CHAPTER 6 ANTICIPATING AND MANAGING HUMAN RIGHTS RISKS: DUE DILIGENCE TAILORED TO BUSINESS RISK
| Jurisdiction | United States |
(Feb 2016)
ANTICIPATING AND MANAGING HUMAN RIGHTS RISKS: DUE DILIGENCE TAILORED TO BUSINESS RISK
Principal
Enodo Rights
New York, NY
[Page 6-1]
YOUSUF AFTAB is the founder and principal of Enodo Rights, a corporate human rights strategy firm based in New York. He has extensive experience advising resource companies on strategic implementation of the Guiding Principles on Business and Human Rights to mitigate non-traditional corporate responsibility risks, including legal, political, and financial risk. He works closely with external and in-house legal counsel, public relations departments, corporate responsibility departments, and investors to provide corporate human rights advice. Most recently, Yousuf led an independent and public assessment of Barrick Gold's controversial grievance mechanism at the Porgera mine in Papua New Guinea for alignment with the Guiding Principles. Prior to launching Enodo, Yousuf specialized in international disputes at Latham & Watkins in New York and Torys in Toronto. He has published and presented widely on the legal consequences of the Guiding Principles on Business and Human Rights, and is the author of the Legal Dimension of Corporate Social Responsibility (LexisNexis, forthcoming 2016).
Chapter 19
THE INTERSECTION OF LAW AND CORPORATE SOCIAL RESPONSIBILITY: HUMAN RIGHTS STRATEGY AND LITIGATION
READINESS FOR EXTRACTIVE-SECTOR COMPANIES
§ 19.01 Introduction ?page?
§ 19.02 The Evolution of CSR in the Wake of the Guiding Principles ?page?
[1] The Guiding Principles Define Business Responsibility for Human Rights ?page?
[2] Business Respect for Human Rights Is a System ?page?
[a] Why the Guiding Principles Are Necessary ?page?
[b] Stage 1: Understanding the Proper Scope of Human Rights ?page?
[c] Stage 2: Understanding and Applying the Causal Filter ?page?
[d] Stage 3: Prioritizing and Implementing Remedial Measures ?page?
[3] The Guiding Principles Transform CSR from Public Relations Art to Legal Science ?page?
§ 19.03 Implications of the Guiding Principles Under National and International Law ?page?
[1] Business Respect for Human Rights and Bilateral Investment Treaty Protection ?page?
[a] Inceysa Vallisoletana, S.L. v. Republic of El Salvador ?page?
[b] World Duty Free v. Kenya ?page?
[c] The Guiding Principles Provide an Alternative "In Accordance with Law" Defense for States ?page?
[2] Human Rights Due Diligence and Transnational Torts ?page?
[a] Conventional Tort Litigation Is Distinct from Human Rights Litigation ?page?
[b] Choc v. Hudbay Minerals Inc.: A Novel Duty of Care ?page?
§ 19.04 The Guiding Principles and the Essential Role of Counsel in CSR Strategy ?page?
[1] Legal Counsel Is Necessary to Understand the Standards and the Risks ?page?
[2] The Limitations of Counsel ?page?
[a] CSR Is as Much About Good Business Practice as It Is About Legal Compliance ?page?
[b] Stakeholder Engagement Remains Essential ?page?
[c] Counsel's Involvement Can Work Against the Client in the Disputes Context ?page?
[3] A Collaborative Model: Counsel as the CSR Hub ?page?
§ 19.05 Conclusion ?page?
§ 19.01 Introduction*
[Page 6-2]
The legitimacy of corporate social responsibility (CSR)1 as a business concern has long been questioned.2 Milton Friedman famously wrote in Capitalism and Freedom that advocates of CSR are beholden to
a fundamental misconception of the character and nature of a free economy. In such an economy, there is one and only one social responsibility of business--to use its resources and engage in activities designed to increase profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud. 3
Friedman's dictum has informed the "shareholder approach" to CSR, under which the only way to encourage CSR is to change the law.4 This view, however, presumes that CSR is fundamentally irrational--that it is antithetical to conventional business pursuits. The CSR-skeptical paradigm carries less currency in a world where CSR is integral to profit maximization and risk mitigation.
For the resource sector, CSR is not only defensible on conventional commercial metrics. It is a business necessity.5 A major mining project, for instance, will lose approximately $20 million per week of delayed production in the event of a shutdown; costs can accrue even at the exploration stage.6
[Page 6-3]
Community conflict is a powerful source of delay and even permanent shutdown. For example, Shell was forced to cease operating oil concessions in the Ogoni areas of Nigeria due to community resistance; the concession was eventually revoked in 2008.7 And, in Peru, regional protests in 2011 suspended three mining projects representing over $6 billion in investments.8 In the wake of this social risk, an resource-sector company that fails to integrate a CSR strategy to consider community reaction and address stakeholder concerns is acting irrationally.
But social risks are no longer the only dimension of CSR risk. The increasing standardization of CSR expectations through legislation, contract terms, and voluntary principles is the source of significant legal risk. In other words, using Friedman's framework, the "rules of the game" are changing such that a rational business must consider social responsibility as integral to its operations.9 Beyond informing the reasons to engage in CSR, the emergence of legal risk has profound implications for how CSR should be done. This is because addressing social risk is fundamentally distinct from addressing legal risk: the former requires catering to stakeholder expectations; the latter is largely independent of perception and requires alignment of CSR strategy with objective standards.
Legislative efforts to encourage or mandate CSR due diligence have proliferated over the last few years. In the United States, section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires companies to conduct supply chain due diligence to determine if their products source certain minerals from the Democratic Republic of the Congo.10 California passed the Transparency in Supply Chains Act of 2010,11 in part, "to educate consumers on how to purchase goods produced by companies that responsibly manage their supply chains... ."12 In the United Kingdom, the Modern Slavery Act 2015 obliges all businesses with turnover of more than £36 million in the country to report annually on "actions the organization has taken to ensure that slavery and human trafficking is not taking
[Page 6-4]
place in its supply chains or business."13 And the European Parliament recently adopted a directive on disclosure of non-financial information by companies that would require the largest companies to report on a variety of issues, including "respect for human rights."14
The above measures are either limited in scope or focused on transparency about social impacts; they do not provide substantive guidelines on how to identify and remedy such impacts. Somewhat ironically, a more profound change in legal risk is born of voluntary business and human rights standards, particularly the Guiding Principles on Business and Human Rights (Guiding Principles).15 The Guiding Principles are not law and are not likely to be part of customary international law. As this chapter will demonstrate, however, these standards are singularly legal in both content and consequence. They are also comprehensive with respect to industry and business operations. The Guiding Principles' widespread endorsement transforms CSR strategy from public relations art to legal science by creating a new CSR paradigm driven by systematic precision based on legal concepts--one that is justiciable in a way that traditional CSR never could be.
The legal risks flowing from the Guiding Principles will be diffuse and indirect. Rather than imposing a specific obligation under national or international law, the Guiding Principles will inform considerations of reasonable business practice, with critical implications for transnational civil and commercial disputes. For the resource sector, the most significant immediate risks lie in resource nationalism cases under international law and transnational tort cases under local law. The emergence of legal risk has significant implications for the design and implementation of CSR strategy. Rather than focusing only on public relations, CSR programs must now also be litigation ready. Corporate programs must be rigorously structured to align with the Guiding Principles to ensure that they are defensible before courts and international tribunals. Against this backdrop, counsel have an essential role to play in
[Page 6-5]
comprehensive and effective CSR strategy, as their insight is important to understand the requirements of the relevant standards and to ensure that legal risk is addressed in tandem with reputational risk.
This chapter focuses on the intersection of law and CSR in the wake of the Guiding Principles at two levels: content of strategy and nature of risk. Section 19.02 provides an overview of the Guiding Principles and their implications for CSR strategy. Section 19.03 explains the source and nature of emerging legal risks under international and national law, which arise from the Guiding Principles' structure and widespread endorsement. Section 19.04 focuses on the role of counsel in managing an effective CSR strategy to minimize exposure to legal risk.
§ 19.02 The Evolution of CSR in the Wake of the Guiding Principles
[1] The Guiding Principles Define Business Responsibility for Human Rights
The Guiding Principles are the leading standard on business and human rights: they have been widely endorsed by governments, industry associations, businesses, and...
To continue reading
Request your trial