The year 2019 continued the clear, if uneven, long-term trend toward greater business responsibility to respect human rights and to face accountability for missteps.
The supreme courts of the Netherlands and United Kingdom issued landmark rulings in human rights cases against the Dutch government and a British company. Meanwhile, global pressure continued to mount from investment funds, banks, legislators, and even leading CEOs to improve business disclosures and due diligence on human rights. Although a U.N. treaty drafting process limped along, the renegotiated U.S.-Mexico-Canada trade agreement added stronger protections of labor and environmental rights.
The following 10 issues are among the major developments globally in 2019.
Human Rights and Climate Change
In Urgenda Foundation v. State of the Netherlands, the Supreme Court of the Netherlands ordered the Dutch government to take measures to achieve a 25% reduction in greenhouse gas emissions by the end of 2020, well above the 20% target set by the government. Pursuant to the Dutch Constitution, the court invoked articles of the European Convention on Human Rights on the rights to life; to private and family life (as affected by adverse environmental impacts); and to effective legal protection. Although directed only to the state, the order may in practice compel the government to impose environmental measures on business.
The Dutch ruling followed the rejection of similar suits in 2019 by the High Court of Ireland and Germany’s Federal Administrative Court. However, Urgenda may be cited in support of similar suits pending against governments in Belgium, France, India, and Pakistan, as well as against the European Union.
Business and Human Rights Arbitration Rules
A drafting committee chaired by former International Court of Justice Judge Bruno Simma published the Hague Rules on Business and Human Rights Arbitration. Based on the 2013 UNCITRAL Arbitration Rules, the Hague Rules are modified to allow for greater procedural and cost flexibility, taking into account potential power and resource imbalances between the parties and the need for culturally appropriate and human rights-compatible procedures and awards.
The rules may be used by a wide range of parties, including businesses, labor unions, individuals, consenting classes of affected persons, civil society and international organizations, states, and third-party beneficiaries. Arbitrators may award not only monetary relief but also a range of reparatory measures. The rules encourage enforcement of awards under the New York Convention.
Tort Liability: Parents and Subsidiaries
In a landmark ruling, the Supreme Court of the U.K. held in Vedanta v Lungowe that U.K. courts can hear suits against both U.K. parent companies and their foreign subsidiaries for alleged environmental damages caused overseas.
In a case involving a copper smelter in Zambia, U.K. courts had jurisdiction over the U.K. parent company where there was a “real issue” of its triable liability, and also over its Zambian subsidiary, where the claims against the two companies were closely connected and there was a “real risk” that plaintiffs could not obtain substantial justice in Zambia. A duty of care by the parent company can arise depending on the extent and manner in which it takes over, intervenes, controls, supervises, or advises the relevant operations of its subsidiary.
Relying on European Union law, the court also ruled that a U.K. company could not invoke forum non conveniens before U.K. courts.
Tort Liability: Supply Chain
The Supreme Court of Canada declined to review the appellate decision in Das v. Weston that a Canadian retailer had no duty of care toward the employees of a sub-supplier, and other persons nearby, when the Rana Plaza factory building collapsed in Bangladesh, killing over 1,000 workers.
Applying Bangladeshi law, which in turn looks to English law, the appellate court found no precedent to extend a company’s duty of care to its contractual supply chain. The retailer’s potential cancellation of product orders did not amount to sufficient control over the supplier to warrant a duty of care, let alone for structural issues in factory buildings which the retailer did not own and which it had not undertaken to audit.
Business and Human Rights Treaty
As chair of a U.N. Human Rights Council working group, Ecuador’s ambassador to the United Nations in Geneva published a second draft of a proposed treaty on business and human rights. In response to earlier objections, the new draft proposed to cover national as well as transnational businesses, and made explicit reference to the U.N. Guiding Principles on Business and Human Rights. However, other objections remained, and the draft attracted scant diplomatic support at the U.N. working group meeting. A third draft is due in June 2020.
The U.S. House Democratic majority reached an agreement with the Trump administration, supported by the AFL-CIO, to strengthen labor and environmental protections in the proposed U.S.-Mexico-Canada trade agreement, intended to replace the North American Free Trade Agreement. Among other innovations, the new legislation would create “rapid response” international panels to inspect denials of labor rights at particular plants (although the process and consequences of such inspections remain unclear). The way was cleared for the Senate to approved the legislation (which it did in January).
Over 180 CEOs, including nearly all the members of the Business Roundtable, issued a statement that, while each company serves its own corporate purpose, they share a fundamental commitment to all their stakeholders—customers, employees, suppliers, communities in which they work, and shareholders.
This leading signpost of evolution in corporate culture from a “shareholder” to a “stakeholder” model may assist efforts to promote business respect for human rights, especially the statement, “We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.”
Human Rights Disclosures
Business human rights disclosures are on the increase, but still inadequate. Even where mandated by the EU Non-financial reporting directive, an analysis by the Alliance for Corporate Transparency of over 100 European companies in the fields of energy and resource extraction, information and communications technologies, and health, revealed that, while over 90% expressed a commitment to human rights, only about a third described their human rights due diligence system.
Investment and pension fund managers increasingly pay attention to business and human rights. For example, a May 2019 article by two leading specialists in the Harvard Business Review, based on interviews with over 70 senior executives at over 40 global institutional investing firms, including the three largest, found that ESG criteria—environment, social, and governance, all of which include aspects of human rights—are “almost universally top of mind for these executives.”
Yet U.S. business executives seem not to have kept pace: According to one survey, they estimate that 5% of their stock is held by firms using sustainability criteria, whereas the actual percentage is “more like 25%” and growing.
In November 2019, the over 100 large private and public banks participating in the Equator Principles released EP IV, to take effect in July. This fourth iteration of their agreement requires human rights due diligence for an expanded range of project development and related loans.
Despite all this, by year end, few businesses paid a material cost for overlooking their human rights responsibilities. But their room for maneuver—especially for large transnationals—appears to be steadily shrinking. Business lawyers are well advised to keep a close watch on evolving developments in diverse jurisdictions around the world.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Douglass Cassel, a New York-based counsel at King & Spalding, concentrates on business and human rights matters and international law.