INSIGHT

Five critical trends shaping the business and human rights landscape in 2021

By Rachel Nicolson, Dora Banyasz, Emily Turnbull, Sarah Jenkins
Corporate Governance Environment, Social, Governance Human rights obligations International Business Obligations Risk & Compliance

Emerging trends and actions to consider 11 min read

Ensuring respect for human rights presents a growing challenge for businesses in light of evolving laws and standards, together with increasing public scrutiny and stakeholder expectations.

This Insight provides an update on five emerging trends for 2021.

Key takeaways

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The 'S' in ESG - the social component of 'environmental, social and governance' has recently shifted into sharper focus, with human rights and other social issues faced by businesses becoming more clearly defined and strongly scrutinised. The 'S' is also applied increasingly as a lens through which to view the environmental and governance elements of ESG.

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Reporting on modern slavery risks - globally, there is a significant regulatory trend toward the introduction of laws requiring businesses to report on the management of modern slavery risks in their supply chains. Australia, saw the first batch of modern slavery statements published by reporting entities last year. It is likely that 2021 will be characterised by expectations by the Australian government and other stakeholders of deepening due diligence and more sophisticated and robust modern slavery statements, processes and responses by companies.

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Indigenous peoples and cultural heritage - business engagement with, and impacts on, indigenous peoples and cultural heritage is increasingly in the spotlight. The issue will remain a strong focus for investors, shareholders and community groups in 2021. Businesses that interact with indigenous communities and traditional landholders should review their practices to ensure they align with current international standards.

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Soft and hard law standards - stakeholders increasingly expect companies to report publicly against specific soft law standards to which they state that they align. The critical mass of acceptance of these soft law standards is helping drive the momentum toward countries adopting 'hard law' mandatory standards, which will place stronger pressure on companies to commit to human rights standards.

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Increase of non-judicial dispute resolution mechanisms - claimants are increasingly using non-judicial dispute resolution mechanisms such as the OECD National Contact Points and the UN Special Procedures to bring human rights allegations against businesses. We expect to see this trend continue in 2021.

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Human rights compliance - companies should consider practical steps towards implementing a strong and well-integrated approach to human rights compliance, including ensuring that human rights policies and practices are properly embedded into overall compliance frameworks.

 


Emerging trends

These are the five key trends we see shaping the business and human rights landscape. All businesses should be considering these issues and building them into their planning for 2021.

The 'S' in ESG

ESG refers to environmental, social and governance issues faced by businesses. These issues underpin sustainable and responsible investment strategies, and are increasingly imposing compliance, due diligence, financing and reporting requirements on businesses. At a high level, ESG issues comprise:

Environment

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This encompasses the environmental impacts of businesses in the traditional sense, such as environmental regulations and permits, waste regulation, contaminated land, impacts of pollution and impacts on biodiversity and habitats. It is also now widely recognised as including business risks associated with anthropogenic climate change, and there has been an upward trend in voluntary reporting standards, shareholder activism, divestment campaigns and strategic litigation relating to climate change.

Social

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This encompasses the non-environmental ways that businesses impact on the communities with which they interact. A key element is how businesses ensure respect for human rights.

Governance

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This encompasses the way businesses govern themselves and use systems to manage risk.

There are increasing requirements both mandatory and otherwise for businesses to report on ESG issues, including requirements imposed by stock exchanges,1 and we expect to see this trend continue in 2021.

The social aspect of ESG was initially a more nebulous concept than the environmental and governance aspects, but we have recently seen an overall trend for the 'S' to come into sharper focus. Social issues relevant to businesses have become more clearly defined, with particularly high-risk areas including bribery and corruption, labour rights, modern slavery, indigenous peoples' rights and the human rights consequences of climate change. These areas have become subject to intense scrutiny from shareholders, investors, NGOs and ESG benchmarking initiatives and we expect this to increase in 2021.

Notably, the 'S' in ESG now overlaps with environmental issues, including due to the emerging trend for climate change impacts to be characterised as human rights impacts. This is particularly relevant to fossil fuel and other carbon-intensive industries, along with the banks that finance them.2 The 'S' in ESG also overlaps extensively with corporate governance issues as a result of legal standards that set the bar for integrating management of human rights risks into risk management, due diligence, reporting and remediation processes.

Modern slavery

There is a significant global regulatory trend toward the introduction of laws aimed at combatting modern slavery. Over the past decade, several jurisdictions have enacted domestic laws that impose mandatory requirements for businesses to report on the management of modern slavery risks in their supply chains. Other jurisdictions currently have new or proposed modern slavery reporting laws in the pipeline, so we are likely to see further developments in this space in 2021 and beyond. Globally, there are also recent increases in scrutiny by benchmarking organisations, shareholder activism and various types of litigation in relation to companies' modern slavery compliance. As we discussed in our recent insight on tracking the modern slavery landscape.3

In Australia, the Modern Slavery Act 2018 (Cth) has now been in force for two years. In 2020, we saw the first batch of modern slavery statements published by Australian reporting entities. The year was largely characterised by companies grappling with their initial reporting requirements. It is likely that 2021 will be characterised by expectations of deepening due diligence and more sophisticated and robust modern slavery statements, processes and responses. In addition, the growing body of published modern slavery statements may support more detailed analysis and commentary by NGOs, and the publication of reports and scorecards designed to be accessible to stakeholders and consumers.

Over time, the changing modern slavery expectations may result in greater action to enforce and prosecute slavery and related crimes in Australia and globally.

Indigenous peoples and cultural heritage

Business engagement with, and impacts on, indigenous peoples and cultural heritage is increasingly in the spotlight. We have seen an increase in shareholder and investor activism in relation to cultural heritage issues, with a range of stakeholders agitating on these issues in various ways including through shareholder resolutions at AGMs.

The issue of how companies manage their impacts on indigenous peoples and cultural heritage will remain a strong focus in 2021. The expectations placed on companies are set by a range of international laws and standards, so compliance with domestic laws is not enough. Companies that interact with indigenous peoples need to review how they are approaching the issue, including how the international standards are embedded in the company's policies and procedures, risk assessments, due diligence, governance frameworks and stakeholder engagement practices.

Soft and hard law standards

The last decade has seen the development of numerous intergovernmental or industry soft law standards that establish voluntary codes of conduct for human rights protection and promote the integration of human rights risks into corporate risk management, due diligence and reporting requirements.4 Stakeholders now frequently expect companies to report publicly against specific soft law standards to which they state that they align.

Stakeholders now frequently expect companies to report publicly against specific soft law standards to which they state that they align.

The critical mass of acceptance of these soft law standards is helping drive the momentum toward countries adopting 'hard law' mandatory standards. For example, in 2017, France introduced legislation to impose human rights and environmental due diligence and reporting requirements on companies.5 In 2020, Germany6 and the EU7 each indicated they would develop corporate human rights due diligence and reporting legislation, which will likely be introduced in 2021. In the Netherlands, legislation imposing child labour reporting requirements on companies was adopted by the Senate in 2019 and is expected to commence operation in 2022.8

We are likely reaching the peak in proliferation of soft law standards for voluntary reporting, with the ones in place now fairly universally accepted. Going forward, we expect to see these soft law standards continuing to inform the development of mandatory reporting and disclosure regimes in domestic legislation. The increase in 'hard law' regimes will place stronger pressure on companies to commit to human rights standards across their operations and supply chains, and will likely be characterised by greater regulatory enforcement and third party litigation. In the meantime, however, the soft law standards themselves are certainly informing stakeholder expectations in a broad range of areas.

We also note that adherence to soft and hard law standards relating to human rights will increasingly be expected when tendering for government projects, obtaining project finance or entering supply chain agreements. Therefore, understanding these standards not only helps to manage risk, but can translate into business opportunities over time.

Grievance mechanisms and remedies

Claimants are increasingly using non-judicial dispute resolution mechanisms to bring human rights allegations against businesses. We expect to see this trend continue in 2021. In addition, it is likely that businesses will be called upon to do more to implement their own operational-level grievance mechanisms to enable human rights concerns to be raised and resolved.

Non-judicial dispute resolution mechanisms for human rights grievances are growing in prominence and influence. They are often appealing avenues to raise human rights concerns because they are low cost, can be high profile, have fewer jurisdictional and standing requirements than domestic courts, and can be a precursor to traditional litigation to seek compensation for harm. Non-judicial dispute resolution mechanisms have become an important part of the toolkit for NGOs and advocacy groups to influence business conduct and seek remedies for allegedly affected parties.

The most prominent of these forums are the National Contact Points (NCPs), established to receive, mediate and resolve complaints under the OECD Guidelines for Multinational Enterprises. As we reported in September 2020, a recent spate of complaints demonstrates that NGOs and civil society groups are also increasingly using UN-level human rights grievance mechanisms such as the UN Special Procedures to bring human rights allegations against businesses.9

Businesses should be aware of these novel ways in which claimants may raise human rights allegations, as well as their growing application as part of a toolkit for broader strategic human rights campaigns, and should take this into account in their approaches to risk management and dispute resolution.

In addition, several soft law standards require businesses to provide access to operational-level grievance mechanisms and stakeholders also expect such mechanisms to be in place.10 The extent to which businesses are properly fulfilling this requirement has been critiqued, and steps for improvement have been proposed.11 We are likely to see businesses called upon to do more to maintain effective operational-level grievance mechanisms, particularly during 2021 when some businesses may need to grapple with concerns raised about the human rights impacts of actions they have taken in response to the COVID-19 pandemic.

Actions you can take now

A combination of company policy commitments, industry and international soft law standards, hard law obligations, and stakeholder and NGO activism means business human rights issues are under scrutiny from multiple angles. The rapidly changing landscape of business and human rights means companies should regularly review their approach to managing human rights impacts to ensure they align with current standards.

As a baseline, companies should ensure that they:

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Have an up-to-date human rights policy, which is integrated throughout all levels of the business.

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Conduct ongoing human rights due diligence which focuses on risks to external stakeholders as well as risks to the company.

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Conduct human rights assessments of business partners and have procedures to monitor their conduct.

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Regularly evaluate the effectiveness of their response to human rights risks.

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Are prepared to communicate their human rights impacts, policies and risk management processes to internal and external stakeholders.

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Provide appropriate and effective grievance mechanisms to enable human rights concerns to be raised and addressed.

Practical steps that companies should take to ensure a strong and well-integrated approach to human rights compliance include:

B&HR-practical-icons_reconsider.png Reconsidering their human rights policies and practices against each core element of the responsibility to respect human rights as set out in the UN Guiding Principles on Business and Human Rights.

B&HR-practical-icons_embedded.png Ensuring that their human rights policies and practices are properly embedded into the company's overall compliance framework, rather than siloed. Human rights policies and practices should be appropriately linked with the company's policies and practices relating to other cross-cutting areas which may be managed by different business functions, including environmental issues, climate change, engagement with indigenous communities, cultural heritage, anti-bribery and corruption and anti-money laundering. The nexus between financial crime and human rights is currently a hot topic, so it is especially important for companies to take a coordinated approach to these issues.12

Footnotes

  1. For example, the ASX has issued guidance on ESG reporting (see 4th edition of the ASX Corporate Governance Principles and Recommendations, released in February 2019 with effect from January 2020). The London Stock Exchange has also issued guidance on ESG reporting. The Hong Kong Stock Exchange has introduced mandatory ESG disclosure requirements.

  2. For example, in 2016, Greenpeace and others filed a petition with the Commission on Human Rights of the Philippines requesting that the Commission investigate the human rights implications of climate change in the Philippines. In December 2019, the Commission made a preliminary announcement that it will find that fossil fuel companies can be liable for violating the rights of Philippines citizens as a result of damage caused by global warming.

  3. As described in our previous Insight: 'Tracking the modern slavery landscape: recent developments', 23 September 2020, https://www.allens.com.au/insights-news/insights/2020/09/tracking-the-modern-slavery-landscape-recent-developments/

  4. For example, the UN Global Compact, the UN Guiding Principles on Business and Human Rights, the OECD Guidelines for Multinational Enterprises, the IFC Performance Standards, the Equator Principles.

  5. French Duty of Vigilance Act 2017, 'Law n° 2017-399 of 27 March 2017 on the corporate duty of care of parent companies and ordering companies (loi n° 2017-399 du 27 mars 2017 relative au devoir de vigilance des sociétés mères et des entreprises donneuses d'ordre)'.

  6. In July 2020, two German ministers published a term sheet for a 'Federal Bill on the Strengthening of Corporate Due Diligence to Avoid Human Rights Impacts in Global Value Chains (Entwurf für Eckpunkte eines Bundesgesetzes über die Stärkung der unternehmerischen Sorgfaltspflichten zur Vermeidung von Menschenrechtsverletzungen in globalen Wertschöpfungsketten (Sorgfaltspflichtengesetz)'. The law is expected to be introduced in 2021.

  7. The EU is expected to introduce legislation in 2021 covering human rights and environmental due diligence and reporting requirements – see Allens Insight, 'New EU mandatory human rights and environmental due diligence regime', https://www.allens.com.au/insights-news/insights/2020/06/new-eu-mandatory-human-rights-and-environmental-due-diligence-regime/ In October 2020, the European Commission launched a public consultation on sustainable corporate governance which is expected to help shape EU legislative reform in 2021 in relation to corporate ESG reporting – see European Commission, 'Sustainable Corporate Governance – Public Consultation', https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12548-Sustainable-corporate-governance/public-consultation (accessed on 18 January 2021).

  8. Dutch Child Labour Due Diligence Act 2019 ('Wet Zorgplicht Kinderarbeid').

  9. Allens Insight, 'Private parties in the UN – a new remedy ecosystem for alleged human rights and environmental impacts', 15 September 2020, https://www.allens.com.au/insights-news/insights/2020/09/private-parties-in-the-UN/

  10. For example, see the UN Guiding Principles on Business and Human Rights and the October 2019 update to the OECD Guidelines on Due Diligence for Responsible Corporate Lending and Securities Underwriting.

  11. For example, see International Commission of Jurists, 'Effective Operational-level Grievance Mechanisms', November 2019, Universal-Grievance-Mechanisms-Publications-Reports-Thematic-reports-2019-ENG.pdf (icj.org) (accessed on 18 January 2021).

  12. See, for example: UN Human Rights Working Group, 'Connecting the Business and Human Rights and Anti-Corruption Agendas', 17 June 2020, https://undocs.org/A/HRC/44/43 (accessed on 1 February 2021); Business at OECD and the International Organisation of Employers, 'Connecting the Anti-Corruption and Human Rights Agendas: A Guide for Business and Employers’ Organisations', September 2020, https://biac.org/wp-content/uploads/2020/09/2020-08-31-Business-at-OECD-IOE-AC-HR-guide.pdf (accessed on 1 February 2021)