Expecting business to respect human rights without incentives or Sanctions – Robert McCorquodale

4 September 2013 by

William HagueCross-government coordination on an issue that affects trade, international development, foreign affairs, business activity and human rights is remarkable, especially at such a difficult economic time. So the UK’s Action Plan on Business and Human Rights, which is the government’s long-awaited strategy for implementing the 2011 UN Guiding Principles on Business and Human Rights, is to be applauded for this achievement. Yet, while the Plan establishes clear expectations that UK companies should respect human rights, there are no effective legal requirements placed on them to do so.

In issuing this Plan, the Foreign Secretary and the Business Secretary reinforce the business case for respecting human rights, which includes reputational, legal and investment risk issues, and consumer expectation reasons. They also note that protection of human rights is good for business and communities, as “the thread of safeguards running through society that are good for human rights – democratic freedoms, good governance, the rule of law, property rights, civil society – also create fertile conditions for private sector led growth”. Adam Smith thought that this was required over two and a half centuries ago.

The Action Plan has followed the framework of the Guiding Principles in making clear that states have the legal obligation to protect human rights, that companies have a responsibility to respect human rights – being to act with due diligence and not to do harm – and for remedies to be provided for victims of human rights violations by companies. This applies to all companies, whatever their size, and in relation to all human rights. The Plan sets out what the UK government has done and what it will do in the next two years.

Much of this is impressive and well directed. This includes responsible business investment guidelines for investing in Burma, pressing for all private security service providers to comply with human rights, and ensuring that new bilateral investment treaties incorporate a company’s responsibility to respect human rights. There is also a commitment to ensure that all relevant government departments in the UK and abroad provide appropriate and consistent support and advice to companies about their human rights responsibilities. Assisting other states with capacity building to enable them to deal appropriately with business and human rights issues is also wise, not least as the provision of a rule of law in a state, including the protection of human rights, is conducive to trade and investment.

However, the Plan contains no real incentives for compliance or sanctions for non-compliance. This is despite the statement in the Plan that the Guiding Principles should be treated as a “legal compliance issue” by companies and that the state has an overall obligation to protect victims from violations caused by business activities.

The only hints given in this regard are a commitment to ensuring that in UK government procurement policies that human rights related matters are “reflected appropriately” and “may” exclude corporations that have violated human rights; that the UK Export Finance body “will consider” negative final statements by the (toothless and rarely used) National Contact Point when considering providing export credit; and that the Companies Act will require (from October 1 2013) that all company directors must include human rights issues in their annual reports (though there is no requirement to show implementation). There is also no focussed education and training element included to assist companies to comply with their responsibilities.

What is needed is an effective and transparent compliance mechanism that has human rights expertise and enforcement powers, so that there are real economic and social incentives for those companies to comply with human rights. Possible legal sanctions, such as protections for workers’ health, safety and non-discrimination (whose absence was seen in situations like the factory collapses in Bangladesh); effective, transparent and accountable company grievance mechanisms; and supporting access to judicial remedies in the UK against those companies that have violated human rights here and abroad, are starkly absent. Indeed, the latter is a requirement of the Guiding Principles and yet is being reduced dramatically by recent government actions, such as the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and its impact on legal fees.

It is welcome that the Plan applies to all business enterprises “domiciled” in the UK, and so includes those whose activity is in the UK even if not incorporated here. Yet the reality of contemporary business enterprises is that activity is often authorised and controlled from one location even if the conduct is undertaken by subsidiaries or other linked enterprises incorporated or “domiciled” elsewhere. Thus the Plan should include the activities of all companies abroad if part of a UK business enterprise. This would demonstrate the fact that actions and decisions made in the UK do cause harm in other states.

This Plan is very good in its expectations of what companies should do. Yet it is more about soft “leverage” by the government to persuade companies than about any effective action. This voluntary approach is not underpinned by any legal obligations, despite the government’s clear international legal obligations to protect all human rights from violation by others within its jurisdiction, including by corporations. This is in sharp contrast to some international developments, such as the Equator Principles, where human rights impact assessments are now effectively mandatory for companies for a range of investment activity.

Yet if the government is serious in its wish to “secure a level playing field” for UK companies to operate and for the UK “to show a lead on business and human rights”, then it must have a strong legal regulatory framework. This would ensure that the encouraging message to companies that is sent by this Plan is reinforced with incentives for all companies to act to uphold human rights and with legal sanctions where they do not. Until that happens, this Plan is bound to have a more limited impact than the Guiding Principles demand.

Professor Robert McCorquodale is the Director of the British Institute of International and Comparative Law. He is also a Professor of International Law and Human Rights at the University of Nottingham and a barrister at Brick Court Chambers. He has written extensively on, and advised governments, corporations and civil society about, business and human rights issues.

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