Professor John Ruggie, the United Nations Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises, issued a final Report and Guiding Principles on Business and Human Rights on March 24, 2011. The Guiding Principles set forth steps States should take to foster business respect for human rights, and provide guidance to companies on how to adhere to international human rights standards. The UN Human Rights Council will consider formal endorsement of the text at its June 2011 session.

I. Background

Professor Ruggie's Guiding Principles are the product of six years of research commissioned by former UN Secretary General Annan in July 2005. In June 2008, Professor Ruggie presented a report titled Protect, Respect and Remedy: a Framework for Business and Human Rights to the UN Human Rights Council (the "Framework"). The Framework consists of three core principles: 1) the duty of States to protect against human rights abuses by third parties, including business enterprises; 2) the corporate responsibility to respect human rights; and 3) the need for greater access by victims to effective judicial and non-judicial remedies.

The UN Human Rights Council welcomed the Framework and requested that Professor Ruggie offer "concrete and practical recommendations" for its implementation. In November 2010, Professor Ruggie responded by issuing a draft of the Guiding Principles on Business and Human Rights ("Draft Principles"). The Draft Principles were open for comment for three months and received approximately 90 submissions from the business community, NGOs, international organizations, academics, and governments. After considering these written submissions and engaging in consultations with various stakeholders, Professor Ruggie submitted the revised and final text of the Guiding Principles to the Human Rights Council in March 2011.

II. Overview of the Guiding Principles

The Guiding Principles are intended to elaborate on "the implications of existing standards and practices for States and businesses," rather than create new international law obligations. As with the Framework, they represent "soft" rather than "hard" law (but with the possibility, as with any such instrument, they may evolve over time into hard law or otherwise inform standards of care). The Principles track the structure of the Framework, with each substantive section addressed to one of the three pillars.

First, the Principles reiterate the State's core duty to protect human rights (Principle 1). The Principles recommend, for example, that States should:

  • Address any gaps in laws and policies requiring businesses to respect human rights, provide guidance to businesses on how to respect human rights, and encourage or require reporting by businesses on their human rights performance (Principle 3);
  • Exercise adequate oversight with respect to contractual relationships and ensure respect for human rights by State-controlled enterprises (Principles 4-6);
  • Assist businesses operating in conflict zones to identify, prevent, and mitigate risks and withdraw support for enterprises that fail to address adverse human rights impacts in such areas (Principle 7);
  • Ensure policy coherence by considering human rights across all relevant governmental agencies (Principle 8), promoting human rights through multilateral institutions dealing with business-related issues (Principle 10), and maintaining "domestic policy space" to fulfill human rights obligations when pursuing economic objectives such as investment treaties and contracts (Principle 9).

Second, the Report calls on business enterprises to respect human rights. In particular, businesses must avoid infringing on human rights and address adverse human rights impacts with which they are involved (Principle 11). To do so, businesses should:

  • Adopt a clear policy statement that is approved at the most senior levels and embedded in the organization through operational procedures (Principles 15-16);
  • Conduct ongoing human rights "due diligence" by assessing the actual and potential impacts of their activities and relationships, acting on the findings, tracking the responses, and communicating their actions externally (Principles 17-21);

  • Engage in remediation where they have caused or contributed to adverse human rights impacts (Principle 22);
  • Find ways to respect human rights regardless of the domestic enforcement context (Principle 23b); and
  • Treat the risk of contributing to gross human rights abuses through human rights violations as a matter of legal compliance wherever they operate (Principle 23c).

Third, the Principles call for effective State-based and non-State-based remedial mechanisms for those affected by business-related human rights harms. In particular:

  • States should ensure access to State-based judicial and non-judicial grievance mechanisms and facilitate access to non-State-based grievance mechanisms (Principles 25-28);

  • Businesses should establish or participate in non-State-based, operational-level grievance mechanisms to identify, track, and address adverse human rights impacts from their activities (Principle 29);
  • Grievance mechanisms should be legitimate, accessible, predictable, equitable, transparent, rights-compatible, a source of continuous learning, and – in the case of operational-level mechanisms -- based on dialogue and engagement (Principle 31).

III. Results of Comment Period and Consultation Process

The final Report and Guiding Principles, including their related Commentary, reflect Professor Ruggie's consideration of input from various business associations, governments, NGOs, academics, and others during the comment period and consultation process. Some of the most noteworthy revisions are summarized below.

State Responsibility to Respect Human Rights and the Rule of Law

Responding to concerns from the business community, the Guiding Principles highlight the obligation for States themselves to respect both human rights and the rule of law. For example, General Principle (a) was revised to highlight States' obligations to "respect, protect and fulfill human rights and fundamental freedoms." The revised Commentary to Principle 1 (concerning the State duty to protect against human rights abuses) emphasizes the State "duty to protect and promote the rule of law, including by taking measures to ensure equality before the law [and] fairness in its application, and by providing for adequate accountability, legal certainty, and procedural and legal transparency." (Emphasis added). Such a duty does not currently exist in international law, and its inclusion in the Guiding Principles is significant.

Role of Home States in Situations of Conflict

The Principles recognize that, in situations of conflict, "host" States may be unable to protect and ensure respect for human rights in their territories. (Principle 7, Commentary) Businesses are encouraged to seek guidance from States on how to avoid contributing to human rights harm in such contexts. The Principles also emphasize the role of businesses' "home" States to assist both companies and host states in ensuring respect for human rights in conflict-affected areas. (Principle 7, Commentary).

Human Rights Benchmarks, Including Attention to Vulnerable Groups

The Guiding Principles call on businesses to respect "human rights," referring "at a minimum" to the International Bill of Human Rights and the principles concerning fundamental rights set out in the ILO's Declaration on Fundamental Principles and Rights at Work. (Principle 12) The business community observed in comments to the Draft Principles that these instruments have not been universally ratified, and the final Commentary continues to recognize that the corporate responsibility to respect these human rights is "distinct from issues of legal liability and enforcement, which remain defined largely by national law provisions in relevant jurisdictions." Nevertheless, the Commentary notes that these instruments are used as "benchmarks" by other social actors to "assess the human rights impacts of business enterprises." (Principle 12, Commentary)

Responding to concerns from NGOs and others, the Commentary recommends that, depending on the circumstances, businesses should take other standards into account to ensure respect for the human rights of vulnerable and marginalized groups. These include UN instruments on the rights of indigenous peoples; women; national or ethnic, religious and linguistic minorities; children; persons with disabilities; and migrant workers and their families. In situations of armed conflict, businesses also should respect the standards of international humanitarian law. (Principle 12, Commentary) Similarly, the Principles call on States to address the needs of vulnerable or marginalized groups in providing guidance to businesses and ensuring access to an effective remedy. (Principles 3, 7, 12, 18, 20, 26)

Guidance on Human Rights Due Diligence

The Guiding Principles emphasize that the responsibility to respect human rights applies to all businesses, "regardless of their size, sector, operational context, ownership and structure." (Principle 14) They recognize, however, that the "scale and complexity of the means" companies use to meet that responsibility may vary "according to these factors and with the severity of the enterprise's human rights impacts." (Principle 14)

The final Principles have revised the guidance on required third-party due diligence. The Principles now recommend that companies conduct due diligence on third parties "directly linked to" – rather than merely "associated with" – their operations, products, or services. (Principle 19) The Principles also acknowledge that appropriate action to prevent and mitigate adverse human rights impacts associated with a third-party relationship will vary according to the severity of the impacts, the extent of a company's connection to the impacts and leverage in addressing them, as well as how crucial the impacting relationship is for the business. The Report suggests that companies may increase leverage by offering capacity-building to the third party and through collaboration with other actors. (Principle 19) Where a particular relationship is deemed "crucial" to a business, however, the Principles recommend that the business engage in "ongoing efforts to mitigate the impact" and be "prepared to accept" any financial, legal, or reputational consequences resulting from continuing the relationship. (Principle 19)

Recognizing that companies may not be able to address all human rights impacts simultaneously, the Principles recommend that companies prioritize efforts in the highest-risk areas. (Principle 24)

Human Rights Reporting and Disclosures

The Principles call on States to "encourage and, where appropriate require, business enterprises to communicate how they address their human rights impacts." (Principle 3) They also encourage businesses to "communicate" their human rights impacts externally. (Principle 21) Appropriate communication may range from formal public reporting to informal engagement with stakeholders. (Principles 3 and 21, Commentary) Where the risk of severe human rights impacts exists, however, the Principles suggest that companies should report formally on how they identify and address such impacts. (Principle 21) States are encouraged to offer incentives for businesses to communicate their responses to human rights impacts by providing credit for self-reporting in the event of judicial or administrative proceedings. (Principle 3, Commentary)

States also are encouraged to "clarify" in financial reporting requirements that human rights impacts in some instances may be "'material' or 'significant' to the economic performance of the business enterprise.'' (Principle 3, Commentary) The business community had expressed concerns about uncertainty created by language in the Draft Principles calling for disclosure where human rights impacts were "'material' or 'significant' from the investors' point of view." (Emphasis added). By setting "economic performance" as a point of reference, the final Principles appear to focus on objective rather than subjective concepts of materiality or significance.1

Extraterritoriality

In written comments on the Draft Principles, several NGOs called for the Principles to require States to regulate the extraterritorial conduct of businesses domiciled in their territory. Instead, both the Draft Principles and final Guiding Principles acknowledge that "at present" States are not "generally required under international human rights law to regulate the extraterritorial activities of businesses domiciled in their territory and/or jurisdiction." (Principle 2, Commentary) The Principles nonetheless encourage States to "set out clearly the expectation" that such businesses respect human rights "throughout their operations." (Principle 2) The Commentary to Principle 2 notes that this may be accomplished by requiring parent companies to report on their operations at home and abroad, through multilateral soft-law instruments and performance standards for overseas investments, or through direct extraterritorial legislation (including criminal enforcement based on the nationality of the defendant).

Conflict between National and International Law

The Guiding Principles continue to create operational challenges for companies expected to both comply with all applicable laws and respect international human rights wherever they operate. (Principle 23) In response to concerns from the business community regarding potential conflicts between host country laws and international human rights norms, the Principles recommend that companies "respect the principles of internationally recognized human rights to the greatest extent possible in the circumstances" and "be able to demonstrate their efforts in this regard." (Principle 23, Commentary)

Additional Guidance on Grievance Mechanisms

The revised Principles address the potential for abuse of remedial mechanisms, calling for such procedures to be "impartial, protected from corruption and free from political or other attempt to influence the outcome." (Principle 25, Commentary) Similarly, the Principles note that effectiveness of State-based judicial mechanisms hinges on their "impartiality, integrity and ability to accord due process." (Principle 26) The revised Principles ask States to address the "frequent imbalances between the parties to business-related human rights claims" and the barriers that vulnerable and marginalized groups face to accessing an effective remedy. (Principles 26-27 and 31) Despite concerns raised by the business community, the Principles continue to encourage States to reduce "legal barriers" to effective remedies that arise from the corporate form and "practical or procedural barriers" that result from "inadequate options" for class actions and other collective action procedures. (Principle 26)

IV. Conclusion

The Guiding Principles are an important step in renewed efforts of the United Nations to establish a framework for business and human rights norms. Multinational companies will increasingly face the expectation of enacting human rights compliance programs, engaging with stakeholders, and participating in meaningful remediation programs. While the Principles do not constitute "law," they will likely lead to increased human rights regulations and form the framework for norms reflected in the work of UN Special Rapporteurs, international tribunals, and other bodies with legal authority. Already, UN special procedures committees, as well as the OECD and the International Organization for Standardization, have embraced Professor Ruggie's principles in their guidelines. The framework is also shaping intergovernmental discussions in regional bodes, as well as influencing individual States' review of foreign financial investments. The Principles also may be considered by courts in the context of identifying a relevant "duty of care" in common law negligence actions. NGOs will certainly attempt to use them as a pressure point as well in their ongoing campaigns to secure both state and corporate actions. For multinational companies, consideration of how to manage these issues will be an increasingly important issue for attention.

Footnotes

1.For US SEC reporting companies, current US securities laws do not include a specific disclosure requirement for "human rights impacts." A company would be required to disclose such impacts, however, if "material" under existing legal standards. Materiality is not based on financial criteria alone. Thus, disclosure would be required if there is a substantial likelihood that a reasonable investor would consider the information important in making an investment decision or if the disclosure is necessary to make a company's statements, in the circumstances in which they are made, not misleading. See TSC Industries v. Northway, Inc., 426 U.S. 438 (1976); Basic v. Levinson, 485 U.S. 224, 238 (1988); Rule 12b-20 under the Securities Exchange Act of 1934. Companies may increasingly face legislative efforts to mandate disclosure of corporate activities relevant to human rights without regard to financial materiality. For example, the "Dodd-Frank bill" passed into law in the United States in July 2010 imposes due diligence and financial disclosure requirements on issuers of US securities that "manufacture" products using, as a necessary input, minerals identified as contributing to armed conflict from the Democratic Republic of Congo and neighboring countries. (See Steptoe advisory) The challenges already encountered in the implementation of this legislation highlight the difficulties of reconciling human rights disclosure with disclosures based on concepts of financial materiality and accounting transparency.

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