authored as a companion report to the UN Framework report); and Fasterling, note [34] infra.

[5] UN Office of the High Commissioner for Human Rights, The Corporate Responsibility to Respect Human Rights: An Interpretive Guide, UN Doc. HR/PUB/12/02 (2012) (available at http://www.ohchr.org/Documents/Publications/HR.PUB.12.2_En.pdf), 36 (“Interpretive Guide”).

[6] For example, statement of the Netherlands NCP in the specific instance lodged by Friends of the Earth Europe and Milieudefensie against. Rabobank; statement of the Brazilian NCP in specific instance lodged by local resident’s association of Paracatu against Kinross gold.

[7] Larry Catá Backer, “Rights and Accountability in Development (Raid) v. Das Air and Global Witness v. Afrimex – Small Steps towards an Autonomous Transnational Legal System for the Regulation of Multinational Corporations,” 10(1)Melbourne Journal of International Law, 258-307 (2009); Karin Buhmann,, “Human Rights Due Diligence: On guidance from National Contact Point practice under OECD’s Guidelines on Multinational Enterprises and challenges in eliciting such guidance,” in , 27 International Review of Compliance and Business Ethics / Revue Internationale de Compliance et de l’Ethique des Affaires, 17-19 (2015).

[8] UN Framework, see especially paras. 51, 56-64 and 65-72. The reasoning is elaborated in one of the extensive addenda reports. Human Rights Council (2008) Clarifying the concepts of “Sphere of Influence” and “Complicity”, UN Doc. A/HRC/8/16, 15 May 2008.

[9] For example, OHCHR,Report of the United Nations High Commissioner on Human Rights on the responsibilities of transnational corporations and related business enterprises with regard to human rights,” UN Doc. E/CN.4/2005/91 (15 February 2005); International Commission of Jurists, “Corporate Accountability, International human rights law and the United Nations” (Geneva, 9 June 2005).

[10] UN Sub-Commission on the Promotion and Protection of Human Rights, “Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with regard to Human Rights,” UN Doc. E/CN.4/Sub.2/2003/12/Rev.2 (2003); see also UN Commission on Human Rights, “Decision 2004/116,” UN Doc. E/CN.4/2004/L.73/Rev.1 (16 April 2004) (dismissing Draft Norms).

[11] UN Framework, para. 67.

[12] Karin Buhmann, “Business and Human Rights: Analysing Discursive Articulation of Stakeholder Interests to Explain the Consensus-based Construction of the ‘Protect, Respect, Remedy UN Framework’,” International Law Research, 88-101 (Vol. 1, Issue 1: 2012); Karin Buhmann, “Navigating from “trainwreck” to being “welcomed”: Negotiation strategies and argumentative patterns in the development of the UN Framework” in Surya Deva and David Bilchitz (eds.) Human Rights Obligations of Business: Beyond the Corporate Responsibility to Respect? (Cambridge: Cambridge University Press, 2013), 29-57.

[13] See Karin Buhmann, Changing sustainability norms through communicative processes: the emergence of the Business & Human Rights regime as transnational law (Edward Elgar, 2017).

[14] Interpretive Guide, 6.

[15] See also, Interpretive Guide, 19.

[16] Interpretive Guide, 7.

[17] OECD, “Responsible business conduct for institutional investors: Key considerations for due diligence under the OECD Guidelines for Multinational Enterprises” (2017) (“OECD Due Diligence Considerations”).

[18] Ibid, 8.

[19] ISO, ISO 26000 – Social Responsibilityhttp://www.iso.org/iso/iso_catalogue/management_standards/social_responsibility.htm (last accessed 5 December 2017) (2010).

[20] France has adopted a law requiring certain companies to undertake risk-based due diligene (Loi relative au devoir de vigilance des sociétés mères et des entreprises donneuses d’ordre (‘Loi Vigilance’), https://www.senat.fr/dossier-legislatif/ppl14-376.htm). At the time of writing, a proposal for a law on child labour due diligence is in an advanced stage of being considered in for final adoptions in the Netherlands.

[21] UN Human Rights Council “ Clarifying the concepts of “Sphere of Influence” and “Complicity”,” UN Doc. A/HRC/8/16 (15 May 2008).

[22] Interpretive Guide.

[23] Guidance texts related to the OECD Guidelines are of particular interest in this regard, because they effectively elaborate on HRDD without the strict page limits that applied to the UNGPs and the UN Framework.

[24] UN Guiding Principles, Principle 4, Commentary.

[25] UN Guiding Principles, Principle 3(c).

[26] UN Guiding Principles, Principle 4. That message has been taken up by current French and Dutch initiatives for mandatory due diligence, and by guidance for several sectors developed by the OECD as well as the EU that apply the UNGP’s HRDD approach to social issues in general. E.g., OECD, “OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas,” 3rd rev. ed, (2016), available at http://mneguidelines.oecd.org/mining.htm; Institute for Business and Human Rights & Shift, Oil and Gas Sector Guide on Implementing the UN Guiding Principles on Business and Human Rights (2012), available at https://www.ihrb.org/pdf/eu-sector-guidance/EC-Guides/O&G/EC-Guide_O&G.pdf.

[27] UN Guiding Principles, General Principles (preambular paragraph).

[28] Interpretive Guide, 34.

[29] UN Guiding Principles, Principle 15: “In order to meet their responsibility to respect human rights, business enterprises should have in place policies and processes appropriate to their size and circumstances, including: (a) A policy commitment to meet their responsibility to respect human rights; (b) A human rights due-diligence process to identify, prevent, mitigate and account for how they address their impacts on human rights; (c) Processes to enable the remediation of any adverse human rights impacts they cause or to which they contribute.”

[30] See also, Interpretive Guide, 23.

[31] See also, Interpretive Guide, 32.

[32] In theory, however, a side-effect of a HRDD process may also be information that can serve to help the company identify potential positive impacts to which it may contribute. That point has not been developed much in the BHR literature yet, but for a discussion and proposed model, see Buhmann, K., with Jonas Jonsson and Mette Fisker (2016) From ‘do no harm’ to doing more good: Extending the UN Framework to connect Political CSR with Business Responsibilities for Human Rights. Centre for Business and Development Studies Working Paper series, Copenhagen Business School.

[33] UN Framework, para. 25.

[34] See John G Ruggie, “Making Globalization work for all: Achieving the SDGs through business respect for Human Rights,) available at http://www.shiftproject.org/resources/viewpoints/globalization-sustainable-development-goals-business-respect-human-rights/ (2016).

[35] Interpretive Guide, 33.

[36] OECD,OECD due diligence guidance for responsible supply chains of minerals from conflict-affected and high-risk areas,” 2d ed. (2013).

[37] OECD and the Food and Agriculture Organization of the United Nations (FAO) “OECD-FAO guidance for responsible agricultural supply chains (2016).

[38] UN Guiding Principles, Guiding Principle 17: “In order to identify, prevent, mitigate and account for how they address their adverse human rights impacts, business enterprises should carry out human rights due diligence. The process should include assessing actual and potential human rights impacts, integrating and acting upon the findings, tracking responses, and communicating how impacts are addressed. Human rights due diligence: (a) Should cover adverse human rights impacts that the business enterprise may cause or contribute to through its own activities, or which may be directly linked to its operations, products or services by its business relationships; (b) Will vary in complexity with the size of the business enterprise, the risk of severe human rights impacts, and the nature and context of its operations; (c) Should be ongoing, recognizing that the human rights risks may change over time as the business enterprise’s operations and operating context evolve.

[39] UN Guiding Principles, Guiding Principle 17, Commentary.

[40] UN Guiding Principles, Guiding Principle 17(b).

[41] See also OECD Guidelines, Chapter II, Commentary, para. 15.

[42] OECD Due Diligence Considerations. 18.

[43] OECD Due Diligence Considerations, 16.

[44] OECD and the FAO, “OECD-FAO guidance for responsible agricultural supply chains (2016), 35.

[45] UN Guiding Principles, Guiding Principle 18: ”To gauge human rights risks, business enterprises should identify and assess any actual or potential adverse human rights impacts with which they may be involved either through their own activities or as a result of their business relationships. This process should: (a) Draw on internal and/or independent external human rights expertise; (b) Involve meaningful consultation with potentially affected groups and other relevant stakeholders, as appropriate to the size of the business enterprise and the nature and context of the operation.”

[46] See ILO Convention 169.

[47] OECD Guidelines, Chapter 11, para. 14.

[48] OECD Guidelines, Chapter 11, Commentary, para. 25.

[49] OECD, “OECD Due Diligence guidance for meaningful stakeholder engagement in the extractive sector” (2017), 18 (“OECD Due Diligence Guidance”).

[50] Ibid.

[51] OECD Due Diligence Guidance, 20-22.

[52] OECD Due Diligence Guidance, 24-26.

[53] See details in OECD Due Diligence Guidance, 29-112.

[54] OECD Due Diligence Considerations, 19.

[55] UN Guiding Principles, Guiding Principle 19: “In order to prevent and mitigate adverse human rights impacts, business enterprises should integrate the findings from their impact assessments across relevant internal functions and processes, and take appropriate action. (a) Effective integration requires that: (i) Responsibility for addressing such impacts is assigned to the appropriate level and function within the business enterprise; (ii) Internal decision-making, budget allocations and oversight processes enable effective responses to such impacts. (b) Appropriate action will vary according to: (i) Whether the business enterprise causes or contributes to an adverse impact, or whether it is involved solely because the impact is directly linked to its operations, products or services by a business relationship; (ii) The extent of its leverage in addressing the adverse impact.”

[56] Letter from Professor John Ruggie to Prof. Dr. Roel Nieuwenkamp, 6 March 2017, concerning the concept of due diligence in regard to business relations and the meaning of ‘directly linked’.

[57] Ibid.

[58] UN Guiding Principles, Guiding Principle 13: “The responsibility to respect human rights requires that business enterprises: (a) Avoid causing or contributing to adverse human rights impacts through their own activities, and address such impacts when they occur; (b) Seek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or services by their business relationships, even if they have not contributed to those impacts.

[59] Interpretive Guide, 32.

[60] UN Guiding Principles, Guiding Principle 16, Commentary.

[61] Letter from Professor John Ruggie to Prof. Dr. Roel Nieuwenkamp, 6 March 2017, concerning the concept of due diligence in regard to business relations and the meaning of ‘directly linked’.

[62] See OECD’s Guidelines, Chapter II, Commentary on General Principles, para. 19.

[63] OECD Due Diligence Considerations, 13; see also OECD, “Scope and application of ‘Business Relationships’ in the financial sector under OECD’s Guidelines for Multinational Enterprises,” (2014); Global Forum on Responsible Business Conduct, available at https://mneguidelines.oecd.org/globalforumonresponsiblebusinessconduct/GFRBC-2014-financial-sector-document-2.pdf.

[64] OECD Due Diligence Considerations, 13.

[65] Ibid.

[66] OECD Due Diligence Considerations, 14.

[67] OECD Due Diligence Considerations, 17.

[68] UN Guiding Principles, Guiding Principle 20: ”In order to verify whether adverse human rights impacts are being addressed, business enterprises should track the effectiveness of their response. Tracking should: (a) Be based on appropriate qualitative and quantitative indicators; (b) Draw on feedback from both internal and external sources, including affected stakeholders.”

[69] UN Guiding Principles, Guiding Principle 21: ”In order to account for how they address their human rights impacts, business enterprises should be prepared to communicate this externally, particularly when concerns are raised by or on behalf of affected stakeholders. Business enterprises whose operations or operating contexts pose risks of severe human rights impacts should report formally on how they address them. In all instances, communications should: (a) Be of a form and frequency that reflect an enterprise’s human rights impacts and that are accessible to its intended audiences; (b) Provide information that is sufficient to evaluate the adequacy of an enterprise’s response to the particular human rights impact involved; (c) In turn not pose risks to affected stakeholders, personnel or to legitimate requirements of commercial confidentiality.”

[70] UN Guiding Principles, Guiding Principle 22: ”Where business enterprises identify that they have caused or contributed to adverse impacts, they should provide for or cooperate in their remediation through legitimate processes.”

[71] OECD Due Diligence Considerations, 20.

[72] See also John Gerard Ruggie and John F. Shermann III, “The concept of ‘Due Diligence’ in the UN Guiding Principles on Business and Human Rights: Reply to Professors Bonnitch and McCorquedale,” European Journal of International Law (forthcoming).

[73] OECD Due Diligence Considerations, 20 (emphasis added).

[74] Karin Buhmann, “Business and Human Rights: Understanding the UN Guiding Principles from the perspective of Transnational Business Governance Interactions,” 6:1 Transnational Legal Theory (2015), 399.

[75] See also, Backer, supra n. 7; John Ruggie and Tamaryn Nelson “Human Rights and the OECD Guidelines for Multinational Enterprises: Normative innovations and implementation challenges,” Harvard Kennedy School/Corporate Social Responsibility Initiative Working Paper No. 66 (May 2015).

[76] UK National Contact Point for the OECD Guidelines for Multinational Enterprises, “Statement: DAS Air” (2008), available at http://oecdwatch.org.cases/Case_14.

[77] National Contact Point Sweden, “Final Statement: Jijnjevaerie Saami village – Statkraft SCA Vind AB (SSVAB),” (9 Feb. 2016) available at https://www.oecdwatch.org/cases/Case_280/1565/at_download/file.

[78] The Danish National Contact Point to the OECD, “Final Statement: Specific instance notified by Clean Clothes Campaign Denmark and Active Consumers regarding the activities of PWT Group” (17 Oct. 2016), available at https://www.oecdwatch.org/cases/Case_467/1587/at_download/file.

[79] Jonathan Bonnitcha and Robert McCorquodale, “The Concept of ‘Due Diligence’ in the UN Guiding Principles on Business and Human Rights,” European Journal of International Law (2017), available at http://www.ejil.org/article.php?article=2794&issue=137.

[80] Björn Fasterling and Geert Demuijnck,Human Rights in the Void? Due Diligence in the UN Guiding Principles on Business and Human Rights,” 116:4 Journal of Business Ethics 799 (2013).

[81] Karin Buhmann, Normative discourses and public-private regulatory strategies for construction of CSR normativity: Towards a method for above-national public-private regulation of business social responsibilities (Copenhagen: Multivers publishing, 2014).

[82] David Kinley, Justine Nolan and Natalie Zerial, “The politics of corporate social responsibility: Reflections on the United Nations Human Rights Norms for Corporations,” Company and Securities Law Journal (2007), 30.

[83] Mark Taylor, “The Ruggie Framework: Polycentric regulation and the implications for Corporate Social Responsibility,” 5:1 Nordic Journal of Applied Ethics (2011), 9; Karin Buhmann, “Business and Human Rights: Analysing Discursive Articulation of Stakeholder Interests to Explain the Consensus-based Construction of the “Protect, Respect, Remedy” UN Framework,” 1:1 International Law Research (2011), 88.

[84] Fasterling and Demuijnck, supra n. 80.

[85] T. Lambooy, A. Argyrou, and M. Varner, “An analysis and practical application of the Guiding Principles on providing remedies with special reference to case studies related to oil companies,” in S. Deva & D. Bilchitz (eds.), Human Rights Obligations of Business: Beyond the Corporate Responsibility to Respect? (2013), 329-377; Karin Buhmann, “Damned if you do, damned if you don’t? The Lundbeck case of Pentobarbital, the Guiding Principles on business and human rights, and competing human rights responsibilities,” Journal of Law, Medicine & Ethics (Summer 2012), 206.

[86] Doug Cassel, “Outlining the Case for a Common Law Duty of Care of Business to Exercise Human Rights Due Diligence,” 1:2 Business and Human Rights Journal (2016), 179; Olivier De Schutter et al., “Human Rights Due Diligence: The Role of States” (Brussels: The International Corporate Accountability Roundtable (ICAR), the European Coalition for Corporate Justice (ECCJ), and the Canadian Network on Corporate Accountability (CNCA), 2012); Robert McCorquedale, Lise Smith, Stuart Neely and Robin Brooks, “Human Rights due diligence in law and practice: Good practices and challenges for business enterprises,” Business and Human Rights Journal (2017).

[87] Mary Footer, “Human Rights Due Diligence and the Responsible Supply of Minerals from Conflict-affected Areas: Towards a Normative Framework?’ in Jernej Letnar Černič and Tara Van Ho (eds), Direct Human Rights Obligations of Corporations (The Hague: Wolf Legal Publishers, 2015), 179.

[88] Ralph Hamann et al., “Business and human rights in South Africa: An analysis of antecedents of human rights due diligence,” 87:2 Journal of Business Ethics (2009), 453.

[89] Olga Martin-Ortega, “Human Rights Due Diligence for Corporations: From voluntary standards to hard law at last?,” 32:1 Netherlands Quarterly of Human Rights 44 (2014); Footer, supra n. 87.

[90] UN Framework, para. 54.

[91] Fasterling and Demuijnck, supra n. 80.