Human rights violations can hurt a company’s reputation

Human rights violations related to labour standards (including minimum wage, safety, and health standards), contracted security, environmental conditions at work, and forced resettlement can be very damaging to the reputation of any business.

Supply chain human rights issues are becoming a focal point of increased legislation and legal risks likely to affect the Canadian mining industry, requiring effective management and due diligence to manage such issues as part of broader enterprise risk.

An important driver of these developments was the unanimous endorsement of the UN Guiding Principles on Business and Human Rights (the “Guiding Principles”) by UN Human Rights Council. Of importance to the Canadian mining sector, the Guiding Principles have been endorsed by the Canadian Government in the CSR Strategy for the Extractive Sector.

Supply chain human rights risk are manifesting in a variety of forms previously unseen. In 2015 a number of shareholder resolutions were filed in Canada demanding companies conduct human rights assessments in relation to their supply chains. These resolutions challenged the practices of companies in managing human rights issues in their supply chain, and/or sought to have the companies undertake enhanced due diligence to manage such issues. These resolutions were advanced by activist investors, and sometimes backed by large sovereign wealth funds that pursue a mandate of “ethical investing”.

Governments are enacting legislation aimed at improving corporate behavior in the context of human rights by requiring reporting, disclosure, and other measures. In the United States, the Dodd Frank Wall Street Reform and Consumer Protection Act (the “Dodd Frank Act”) introduced reporting requirements that relate to human rights impacts, including in relation to conflict minerals in the Democratic Republic of Congo. The California Supply Chains Act 2010, more broadly, requires large retailers and manufacturers doing business in the state with more than US$100 million in annual worldwide gross receipts to disclose their efforts to eradicate slavery and human trafficking from their direct supply chains for tangible goods offered for sale.

The recently passed UK Modern Slavery Act 2015 requires certain businesses with an annual global turnover of £36 million or more, to publish an annual slavery and human trafficking statement setting out the steps they have taken to ensure that slavery and human trafficking are not present in their own business or their supply chain.

North American Courts have also seen recent cases where alleged human rights violations in supply chains have formed the basis of a law suit. In January of 2016 the US Supreme Court, overturning a lower court, allowed a claim to proceed alleging child and forced labour on cocoa plantations in West Africa, affecting the Defendants’ supply chain. A company was recently sued under the California Supply Chains Act 2010 regarding allegations of slave labour used in its seafood supply chain, allegedly contradicting public statements of the company. In Canada, a recent class action against a major retailer has been launched by Bangladeshi garment workers who had been employed by the defendants’ subcontractor, regarding the collapse of the Rana Plaza building in 2013 which killed 1,130 workers. These cases, and others like them, highlight the legal risks associated with management of human rights in corporate supply chains. Analogous cases brought against Canadian mining companies form the legal basis for this new class action.

The question becomes, what can Canadian mining companies do to address these issues? Canadian mining companies may have a dual role, as a manager of a supply chain, and as a supplier to other businesses. Human rights management will be relevant in either case. The first step in implementing a human rights due diligence procedure is to develop a human rights policy statement for the prevention and mitigation of human rights violations. A policy should be communicated to suppliers and other affected stakeholders and should specifically address supply chain operations.

Companies should also develop supplier codes of conduct that address key components of human rights due diligence in the supply chain. Integration of the human rights commitment through internal functions and oversight is critical to ensuring effective due diligence. Mapping the supply chain and assessing potential and existing human rights impacts can be an important process. This can allow the company to prioritize impacts and suppliers based on the human rights risk to affected stakeholders. Where possible, companies may establish mechanisms to provide adequate leverage for managing and addressing negative human rights impacts in their own supply chains, including contractual protections and certification requirements. Companies may also develop a grievance mechanism for stakeholders to lodge a complaint, to allow the company to identify otherwise unknown negative impacts in the supply chain and track performance.

Where commitments are made to apply these standards, it is also critical that they be actually implemented. Gaps between what has been committed to an actually done, can create additional risks resulting from inadequate management. CMJ

Michael Torrance is a lawyer in Northern Rose Fulbright’s Toronto office.