Last week I attended the Business and Human Rights Forum at the United Nations. This is an annual gathering of more than 2,000 participants from government, business, community groups and civil society, law firms, investor organizations, UN bodies, national human rights institutions, trade unions, academia, and the media to discuss a range of topics related to the UN Guiding Principles on Business and Human Rights.
The UN Guiding Principles: A Summary
The UN Guiding Principles on Business and Human Rights (UNGPs) were adopted in 2011 as a global standard for preventing and addressing the risk of adverse impacts on human rights involving business activity. The principles are made up of three main parts:
(a) States’ existing obligations to respect, protect and fulfil human rights and fundamental freedoms
States have a duty to protect against human rights abuses by third parties, including businesses. The principles require that States take steps to prevent, investigate, punish and redress private actors’ abuse. This includes by promoting the rule of law and setting a clear expectation that all business enterprises domiciled in their territory respect human rights throughout their operations. States should set and enforce appropriate policies, legislation, regulations and adjudication that require businesses to respect human rights, provide appropriate guidance to businesses, and encourage or require businesses to report on how they address their human rights impacts.
(b) The role of business enterprises as specialized organs of society performing specialized functions, required to comply with all applicable laws and to respect human rights;
The responsibility to respect human rights is a global expectation for all businesses no matter where they operate, in their own activities and throughout their value chains. This responsibility exists independently of States’ abilities and/or willingness to fulfil their own human rights obligations. It exists over and above compliance with national laws and regulations. Businesses must take adequate measures to prevent, mitigate and, where appropriate, remediate adverse human rights impacts.
(c) The need for rights and obligations to be matched to appropriate and effective remedies when breached.
States must take appropriate steps to investigate, punish and redress business-related human rights abuses when they do occur. Remedy may include apologies, restitution, rehabilitation, financial or non-financial compensation, punitive sanctions, as well as injunctions or guarantees of non-repetition. In addition, to make it possible for grievances to be addressed early and remediated directly, business enterprises should establish effective grievance mechanisms for individuals and communities who may be adversely impacted by their operations.
In practice, the UNGPs require businesses to implement 4 main things:
- a policy commitment to human rights to meet their responsibility to respect human rights
- human rights due diligence mechanisms to identify, prevent, mitigate
- reporting and disclosure on their human rights approaches and impacts
- access to remedy for any adverse human rights impacts they cause or to which they contribute
The finance industry is not performing well on the UNGPs. The Bank Track Benchmark evaluated the disclosures of 50 of the world’s largest banks against a set of 14 criteria covering four key operational areas of the UNGPs. The Benchmark found that no bank is implementing the UNGPs fully. Of the 50 banks reviewed, 38 (76%) achieved a score of less than 7 out of 14, indicating that they are implementing less than half of the requirements, and no bank achieved a score higher than 9 out of 14.
Now that you have the big picture on the UNGPs, let me go over a few key takeaways that I think may be of interest to the SFG Community.
- In a session on lobbying, it was stressed that businesses need to ensure that their lobbying efforts do not encourage States to undermine human rights nor outwardly oppose a policy or law that would improve human rights conditions. Some key principles that businesses, including financial institutions, can follow are:
- Disclose who your company is speaking to and the purpose of the engagement
- Advocate for any trade associations your company is a part of to hold positive human rights positions
- Communicate your public positions and ensure they are consistent with what is being said behind closed doors
- Scrutinize your government relations department’s activities on human rights grounds
- In a session on the environmental dimensions of the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct the OECD presented the key updates that were recently published in the newest version of the guidelines that were published in 2023. Some key updates include:
- Clear recommendations for companies to align with internationally set climate and biodiversity targets, including alignment to temperature goals.
- A call for science-based targets and transition plans. The new guidelines require consideration of Scope 1 and 2 emissions and highly recommends inclusion of Scope 3.
- Emphasis that adaptation is an important part of due diligence.
- Providing a great deal of additional detail on what constitutes adverse environmental impacts with a specific (non-exhaustive) list that companies can use.
- Clear statements that offsets should be a last resort not the basis of an emissions-reduction strategy.
- Recognition of the links between the social and environmental factors through the inclusion of Just Transition.
- This session also stressed the merits of risk-based due diligence as a concept due to its flexibility for companies. Risk-based due diligence recognizes that an enterprise should conduct due diligence commensurate to the severity and likelihood of the adverse impact. When the likelihood and severity of an adverse impact is high, then due diligence should be more extensive.
- In a session on the human right to a clean, healthy, sustainable environment the links between human rights and the environment were made clear, yet it was noted that these two subjects are normally handled in silos within companies. It was suggested that companies:
- Break silos between human rights and environmental personnel in their organizations and integrate environmental considerations into human rights due diligence.
- Take a longer term and more comprehensive view of principle adverse indicators (PAI) and recognize that environmental impacts are both localized and global (with ripple effects).
- Engage affected right holders wherever adverse environmental impacts occur.
- Mandate Boards and specifically the sustainability committee to oversee the linked environmental and human rights issues (impacts and risks).
- In a session on remedy in financial institutions, it was noted that there are only two examples of financial institutions having grievance mechanisms (both banks in Australia) but there are additional pilots planned in the coming years. It was noted that prevention is the best remedy so engagement early and often is crucial. In addition, grievance mechanisms can serve as an early warning sign for issues and a way to manage risk of escalation that can harm investments. It was noted that the PRI Advance initiative is looking at remedy mechanisms for financial institutions as part of their work.
- In a session on responsible exit or remaining, a report by the UN was presented with considerations for remaining or exiting challenging contexts. It was stressed that businesses should not just cut and run at the first sign of difficulty and should engage with affected communities and other companies to try and make change. Only if change is not possible it is then appropriate and often necessary to exit but it is crucial that companies have undertaken heightened human rights due diligence upon entry and in times of peace, so they can respond appropriately in times of conflict. It is important to remember that in fragile contexts, having meaningful economic opportunities is incredibly important (as it helps with stability) so exiting can have negative ripple effects. This session also noted the importance of country-disaggregated data and disclosure for companies, specifically when it comes to fragile contexts.
- In a consultation on Investors, ESG and Human Rights it was noted that a new Working Group report on the role of the financial industry will be released in June 2024. The Working Group recognizes that “financial actors have an unparalleled ability to influence companies and scale up on the implementation of the Guiding Principles.” The report aims to provide practical guidance to States, businesses, especially financial institutions of all types, civil society and other stakeholders on how to align better ESG approaches with the UNGPs in the context of financial products and services.