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.
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:
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:
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.
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:
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.
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