by Rachel Nicolson, Emily Turnbull, Dora Banyasz and Billy Hade · 26 March 2024
Human rights is an increasing area of focus
As the regulatory and civil society scrutiny of companies' management of human rights issues continues to grow, it is increasingly important for directors to ensure a company-wide commitment to identifying and addressing human rights issues. To better address stakeholder expectations, directors should consider the potential adverse effects that the company may have on the human rights of staff, contractors, communities in which they work and also customers and question management about the due diligence and governance procedures that have been, or need to be, implemented.
Is the company conducting human rights risk assessments and due diligence?
Directors should ensure the company has human rights risk assessment and due diligence processes. These should facilitate its understanding of its salient human rights risks, as well as potential risks that may arise with specific activities, projects or third parties (see this section of the Guide for more details on Modern Slavery).
These processes should be adapted to the company's business and be focused on risks to people, not just to the company. It is also critical that directors oversee and test the adequacy of these processes to check that human rights issues are being identified and escalated to the board as appropriate.
What are the risks to be aware of?
A company may be exposed to a range of risks in relation to human rights harms. This could occur as a result of it causing or contributing to harm, or being directly linked to the harm (these three potential ways of a business being connected to impact is set out in the UN Guiding Principles on Business and Human Rights (the UNGPs), the authoritative global standard on the human rights responsibilities of business).
Further, these risks can materialise in different ways, including through shareholder and other stakeholder activism, private litigation and regulatory enforcement. Although companies themselves have been the focus of legal action and stakeholder scrutiny to date, there is increasing focus on directors' accountability and oversight of the companies' management of their human rights risks.
What is next for boards?
- The focus on board-level and director responsibility for managing human rights issues is expected to increase, including as a result of legislative trends overseas.
- For instance, the EU has proposed a Corporate Sustainability Due Diligence Directive which, if introduced, would require directors to consider the human rights consequences of their decisions, and to implement and oversee human rights due diligence by the company. And the ASX proposed 5th edition of the Corporate Governance Council Principles proposes that boards oversee due diligence on an entity's stakeholder relationships, including on human rights impacts.
- Regardless of whether Australia follows suit, these types of developments continue to encourage local activists and regulators to examine directors' management of human rights issues more closely.
- Accordingly, directors of Australian companies should start to put structures in place for overseeing and interrogating their company's human rights risk assessment and due diligence programs, in addition to monitoring the legislative landscape for future developments.