By Daniel Harrison and Jonathan Hew

Lawyers must have the intersection of business and human rights at the front of their minds, and in-house counsel are no exception. Human rights risks transcend borders and industries, and may lead to bet-the-company litigation and irreparable reputational harm.  Lawyers should therefore welcome and heed recent practical guidance from the International Bar Association (IBA) on how to address this issue.

On 1 November 2016, the IBA launched the Reference Annex  to the IBA Practical Guide on Business and Human Rights for Business Lawyers. The Reference Annex explains how lawyers should implement the United Nations Guiding Principles on Business and Human Rights (UNGPs), the global standard on human rights obligations for businesses.

While the Reference Annex contains broad guidance for business lawyers generally, it also makes a number of important practical points for in-house counsel of transnational enterprises.

(1) Baseline expectation – The UNGPs oblige businesses to respect all internationally recognised human rights[1]. A business should avoid infringing human rights, take appropriate action to avoid adverse human rights impacts and seek to prevent or mitigate impacts directly linked to its operations, products or services through business relationships.  A business should also establish or participate in mechanisms to prevent and address grievances before they impact human rights.

(2) Policies and processes – A business should have in place appropriate policies and processes, including:

  • A human rights policy commitment – This is a high-level, public statement that affirms a business’ respect for human rights and sets clear expectations for the conduct of business relationships.  The statement should also be embedded throughout the business to affect its decisions and operations, for example, via leadership by top management and performance incentives.
  • Human rights due diligence – This is an ongoing process to identify, prevent, mitigate and account for adverse human rights impacts.  A business should assess risks by severity and likelihood, take action to respond to those risks, track the effectiveness of its responses and communicate its efforts to affected stakeholders and the public.
  • Processes to remedy human rights harms – A business should take steps to address the cause of human rights harms and to remedy such harms.  It should also take steps to mitigate the risk of future harm.  This may involve exercising its influence in, and possibly even terminating, contractual and non-contractual relationships.

(3) Negotiation and performance of agreements – Through its lawyers, a business may be able to influence human rights issues positively through various agreements including:

  • JV agreements – A business should conduct human rights due diligence on JVs.  A business should also negotiate corporate governance provisions which enable it to influence the JV’s human rights performance.  Furthermore, the JV agreement should enable the JV itself to identify and address human rights risks.
  • M&A agreements – Potential barriers to addressing human rights in M&A include confidentiality, timing and a narrow focus on legal compliance that may neglect broader human rights concerns.  Nevertheless, a purchaser should take steps such as conducting background research on a target’s wider operating context and/or gaining an insight into stakeholder perspectives through confidential consultations with experts or credible proxies for affected individuals and communities.
  • Supply chain agreements – Purchasers often rely on the standards set out in pro-forma documents and audits to ensure that suppliers comply with human rights.  However, for greater efficacy, purchasers should engage in dialogue with suppliers to create a common understanding about the purpose of human rights standards and to encourage suppliers to build their capacity to address human rights issues.

[1]  These include the rights set out in the Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights, as well as the International Labour Organisation’s Declaration on Fundamental Principles and Rights at Work.