|The UN endorsing
the Guiding Principles on Business and Human Rights makes
clear that the private sector has obligations
Both strategic and financial investors must carry
out human rights due diligence to mitigate litigation and
Corporate human rights violations carry enormous headline risk. Recent examples include the 2013
collapse of an apparel factory in Bangladesh, and the discovery
that slave labour was used to produce feed for prawns
sold by Walmart, Carrefour, Costco and Tesco.
In 2011 the UN endorsed its Guiding Principles on Business and Human Rights
for the private sector. Since then, it’s become
clear that the burden has shifted – at least partially
– to companies, resulting in a greater focus on human
Clients are investing more time and money in human
rights due diligence, observed Antony Crockett, international
counsel at Hiswara Bunjamin & Tandjung, Herbert Smith Freehills’ associated
firm in Jakarta.
"There are a lot of parallels in relation to
anti-bribery due diligence, and what you do in response to
those risks," he said. "However human rights due diligence can
take longer and be more difficult than bribery and corruption
because the legal framework is more complex."
- Human rights due diligence is becoming more
common and important in M&A deals;
- Following the UN’s endorsement of
the Guiding Principles on Business and Human Rights,
corporates have become more cognisant of their human rights
risks and obligations;
- Financial investors who may lack visibility or
the ability to monitor sites directly must be especially
- Problematic areas include land acquisition and
Part of the reason why this wasn’t
traditionally a focussed on area of diligence was that nobody
in the business community – including lawyers at
corporate firms – thought about human rights as being
connected to how business is done, said Crockett.
"It was considered a government issue, rather than something
the private sector needed to be concerned about," he added.
"The UN Guiding Principles changed that; while no laws have
changed, they have raised people’s awareness."
While international law was thought to be sufficient to
protect human rights, there are plenty of governments that
don’t meet their obligations under human rights
"That leads to expectations on businesses, particularly
multinationals, to fill that gap," he said. "In one sense the
Guiding Principles impose a burden on companies to do what
governments should be doing – not in the sense of
regulating, but of taking steps to ensure that
people’s human rights are protected."
Companies in the extractive sectors have been doing this for
a long time, and have lawyers and other professionals who deal
with human rights on a daily basis, Crockett added.
Human rights due diligence
can take longer and be more difficult than bribery and
But that isn’t the case for financial
investors, who are generally based in financial centres and may
not have the visibility or bandwidth to monitor their
In particular, limited partners (LPs) in private equity
funds are increasingly asking managers to acknowledge the
Guiding Principles when investing; a human rights violation
could damage both LPs and general partners’ (GPs)
What to look
"Labour is probably the number one issue, while issues
around land have been hugely problematic, especially with the
explosion of agribusiness and huge acquisitions of land in the
developing world," said Crockett.
Those issues apply not only to the asset or company that is
being acquired, but also its supply chain; in the supermarket
incident, the companies providing feed for the prawns were
using slave labour.
Another issue is the complexity of human rights rules.
"Human rights due diligence implies understanding the relevant
international standards for protection of a particular human
right, looking at the domestic law position in a particular
country, and then trying to work out if there’s a
gap," said Crockett.
"And if there is a gap, companies must then determine how
they’re going to conduct business in the country
so that international standards are respected."
While that sounds similar to anti-corruption diligence, the
legal analysis for human rights is more complex. And companies
aren’t always structured to deal with that.
Companies’ social performance and human right
issues have, for a long time, fallen within the responsibility
of the corporate-social responsibility (CSR) department, which
isn’t typically staffed by lawyers or focussed on
"But dealing properly with human rights risks requires an
understanding of the relevant legal standards at both a
domestic and international level," Crockett said. "This is
something that corporate legal counsel will be forced to get to
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