NEW COMPLIANCE EXPECTATIONS FOR COMPANIES: MANAGING HUMAN RIGHTS-RELATED RISKS

Corporate stakeholders, including investors, customers and employees, expect companies to operate responsibly and not cause or contribute to human rights abuses. As a result of such expectations, companies that fail to manage the human rights impacts of their business activities face risks including divestments, lawsuits and consumer boycotts. Ultimately, companies with demonstrable commitments to managing their adverse human rights impacts reduce their exposure to legal, reputational and operational risks.

In many countries, human rights protections are embedded in longstanding laws on subjects ranging from occupational health and safety to non-discrimination. A company’s commitment to compliance with these requirements is a significant step in ensuring that the company’s operations do not negatively impact human rights. That said, corporate stakeholders are also concerned with a company’s operations in countries in which local laws may not offer sufficient human rights protections. In addition, companies are being asked to account for human rights concerns associated with the activities of their suppliers, business partners and customers. Traditional legal compliance efforts are often insufficient to address these concerns.

Several recent reports have highlighted the potential costs of failing to operate consistently with the expectations of key stakeholders in a manner that fosters opposition to a company’s activities. In his April 2010 report to the UN Human Rights Council, John Ruggie, the UN Special Representative on Business and Human Rights, reported that costly project delays were often the result of “stakeholder-related risks”. He noted that one extractive sector company had experienced an estimated value erosion of $6.5bn as a result of such ‘non-technical’ risks. In a more recent report, published in 2014 by the Harvard Kennedy School, Rachel Davis and Daniel Franks found that the net present value of delays associated with community conflict for projects with a capital expenditure of $3bn to $5bn was approximately $20m per week.

Apr-Jun 2015 Issue

Foley Hoag LLP