Navigating the energy transition

By Kate Axup, Rachel Nicolson, Emily Turnbull
Energy Environment, Social, Governance Human rights obligations International Business Obligations Renewables

Increased scrutiny of human rights governance and compliance 8 min read

Australia is rapidly transitioning away from a centralised, coal-based energy system to one that is more decentralised and focused on renewable energy. This transition is being accompanied by increasing scrutiny of the human rights performance of renewables projects, including new benchmarking and a greater number of complaints.

It is critical to know what practical steps to take towards implementing and embedding a strong approach to human rights compliance.

Key takeaways 

  • The social component of 'environmental, social and governance' (the 'S' in ESG) has recently shifted into sharper focus, with human rights and other social issues faced by businesses becoming more clearly defined and strongly scrutinised. This has implications for renewables projects, which can carry a range of potential human rights impacts by virtue of their often significant footprints and complex supply chains.
  • The current complaint against ElectraNet in the Australian OECD National Contact Point, regarding alleged impacts on Aboriginal heritage sites, is indicative of that increased focus and of the form that human rights impacts might take in the renewables space.
  • In a decision against Shell in May 2021, the Dutch courts held that non-binding 'soft law' human rights frameworks could be relied upon to decide the expected standard of behaviour of companies in managing and mitigating their human rights impacts (see our Insight). The critical mass of acceptance of these soft law standards is helping drive the momentum towards countries adopting 'hard law' mandatory human rights requirements.
  • Renewable energy sector participants should take practical steps towards implementing and embedding a robust approach to human rights and broader ESG compliance, including ensuring that human rights policies and practices are properly embedded into overall compliance frameworks.

Increasing scrutiny of renewable energy companies' human rights performance

The transition towards a renewable energy mix is prompted by (among other things) a growing consumer desire for renewable energy, advances in renewable technology and the impending closure of Australia's coal-fired generators. The transition has been framed as part of Australia's push to 'build back better' in the post-COVID environment.

The transition is accompanied by increasing scrutiny of the human rights performance of renewables projects. This forms part of an overall spotlighting of the social component of 'environmental, social and governance' issues (the 'S' in ESG). Renewables projects tend to have long supply chains (including equipment and raw materials, such as rare earth metals) and significant land footprint, and so can carry a range of potential human rights impacts. Key issues include how companies assess and manage labour rights and modern slavery risks in their supply chains, as well as business engagement with, and impacts on, indigenous peoples and cultural heritage.

One way in which scrutiny is taking place is through benchmarking of human rights performance. For example, a new renewable energy and human rights ratings standard established in July 2020, from the public interest organisation Business & Human Rights Resource Centre (the BHRRC), assesses large renewables companies on their commitment to respect human rights in their operations and supply chains. The BHRRC has, for some time now, also published its assessments of modern slavery reporting by renewables companies. There have been recent calls for traceability protocols to drive responsible sourcing practices and increased transparency in supply chains – eg in the solar industry, following allegations last year of links to forced labour practices among the Uyghur population in Xinjiang (China). Contractual controls, such as sanctions clauses, are also becoming more common.

The increasing scrutiny is additionally resulting in greater numbers of allegations and complaints: in particular, to non-judicial forums such as the OECD National Contact Points (the NCP). By way of example, we discuss below the current complaint to the Australian NCP against ElectraNet, on cultural heritage issues.

Implementing effective human rights governance and compliance

Increased scrutiny means renewable energy companies are now in the spotlight and should take practical steps towards implementing and embedding a strong approach to human rights compliance. This should include ensuring that human rights policies and practices are properly embedded into overall compliance frameworks.

Multinational enterprises with governance and compliance systems that span their global operations should be aware of the novel ways in which claimant groups may seek recourse, in order to calibrate the approach to group-wide risk management and dispute resolution.

Renewables projects should apply the lessons learned over the past decade in relation to effective implementation of the OECD Guidelines, UN Guiding Principles on Business and Human Rights, and other leading international standards.

Companies should:

  • ensure they have a human rights policy commitment that is well understood by the business and mapped into procedures. The policy commitment should be supported by appropriate risk-based human rights due diligence;
  • conduct ongoing human rights due diligence, which focuses on risks to external stakeholders, as well as risks to the company;
  • regularly evaluate the effectiveness of their response to human rights risks;
  • implement internal reporting procedures that extend to board level, with board oversight of any risk assessment findings and an executive granted responsibility for overseeing human rights as a compliance risk;
  • implement external reporting procedures that review the development of soft law requirements in the jurisdictions where the companies operate or from which equipment is sourced, noting that these requirements are becoming more settled and enforceable with time; and
  • businesses that interact with indigenous communities and traditional landholders, for example, should confirm that their practices are consistent with current international standards, and update procedures to the extent they fall short.

International human rights standards also require companies to have in place effective operational-level grievance mechanisms. These mechanisms should provide an accessible, transparent process for the business to respond to interested parties' concerns before issues progress to non-judicial complaints or litigation.

As we are seeing, a failure to identify, manage and mitigate human rights impacts can expose companies to non-judicial complaints, litigation and other forms of adverse scrutiny.

What should you be thinking about?

We recommend you:

  • embed governance processes and risk management systems that are tailored to your risk footprint;
  • review policies and procedures to ensure they reflect international best practice and stakeholder expectations, recognising that this is a fast-evolving area;
  • map supply chains, and ensure human rights assessments of business partners and suppliers are robust, risk based and kept under review;
  • ensure risk assessment and data management systems are up to scratch, and that communication is clear, and appropriate reporting lines and procedures are in place;
  • provide training that is tailored to the needs and responsibilities of your teams; and
  • implement site-level grievance mechanisms that take into account rightsholders' views, and audit these mechanisms periodically for effectiveness against international standards.

How we can help

Allens has unrivalled expertise advising on business and human rights issues. Our approach always emphasises the prevention or minimisation of adverse human rights impacts, in line with internationally accepted standards such as the UN Guiding Principles on Business and Human Rights. We have extensive experience advising on risk management and compliance systems designed to identify, address and mitigate the risk of potential adverse impacts.

However, we recognise that, in some instances, issues can arise. In such cases, we can assist your organisation with crisis response, investigations and stakeholder management, to guide your organisation through the challenging and nuanced business and human rights landscape.

Case study: complaint against ElectraNet on Indigenous rights

The current complaint against ElectraNet in the Australian OECD NCP complaint, regarding alleged impacts on Aboriginal heritage sites, is indicative of the form that human rights impacts might take and the trend in private sector actions in this space.

The OECD NCPs are national (ie state-based) institutions that provide a non-judicial dispute resolution process. Any individual, organisation, or community that believes a company's actions are inconsistent with the OECD Guidelines for Multinational Enterprises (the OECD Guidelines) may lodge a complaint with the OECD NCP. The OECD Guidelines contain chapters on environmental and human rights, including expectations on companies to manage their impacts on Indigenous peoples. The OECD NCP will mediate the dispute and can propose (but not impose) outcomes. The complaint, and the outcome of the process, is public, and the OECD NCP will issue a final statement, which may make recommendations to the parties.

Non-judicial dispute resolution forums (such as the OECD NCPs and UN Special Procedures) are growing in prominence and influence to resolve human rights-related grievances. These forums are attractive to claimant groups, as they can be low cost and high profile. The absence of jurisdictional and standing issues also mean they are available to claimant groups where domestic remedies may have been denied. In this way, they can overcome obstacles for claimants that may arise due to the complexities of modern international business and corporate structures.

In October 2020, a complaint was lodged with the Australian OECD NCP, alleging that ElectraNet's construction of electricity facilities in South Australia damaged Aboriginal heritage sites. The complaint alleges that ElectraNet did not carry out appropriate human rights due diligence of potential adverse impacts. In February 2021 the Australian OECD NCP published its initial assessment, finding that the complaint merits further investigation.

Traditionally, the subjects of such complaints in the human rights space have been resources companies with significant environmental and social footprints. However, there is a clear shift to focus on potential impacts arising from renewables projects. The ElectraNet complaint also highlights that 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 and beyond.