Business and Human Rights in Australia

Articles Written by Samantha Daly (Partner), Lara Douvartzidis (Associate)

The proliferation of rights language in the corporate sphere is a relatively new phenomenon, however traces of it can be seen over the centuries.

The implementation of human rights into governance and corporate due diligence is steadily increasing. While it may be a relatively recent phenomenon in Australia, the management of human rights risk is a key element of good governance and responsible business for all sectors, industries and organisations.

United Nations Guiding Principles on Business and Human Rights

The United Nations Guiding Principles on Business and Human Rights (UNGPs) were adopted by the UN Human Rights Council in 2011. These principles are the authoritative standard to prevent business related human rights abuses, and call for an uptake of the following pillars of rights:

  • The State duty to protect human rights
  • The business responsibility to respect human rights
  • Access to remedy 

In September 2021 the Australian Human Rights Commission, in partnership with the UNSW Australian Human Rights Institute published a report titled At the Crossroads: 10 years of implementing the UN Guiding Principles on Business and Human Rights in Australia.

This report highlights that while there is growing evidence of the incorporation and consideration of the UNGPs by business and industry associations, including through multi-stakeholder initiatives and the introduction of key legislative reform, there are gaps in the implementation of the UNGPs in Australia in six key areas:

  1. Combatting modern slavery
  2. Embedding human rights due diligence into business practice
  3. Respecting the land rights of Aboriginal and Torres Strait Islander peoples
  4. Addressing the adverse human rights impacts of climate change
  5. Leveraging the role of institutional investors
  6. Ensuring access to remedy for victims

The Report makes clear that in Australia, incorporating human rights into business operations has been ad hoc and lacks a cohesive framework. Rather than a clear adoption of UNGPs, the report states that the current mindset of businesses is on voluntary corporate social responsibility, the understanding and awareness of the UNGPs is low, and human rights due diligence has not been embedded as a standard legal practice in Australia. 

On 29 November 2021 the UN Working Group on Business and Human Rights released the UNGPs 10+ Roadmap which outlines eight action areas for businesses to progress in order to achieve a full realisation of UNGPs.

EMN001326-v2.jpg

Australian human rights compliant mechanism

Australia does not have a federal human rights act, nor is it part of a supranational human rights framework like as within the EU. The only jurisdictions to have state based regimes are Victoria, Australian Capital Territory and Queensland. As a result, the means in which to file a complaint is limited as compared to the EU and other jurisdictions.

There has been a broader uptick in complaints following a strengthening of the Australian National Contact Point (AusNCP) complaint mechanism established by the OECD Guideline for Multinational Enterprises. This Guideline provides an international standard on responsible business conduct and is enforced by AusNCP. Complaints can be brought against multinational enterprises and are managed by an Independent Examiner. The complaint process occurs over three phases:

  • Phase 1: Initial assessment (three months) to analyse whether the issue raised warrants further examination. If the answer is yes, the matter moves to Phase 2. If not, it moves directly to Phase 3.
  • Phase 2: Good Offices (six – twelve months) to consult with parties, seek advice from stakeholders and consult NCPs in other countries concerned, and to facilitate access to conciliation or mediation to resolve issues.
  • Phase 3: Conclusion (three months) so that if an agreement is reached, a report will be issued. If the party is unwilling to participate in procedures, if no agreement is reach or if the complaint does not warrant further examination, a statement will be issued.

Human Rights Due Diligence: a global shift

There is a growing international trend of national and supranational legislators introducing laws to compel human rights due diligence and transparency obligations onto businesses that operate within its borders. In 2022 the EU Parliament introduced a Draft Directive on Corporate Due Diligence and Corporate Accountability (2020/2129(INL)) (EU Draft Directive) which seeks to mandate businesses to monitor, identify, prevent, manage, remedy and report human rights risks, environmental and governance risks in its business operations and value chain.

The EU Draft Directive includes new definitions into the market, which will no doubt trickle into the Australian market. For example, it moves away from “supply chain” as a term, and instead adopts a broader term of “value chain” disclosure. Article 3 defines Value Chain is defined as:

all activities, operations, business relationships and investment chains of an undertaking and includes entities with which the undertaking has a direct or indirect business relationship, upstream and downstream, and which either:

(a)  supply products, parts of products or services that contribute to the undertaking’s own products or services, or

(b)  receive products or services from the undertaking”

Under this EU Draft Directive a company will be required to publically disclose details of human rights risks and the steps proposed to remedy the issue. Although it has not passed into law yet, it is expected that once it becomes operational, it will harmonise practices across the 27 EU Member States and provide a best practice template for other lawmakers to copy when drafting its own national laws. Understanding the implications of this EU Draft Directive is imperative for businesses moving forward, particularly where that business operates within an EU member state.

The Directive makes clear that companies must integrate human rights and environmental due diligence into all corporate policies and introduce a standalone due diligence policy containing a description of the company’s approach (short, medium and long term) to due diligence – which should be updated annually.

As part of the best practice shift, companies are expected to introduce a code of conduct describing the rules and principles to be followed by employees and subsidiaries, a description of the processes put in place to implement human rights and environmental due diligence, including the measures taken to verify compliance with the code of conduct and to extend its application to established business relationships. The code of conduct should apply in all relevant corporate functions and operations, including procurement and purchasing decisions.

For Australian businesses, this Directive marks a decisive shift by a key trading partner towards corporate business and human rights accountability, responsibility and equality in the value chains of financial markets. However, compliance with the Directive (where Australian companies are either within its scope on its terms or required to comply due to counterparty or supply chain pressure) may be challenging, given Australia’s relative lack of experience in human rights and environmental due diligence obligations at a federal level. Time will tell whether the usual Australian focus on reporting obligations is expanded to include personal and corporate liability (for directors, officers and organisations) in the same way as the Directive seeks to do. Australia will similarly need to monitor the consequences of the SEC’s announcement on its rule change in relation to climate disclosures, and in particular its disclosure requirements for greenhouse gas emissions (capturing scope 1, scope 2 and scope 3 emissions) and climate transition risks.

There is a clear momentum for a suite of new laws to mandatorily impose human rights due diligence for companies, particularly in Europe and New Zealand. There can be no doubt that similar laws will be introduced in various forms in Australia and regulators will adapt to demand such disclosures moving forward. It is increasingly likely that prudential regulators will form expectations around disclosure of business and human rights issues in circumstances where the risk is non-financial or where the risk is material such that it would be captured by existing governance laws. Globalisation of the world’s financial and equity markets has tended to shift compliance standards even where governments do not, and so Australian companies would do well to skill up and assess these core non-financial risks now, and adjust their counterparty and supply chain due diligence, since a “wait and see” approach risks adverse action to compel a company to confront non-financial risks as contextualised in both EU and US markets.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

Related insights Read more insight

What is a “right to mine” and what is an “infrastructure facility” in the Native Title Act?

The High Court has delivered its decision in Harvey v Minister for Primary Industries and Resources [2024] HCA 1.

More
Mandatory climate-related financial disclosure – exposure draft legislation released for comment

Treasury has released an exposure draft of its CRFD legislation for public comment. This is the next step towards introducing mandatory and standardised CRFD for medium and large listed and...

More
Climate-related financial disclosure Q&A on exposure draft legislation

This short Q&A explains what is in the 12 January 2024 exposure draft legislation.

More