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Energy Law Exchange

October 9, 2017

Human Rights Considerations & Best Practices for Energy Companies


International human rights laws and norms are increasingly playing a role in shaping how energy companies conduct their business all over the world.  Shareholders increasingly demand compliance with human rights norms; national and regional laws require companies to investigate and report on their level of compliance; companies have to defend themselves from lawsuits brought by human rights activists alleging non-compliance; and NGOs have embarked on public assessments of how companies compare against each other in terms of compliance with human rights.  All of this means that energy companies need to undertake systematic human rights due diligence starting from the senior leadership and working through all levels of the supply chain.  This article describes the recent trends in human rights law relevant to energy companies and describes best practices that companies should be implementing. 

I.  What is the international law governing business compliance with human rights?

Currently, there is no multilateral international law treaty that creates legally binding obligations on the compliance of businesses with international human rights law.  This likely will change in the near future.  In 2014, the Human Rights Council of the United Nations adopted a resolution creating a working group focused on drafting such a treaty, and the third session of the working group will take place from October 23 to 27, 2017 in Geneva. 

Meanwhile, the international community has promulgated in recent years a number of non-binding legal instruments that list and specify the best practices that businesses should implement to comply with human rights, and that call on states to take measures to legislate national laws that will create binding obligations on businesses operating in their territories.  Endorsed by the United Nations in 2011, the UN Guiding Principles on Business and Human Rights provides a framework on the subject of human rights and transnational business enterprises.  In June 2008, in response to an invitation by the Human Rights Council, UN Special Representative John Ruggie proposed a three-pillared framework on business & human rights: (1) the duty of the State to protect against human rights abuses by third parties, including businesses; (2) the responsibility of corporations to respect human rights; and (3) greater access to effective remedy, both judicial and non-judicial, for victims. The Human Rights Council unanimously approved the UN Guiding Principles in 2011.

Similarly, the OECD issued OECD Guidelines for Multinational Enterprises in 2000, and updated them following the endorsement by the United Nations of the UN Guiding Principles.  The OECD Guidelines provide standards for responsible business conduct consistent with applicable laws and are intended to be implemented at a national level by OECD member states. They include sections on disclosure and transparency, human rights, environmental issues, and combating bribery and extortion.

The trend shows that States and regional organizations are taking these obligations seriously, and have implemented laws with which businesses must comply.  It is imperative that energy companies understand their obligations pursuant to these national and regional laws that have been implemented to bring States into compliance with their international law obligations.

For example, the OECD Guidelines called for the creation of National Contact Points (NCPs), which could be used by concerned parties to lodge public complaints against businesses with respect to alleged human rights violations.  OECD member states, including Australia, France, Germany, Switzerland, the U.K. and the U.S., have created NCPs, and these NCPs have investigated complaints lodged with them by concerned parties.  NCPs do not generally have the power to impose binding sanctions on companies, but that does not mean that companies should take these NCPs lightly.  In many jurisdictions, the NCPs take their functions seriously, and investigate the complaints they have received.  The results of an investigation may severely impact a company’s bottom-line through public shaming, reputational harm, and the sharing of material gathered by the NCP to potential litigants.  For example, in October 2013, the French NCP (in parallel with several French courts and the administration in charge of labor issues) investigated an energy company operating in France following a request for review submitted by three French trade unions. The unions alleged that the group breached the general policies and the provisions on employment and industrial relations of the OECD Guidelines.  While the NCP found that the conflict in question had already been settled, it determined that the company had not been in compliance with these provisions of the OECD Guidelines between February and July 2013.  The NCP issued several recommendations to the energy company related to its due diligence processes, emphasized the gravity of the previous violations, and scheduled a follow-up for the coming year.

II.   Does the law impose any reporting requirements on energy companies regarding human rights?

Increasingly, regional and national laws impose legally binding reporting requirements on companies operating in their jurisdictions on human rights issues.  For example, in the EU, Directive 2014/95/EU (“Non-Financial Reporting Directive”) mandates disclosure of non-financial and diversity information.  Energy companies in the EU should be aware that this applies to “large public-interest companies with more than five hundred employees” (of which there are approximately six thousand across the EU).  The Directive requires disclosure on topics of environmental protection, social responsibility and treatment of employees, respect for human rights, anti-corruption and bribery, and diversity on company boards (in terms of age, gender, educational and professional background).  The EU Directive does not mandate a specific form of disclosure, but recommends that businesses rely on the UN Global Compact or the OECD Guidelines as a point of reference.

More stringent than the Directive, France’s “Corporate Duty of Vigilance” law, enacted in 2017, compels businesses headquartered in France with over five thousand employees in France (or ten thousand employees globally) to draft “vigilance plans” and take steps to prevent adverse human rights and environmental impacts arising from the activity of their own company and companies that they “control.”  This is stricter than the EU Directive, in that it requires the companies to actively undertake due diligence to identify and mitigate business risks.  If businesses do not comply, “interested parties” (including victims, NGOs, and trade unions) are empowered to bring actions seeking orders in respect of noncompliance.  The legislation also creates a new basis for civil liability for human rights-related and environmental damage under the French Civil Code.

The trend in human rights due diligence and reporting is not limited to Europe.  In the United States, the California Transparency in Supply Chains Act requires companies doing business in California with worldwide gross receipts above one hundred million dollars to publicly disclose the degree to which they are taking action to eradicate slavery and human trafficking from their direct supply chain.  It further requires companies to verify whether the company assesses and manages the risks of human trafficking, and to disclose the type of auditing that was performed, what types of certifications are required from their suppliers, what internal procedures are created to protect against slavery and human trafficking, and what type of training is available.  Even companies that are taking no such actions must comply and disclose this information (their inaction) or run the risk of facing prosecution.

Thus, it is essential that energy companies determine whether the jurisdictions in which they are headquartered or operate impose any reporting obligations on them.  If so, they must comply with such requirements, which likely require them to disclose their human rights due diligence efforts.

III.  What is the risk of litigation in the event of non-compliance with human rights norms?

Energy companies need to be aware of the growing trend of parties bringing claims against companies headquartered in Europe and North America for offenses allegedly committed by their subsidiaries, contractors or affiliates located in a different jurisdiction.  This trend of upstream liability coincides with a time when climate change lawsuits are on the rise, making energy companies particularly susceptible to the threat of litigation.  In 2017, the United Nations Environmental Programme and Columbia Law School initiated a study, The Status of Climate Change Litigation,[1] which found  a “proliferation” of cases instigated by citizens and environmental groups pertaining to areas such as sea-level rise, coal-fired power plants, and oil drilling.  The study found that the U.S. was the site of 654 climate-related cases, almost triple that of the rest of the world combined.  Energy companies should be particularly aware of the threat of these suits.  After all, even if they may lack merit, they may require large out-of-court settlements as companies wish to minimize reputational damage and legal costs.

But potential liability of the parent company is not limited to climate change litigation.  Recently, EarthRights International, an American NGO, partnered with a Peruvian farmer and her family to file a lawsuit against Newmont Mining Corporation and three of its corporate affiliates (collectively, “Newmont”) in federal court in Delaware relating to a gold mining project undertaken by a Peruvian subsidiary.  The case, Acuña v. Newmont, is premised on the claim that Newmont used violence and threats to try to evict Ms. Acuña from her home to clear the way for the mining project.  Ms. Acuña filed charges of battery, assault and intentional infliction of emotional distress, seeking damages of at least seventy five thousand dollars for each affected member of Acuña’s family.  Prior to the lawsuit, Newmont’s Peruvian unit had accused the Acuña family of illegally occupying land, claiming that it lawfully purchased the land in the 1990s with the purpose of developing a mine worth USD 4.8 billion.  Acuña filed her complaint on September 15, 2017, and demanded a jury trial.

Similarly, a suit against a Canadian parent company alleging human rights abuses against foreign workers at an Eritrean mine partially (60%) owned by the Canadian mining company is currently on appeal in the British Columbia Court of Appeals on the question of whether such a suit may be heard in a Canadian court.  In October of 2016, the BC Supreme Court held that employees working in Eritrea at Nevsun Resources’ mine did have the right to have their allegations heard in Canada, which Nevsun contested, arguing instead that the case should be heard in Eritrea and further contested that the wrongdoing was at the hands of a local, government-controlled construction firm and local contractor.  The initial case involved three workers, but since then two more lawsuits, involving 45 former Nevsun employees, have also been filed against the company.  The allegations assert major human rights violations, including claims that employees were forced to work in the mine following their mandatory term with the Eritrean National Service, that they were confined in “sweatboxes” measuring only four feet wide by four feet deep with no ventilation, and that employees were given very little to eat while working long hours for six-and-a-half days a week.

Along the same lines, the Alien Tort Statute (ATS) allows U.S. federal courts to hear cases brought by victims of egregious human rights abuses pertaining to acts committed abroad.  ATS claims can be brought against both natural persons and corporations, but claims against state governments are precluded by sovereign immunity.  ATS lawsuits may be brought for serious violations of international law such as terrorism, state-sponsored torture and extrajudicial killings, war crimes, crimes against humanity, and genocide.  In 2013, the U.S. Supreme Court applied a limited scope of the ATS and maintained a presumption against extraterritoriality, holding that a foreign multinational corporation with a presence in the U.S. could not be sued for human rights abuses abroad, stating that the case did not adequately “touch and concern” the United States and that  U.S. court could not hear “foreign cubed” cases, in which a foreign plaintiff is suing a foreign defendant for acts committed on foreign soil.  The case did not speak to “foreign squared” cases,  in which the plaintiff or defendant is a U.S. national or where the harm occurred on U.S. soil.  The question of whether such claims, involving a local arm of a foreign parent company, and a foreign victim, for actions committed abroad are viable will turn on the outcome of Jesner v. Arab Bank, a case currently pending before the U.S. Supreme Court.  The decision will clarify whether the ATS categorically forecloses corporate liability for human rights abuses, and should be closely monitored by energy companies. 

IV.  Peer-to-peer comparison in the energy sector regarding human rights compliance

NGOs and investors have also sought to identify best practices regarding an energy company’s compliance with human rights norms by comparing the performance of energy companies against each other.  Recently, a consortium of organizations conducted the Corporate Human Rights Benchmark (CHRB), which sought to rank the top 100 companies in the agricultural products, apparel, and extractive industries on their human rights performance.  As part of this initiative, the CHRB evaluated 41 extractive companies on their human rights policies, human rights due diligence, and their responses to allegations of human rights violations (including remedies).  The overall average “score” awarded to the companies was 29.4%, with the highest scores being in the 60-69% range.  The study concluded that the areas in which these companies were lacking the most was showing a true respect for human rights and undertaking sufficient human rights due diligence into areas of their business susceptible to human rights violations.[2]

V.   What are best practices for energy companies regarding compliance with human rights issues?

To evolve their practices to best suit the growing trend of human rights compliance, energy companies should consider taking steps in the following areas: developing and articulating a human rights policy; recognizing the responsibility to respect human rights; undertaking human rights due diligence; and establishing processes to remediate adverse human rights impacts that they may cause or to which they may contribute. 

a. Develop A Human Rights Policy

A robust human rights policy should include the features identified in UN Guiding Principle 16. Specifically, a successful policy should: (a) be approved at the most senior level of the business enterprise; (b) be informed by internal and external expertise; (c) stipulate the company’s human rights expectations of personnel, business partners and other parties directly linked to its operations, products or services; (d) be publicly available; and (e) be reflected in the company’s operational policies and procedures.

b. Demonstrate A Respect For Human Rights

Risk management is essential to the practice of respecting human rights as it empowers companies to identify and manage potential human rights impacts at the onset.  Companies may also showcase their commitment to human rights by developing a human right policy, and providing compliance training for all employees.  Various levels of training should be put in place to inform teams as they work to manage potential impacts in the communities where they operate, the provision of security, the administration of workforce, and the procurement of products and services.

c. Conduct Due Diligence

Energy companies should conduct due diligence to identify and manage potential rights-holder impacts through a variety of processes and tools that include social impact assessments and guidance for practitioners on how best to engage with indigenous peoples and manage land use and resettlement.  Human rights due diligence assessments should include potential impacts on natural resources, water use, community health, human rights, and livelihoods.  The information gathered through these processes should be integrated into decision-making on environmental, social, and health issues, and should be used to identify potential community and stakeholder benefits.

d. Reporting on Human Rights Practices

Given the growing prevalence of reporting requirements and the reputational importance of public reporting, transparency in reporting on human rights issues and environmental impacts should be a regular practice for energy companies.  In reporting on their practices, energy companies should be transparent about their practices and should acknowledge their challenges and shortcomings. 

e. Providing a Remediation Process

The UN Guiding Principles advises that companies should establish or participate in operational-level grievance mechanisms.  Energy companies should strive for a grievance mechanism that is legitimate, accessible, predictable, equitable, transparent, and rights-compatible.  The mechanism should be based on engagement and dialogue, and promote continuous learning, and should help prevent issues from escalating.

While many energy companies have already implemented some of the procedures identified as “best practices,” the importance of these considerations cannot be underestimated.  To avoid running afoul of “soft” law standards or reporting requirements, to dodge the growing trend of human rights litigation, and to maintain a positive reputation and avoid public shaming from reporting companies, human rights considerations should be a priority for energy companies as they continue to evolve and modernize their practices. 

[1] UN Environment, The Status of Climate Change Litigation: A Global Review. DEL/2110/NA (May 2017).

[2] Corporate Human Rights Benchmark, Key Findings 2017 pgs. 20-21, available at https://www.corporatebenchmark.org/sites/default/files/styles/thumbnail/public/2017-03/Key%20Findings%20Report/CHRB%20Key%20Findings%20report%20-%20May%202017.pdf.

 

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