Extractives

Further Steps Taken to Operationalise the Protect Respect and Remedy Framework

Commentary, 25 May 2010

By Peter Muchlinski

On 9 April the Special Representative of the UN Secretary General on human rights and business, John Ruggie (the SRSG), issued his 2010 Progress Report [24 pages, 146kb] (the Report) on the operationalisation of the “protect, respect and remedy” framework he is developing in relation to the issue of human rights and business.

This is the latest in a series of increasingly detailed and analytical reports in the field. It seeks to lay the ground for his Final Report in 2011. As before, the latest Report stresses that it is not aiming at ideal solutions but is informed by “principled pragmatism”. So there is no magic bullet to deal with human rights and business. Rather there are a number of further elements being added to the framework under each heading.

BITs should not act, in their role as sources of investor protection standards, as a limitation on public interest measures including human rights measures that are applied in a non-discriminatory manner. Equally HGAs should be the result of responsible contracting and contain special protection of the host governments obligations to observe human rights even where a stabilisation clause is used to protect the investor from unexpected regulatory changes.

State owned enterprises and export credit agencies should also do more to further human rights responsibility among businesses. Furthermore, under national corporate law, certain changes are envisaged. Thus corporate reporting standards should recognise the materiality of human rights risks to the success of the business and so a clarification of when to report such risks should be encouraged. Equally clarification is needed as to the scope of a director’s duties to consider human rights questions. A director’s duty to consider the company’s human rights impact is advocated. Finally the possibility of taking into account the “corporate culture” in relation to human rights observance as a factor in sentencing for criminal infringements is identified as a possible tool for compliance.

These changes in existing national practices are reasonably clear and would involve relatively easy changes to existing laws and practices. However the duties of States in relation to investments by their firms in foreign conflict zones are still at the stage of examination, as is the issue of extraterritorial application of laws concerning the human rights activities of corporate actors. The SRSG himself refers to this as a “broad and highly politicised” issue. In this regard the need for international action by multilateral institutions on business and human rights issues may be important.

As to the “corporate responsibility to respect” this is seen as a “responsibility” rather than a “duty” in that there is currently no legal requirement for corporate actors to observe human rights under international human rights law, although this does not rule out duties under domestic laws. Thus the responsibility to respect under international law remains “a standard of expected conduct acknowledged in virtually every voluntary and soft-law instrument related to corporate responsibility…”(Report at para.55) even though under domestic law it is not “a law-free zone.” (Report at para.66).

It is also a standard independent of the State’s duty to protect, even though a corporate actor could infringe any of the rights contained in the main international human rights instruments. One change from earlier Reports is that the “do no harm” basis of the responsibility to respect has given way to a more comprehensive foundation for the concept. The responsibility to respect human rights now means “avoiding the infringement of the rights of others and addressing adverse impacts that may occur.” (Report at para.57)

Thus a positive element of action is required, not just a passive avoidance of harm. This element is significant given the SRSG’s listing of a number of legal compliance problems that may confront corporate actors, and which will require positive moves to respond to adverse impacts. These include the need to continue to observe international standards in weak governance zones, resolving conflicts between international standards and national laws, adequately assessing stakeholder risks that may require disclosure and action under national company and securities law and certain categories of international crimes.

The positive action element is also found in a more detailed exposition of the now familiar “due diligence” concept used by the SRSG to flesh out the responsibility to respect. This requires that the company moves from being a victim of “naming and shaming” to “knowing and showing” that they understand and internalise human rights through due diligence.

The Report goes on to list the main elements of due diligence (including a full human rights policy, periodic assessments of human rights impacts and proper control and reporting systems) laying stress on effective corporate grievance procedures. Quite correctly the Report stresses that this is not like other commercial due diligence processes, which are in the main transactional processes, as there is a constant need to engage in communication with the right-holders. In other words the firm must look beyond the protection of its own interests and focus on the interests of those it affects by its actions.

The legal implications of such due diligence are also considered. In particular the SRSG argues that properly conducted due diligence will provide strong protection against mismanagement claims by shareholders and give proof that the company took every reasonable step to avoid involvement in a violation, which should count in its favour in litigation. However the SRSG rejects the notion that human rights due diligence should automatically absolve the company from liability under, for example, the Alien Tort Claims Act in the US.

Finally on the question of remedies the Report stresses the value of proper and effective corporate level grievance mechanisms and argues for a strengthening of national human rights institutions’ involvement as well as a strengthening of the OECD Guidelines on Multinational Enterprises National Contact Points. However, as the Report notes, relatively few States have either type of institution and this absence encourages reliance on lawsuits against companies.

As for judicial mechanisms the Report contains a number of important recommendations for ensuring that proper legal redress is possible before national courts for corporate human rights violations. Thus clarification of the laws relating to corporate group liability and the rules relating to the exercise of extraterritorial jurisdiction over foreign elements of a multinational group are called for. In addition the need for solutions to the practical obstacles to such actions are highlighted including costs, the bringing of class actions and financial social and political disincentives for lawyers to bring such claims.

One area that is not discussed in detail, as compared to the previous Report of 2009, is international arbitration. This is a little curious given the express reference to the risks posed by BITs in limiting State action over human rights. The most significant element of BITs is their dispute settlement procedure and were BITs to have human rights observance rules for investors then access to investor-State dispute settlement procedures by the host country or other stakeholder group as claimants could be a way forward, though one not likely to be supported by business. Perhaps this would go too far beyond “principled pragmatism” at this stage, but it is at least worth considering.

In all this Report has much to commend it. It is the result of a process of multi-stakeholder dialogues and this shows in the willingness of the SRSG to place numerous policy ideas onto the agenda that would, if implemented widely, transform the state of corporate practice and legal redress in the field of corporate observance of human rights norms.

What remains for further clarification, as acknowledged by the Report, is the precise situation in weak governance zones, the link between the state duty to protect and the extraterritorial application of laws, particularly in lawsuits against complex multinational groups, the issue of parent/group liability and changes in national corporate laws to further entrench human rights as an aspect of corporate action. What also needs to be considered, but is not highlighted in the Report, is the link between due diligence and corporate duties of care and the personal duties of care of corporate officers. It appears highly unlikely that due diligence procedures will not give rise to binding duties of care and the Final Report should grapple with the implications of this eventuality.

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