All posts by James Schmitt

Supply Chain Due Diligence Increasingly a Requirement for Companies

In these times of significant political change, how will national policies affect compliance requirements for companies with overseas operations? Could the growing anti-regulation sentiment impact recently enacted national business and human rights due diligence requirements? Certainly, evidence exists that this could and has occurred. However, a more comprehensive and global review of new national laws and measures requiring mandatory corporate supply chain due diligence and reporting, as well as corporate good practices, show a different global trend developing.

On the one hand: Suspension of elements of the “conflict minerals” rule

In the United States, the U.S. Securities and Exchange Commission (SEC) recently announced that it suspended enforcement of the corporate due diligence requirements of the “conflict minerals” provision, Section 1502 of the Dodd-Frank Act. The law was enacted in 2010 to prevent warring militias from receiving funds through the sale of scarce minerals, and requires publicly-traded companies to examine, and annually report, if their supply chains utilize certain minerals sourced from the war torn Democratic Republic of the Congo or neighboring countries.

With the suspension of elements of Section 1502, public companies will no longer be required to conduct a due diligence review or an audit, both part of the process used to determine the origin of the minerals. In response to the SEC’s decision, Human Rights Watch, a human rights advocacy organization, pointed out that “suspending enforcement of the SEC rule sends a strong signal that the US is downgrading respect for human rights as a priority in US policy towards Congo.” Other civil society organizations voiced equally grave concerns to the SEC.

On the other hand: Several large companies continue with their corporate due diligence efforts

However, human rights organizations were not the only ones to protest this revision in U.S. regulation. Perhaps more unexpectedly, corporations that source minerals from the region have also spoken up against the suspension of the corporate due diligence requirements. Apple, Intel, Tiffany & Co., and others have all stated their commitment to opposing the revision.

While it is currently unknown how intact 1502 will remain in the end, what is clear is that several major companies do intend to continue with their due diligence responsibilities even if they are not compelled to do so. Why?

Simply put investors, managers, employees, customers, and the public expect these companies to maintain their commitment to the responsible sourcing of minerals and to provide “conflict free” products to the marketplace.

Increasing launch of National Action Plans on business and human rights

Governments are also expressing their expectation that companies respect human rights and undertake human rights due diligence in their supply chains and for all their operations. Drawing on international frameworks such as the United Nations Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises, states have developed National Action Plans (NAP) that among other things address corporate due diligence responsibilities to identify, prevent, and mitigate human rights risk, create redress mechanisms, and facilitate access to justice for victims of abuses. The number of launched NAPs has increased by 55% since December 2016 and more are currently under development.

In recent months, states with large numbers of resident multinational corporations have released NAPs, to include Switzerland, Italy, the United States, Germany, and France. According to the UN Working Group on Business and Human Rights, an additional 21 states are in the process of developing a NAP or have committed to creating one.

The global trend towards mandated corporate due diligence  

A review of current national level efforts related to human rights due diligence and reporting show an overall global trend of expanding mandated requirements.

Some examples of national measures include:

Australia:  In February 2017, the Australian parliament launched “an inquiry to inquire into and report on establishing a Modern Slavery Act in Australia”, comparable to the United Kingdom’s Modern Slavery Act of 2015. The Australian Government has also solicited input from interested persons and organizations with submissions from overseas governments, organizations and individuals welcome until May 19, 2017.

France: In February 2017, France adopted a law covering corporate duty of care obligations for respecting human rights and the environment for companies within the scope of the law, and includes specified penalties for non-compliance.

Germany: With the release of its NAP in December 2016, Germany established among other things its expectation that companies with over 500 employees based in Germany should voluntarily undertake a human rights due diligence process. The German government has established a metric of 50% of qualified firms conducting due diligence by 2020, otherwise it will consider making the corporate due diligence process mandatory.

The Netherlands: In February 2017, the lower house of the Dutch Parliament adopted the “Child Labour Due Diligence Law” a measure that requires companies to determine whether child labor exists in their supply chains and develop a course of action for mitigation. This law still requires approval by the Senate.

Switzerland: An NGO led effort – Responsible Business Initiative – Protecting Human Rights and the Environment – is pending and would mandate due diligence requirements for Swiss companies that operate abroad.

United Kingdom: The UK Modern Slavery Act, adopted in 2015, requires companies within its scope to make a corporate statement on the steps taken to ensure that slavery and human trafficking do not occur in company supply chains.

United States: The U.S. released its National Action Plan for Responsible Business Conduct in December 2016. While it is unclear of implementation of the plan is underway, other corporate due diligence requirements are already in place.

Released in 2013, the Department of State’s Reporting Requirements on Responsible Investment in Burma stipulate that any U.S. person who invests $500,000 or more in Myanmar, or invests in Myanmar’s oil and gas sector, is required to complete and submit a report, which among other things include information relation to human rights due diligence policies and procedures.

The U.S. also issued an Executive Order in 2012 to strengthen protections against trafficking in persons in federal contracting.  Among other provisions the Executive Order prohibits U.S. government contractors and subcontractors from engaging in specific trafficking-related activities as well as requiring specific corporate compliance measures for larger contracts (>$500,000) conducted abroad.  To comply with these provisions federal contractors and subcontractors must conduct specific actions to include certifying that neither it nor any of its contractors has engaged in trafficking-related activities and developing and maintaining appropriate compliance plans.

While the SEC’s suspended enforcement of the “conflict minerals” rule represents one set back in corporate due diligence requirements, the overall trend set by companies and states alike moves in the opposite direction. Multinational companies with international supply chains and operations would do well to consider this evidence, as their global business activities are likely to touch on one or more of the jurisdictions that have mandated corporate human rights due diligence.

Human Analytics moderates panel on PSC standards at ISOA Summit

Rebecca DeWinter-Schmitt, Senior Managing Director of Human Analytics LLC, will moderate the panel “Security Contracting Certification: Update and Lessons Learned” on Thursday, 27 October, 2016 at this year’s International Stability Operations Association’s Annual Summit.

Private security companies (PSCs) servicing the US Government and other clients are now expected to adhere to a number of standards for the responsible provision of security services. These standards include an international declaration (Montreux Document), an international code of conduct (ICoC), and auditable national and international management system standards (ANSI/ASIS PSC.1 and ISO 18788).

The panel will consist of a mix of senior experts from the U.S. government, the International Code of Conduct Association, and private industry who will explore these standards and associated requirements, as well as PSCs’ experiences implementing them throughout their operations in complex environments.

For further information on the panel and the ISOA Summit please visit www.ISOAsummit.net.

 

UK publishes updated National Action Plan on Business & Human Rights

UK NAPOn May 12th, 2016 the United Kingdom published its updated National Action Plan on Business and Human Rights, a new version of its original National Action Plan first published in 2013 after the 2011 publication of the UN Guiding Principles on Business and Human Rights (UNGPs).  The updated plan details the UK Government’s ongoing steps and activities to support the implementation of the UNGPs, and is organized along the three pillar “Protect, Respect and Remedy” framework of the UNGPs.

The updated plan summarizes many of the relevant developments and events that have occurred internationally since the release of the UNGPs and the 2013 UK National Action Plan, including new initiatives concerning human rights reporting by businesses, the ranking of companies based on their human rights performance, and the International Code of Conduct Association’s emerging compliance mechanisms for private security providers.

Additionally, the new plan contains several topical case studies to illustrate legislation, events, reports, and project initiatives related to business and human rights, including the 2015 UK Modern Slavery Act and related guidance for companies on increased transparency in supply chains; the 2013 Rana Plaza disaster, where over 1100 people were killed; and the Nairobi Process, an initiative to integrate the UNGPs into the newly expanding extractives sector in Kenya.

The updated plan also provides UK Government actions related to managing private security company (PSC) and human rights risks, specifically regarding its activities supporting the Voluntary Principles on Security and Human Rights and the newly released ISO 28007 maritime standard and ISO 18788 land standard for private security companies.  ANSI/ASIS PSC.1-2012, Management System for the Quality of Private Security Company Operations – Requirements with Guidance (PSC.1) is not, however, referenced in the UK’s original or updated National Action Plan.  This is interesting considering the reported UK Government’s 2013 statement conveying their intent to adopt the PSC.1 standard “for UK-based PSCs working in complex environments on land overseas.” One can only speculate that perhaps the UK Government views ISO 18788, which is based on PSC.1,  as the new standard for British overseas private security providers.

Numerous countries are in the process of developing and implementing similar National Action Plan efforts.  In addition to the United Kingdom, 7 other states (Colombia, Finland, Norway, Lithuania, Netherlands, Sweden, Denmark) have already written National Action Plans to demonstrate and map their efforts to implement their commitment to the UNGPs, and approximately 28 more are underway in the process.  The US Government’s National Action Plan is also under development and is expected to be released in the very near future.

Human Analytics and InterAction conduct seminar on New ISO Management Standard for Private Security Providers

HASquare-Type

(March 11, 2016 – Washington D.C.) Earlier today Human Analytics and InterAction conducted a seminar on the new ISO 18788:2015 management standard for private security providers. Increasingly, international non-governmental organizations (INGOs) are utilizing private security providers in high-risk environments. The use of such services must be managed carefully to ensure the integrity, neutrality, and outcomes of their missions.

At the same time international multi-stakeholder initiatives and management system standards have been developed to ensure the responsible provision and use of private security services in complex environments. ISO 18788:2015 Management System for Private Security Operations – Requirements with Guidance for Use (ISO 18788:2015) is the newest standard. It outlines the international normative management standards for private security providers and the organizations that utilize them. While ISO 18788:2015 is a risk management system standard, it references human rights extensively, which are at its core.

The seminar featured several technical experts that introduced the ISO 18788:2015 standard, explained how the standard relates to existing security frameworks for humanitarian and international development organizations, highlighted aspects of the changing landscape of threats and risks to humanitarian and development INGOs, elaborated on the value of the standard to INGOs that utilize or are considering the use of private security providers, discussed the provisions of InterAction’s Minimum Operating Security Standards (MOSS) and identified the potential as well as perceived challenges of ISO 18788:2015 as it relates to the INGO security.

Attendees included InterAction members, invited security professionals from both public and private sector organizations, professional standards organizations, human rights organizations, and representatives from private security providers.

InterAction is an International NGO alliance organization of over 180 member organizations that work around the world.  

Human Analytics is global consultancy that works with public and private organizations to identify and mitigate human rights risks linked to operations in complex environments.

 

ISO 18788 certification – a new basis for vetting and selecting PSCs

 Organizations that utilize private security companies (PSCs) traditionally selected a specific PSC based on the security company’s perceived strength and reputation in a particular geography or technical offering. Ultimately, the selection of the PSC often came down to evaluating self-claimed capabilities proposed in response to the client’s requirements.

With the arrival of new risk management standards and frameworks, however, the traditional client vetting and selection process for PSCs is likely to change. As referenced in previous Human Analytics’ posts, the release of ISO 18788, Management System for Private Security Operations – Requirements with Guidance for Use (ISO 18788) provides a global auditable management standard for PSCs to adhere to in the provision of security services anywhere in the world. It stands out among ISO standards because it is the first certifiable international risk management standard that incorporates extensive human rights provisions.

PSC’s demonstrate their conformance to ISO 18788 through third party certification including recurring field audits, thus providing their clients and other external stakeholders, such as civil society groups, with greater assurance of their ability to consistently provide security services to a high standard while maintaining the safety of clients and ensuring respect for human rights and national and international laws.

Private security companies that successfully certify to ISO 18788 provide assurance to all stakeholders – both internal and external – of their tested compliance with ISO 18788 and their commitment to a continual improvement process within their organization. PSC compliance with the new standard provides chief security officers and their teams with a new basis for vetting and selecting PSCs anywhere in the world.

GardaWorld International Protective Services, an international PSC provider, recently became the first PSC to receive global certification to ISO 18788, but other PSCs will undoubtedly  follow.  This is an extremely significant development and sets performance expectations both for PSC providers and their stakeholders, including the company boards that oversee PSCs, the public and private sector clients that utilize PSC services, and the local populations where PSCs operate.

 

MNCs are moving to greater accountability – are business schools meeting the demand?

global businessBusiness school programs are designed to produce skilled managers who can lead enterprises and maximize stakeholder value both now and in the future. Core business disciplines such as entrepreneurship, marketing, cost accounting, finance, and program management remain constant to a manager’s professional education, but MBA programs must always adapt to the changing business conditions. For example, after the fall of the Berlin Wall, business education curriculum rapidly evolved in response to growing globalization with the opening up of new markets and international businesses opportunities facilitated by new transportation and communication technologies.

Today, however, multinational corporations (MNCs) must manage and operate with greater accountability and expectations in a hyper-globalized economy.  MNCs have increasingly complex global supply chains that reach into states with weak governance, instability, and at times active conflict. In such areas, states may not be able to fulfill their obligations to protect against human rights abuses by third parties, to include private actors such as businesses.

As a result, companies are increasingly adopting policies and practices to meet new business and human rights standards and disclosure requirements to identify and address adverse impacts on human rights caused by their business activities or supply chain relationships anywhere in the word, and regardless if the host state is able or willing to meet its human rights obligations.  The scale of this shift in company operating requirements for MNCs has created new management needs for business schools to consider. Are they doing all they can do to prepare future managers to lead in these companies?

Increasing international and state mandates for business and human rights

International framework initiatives for human rights due diligence and good management practices have been gathering momentum since the 1990s. The 2011 United Nations Guiding Principles on Business and Human Rights (UNGPs) require companies to identify, prevent, mitigate and address adverse impacts on human rights caused by either their own activities or as a result of their business relationships. Several industry sector-specific initiatives are also in place, to include frameworks for the apparel manufacturing, extractives, private security, and information technology industries.

The number of business and human rights-related mandatory disclosure requirements for MNCs is also increasing. From 2013 to 2015, a number of non-discretionary company disclosure requirements involving human rights and business activities and/or supply chains abroad have been implemented at the state level, to include the United States and the United Kingdom.

Another example is the California Transparency in Supply Chains Act of 2010 (CA-TISCA), the first of its kind in the United States.  Every retail seller and manufacturer doing business in California with annual revenues exceeding $100 million is now required to release an annual statement detailing efforts to eliminate slavery and human trafficking from their direct supply chains. California’s positon as the largest state economy in the U.S. and the world’s 8th largest economy makes this recent legislation particularly relevant.

Beginning in 2014, Section 1502 of the Dodd-Frank Act required public company “conflict mineral” disclosures to the SEC to disclose whether certain minerals used in the manufacture of various products is sourced from the Democratic Republic of the Congo or neighboring countries.

Likewise, in 2013 the U.S. Government stipulated that any U.S. person who invests $500,000 or more in Burma (Myanmar), or invests in Burma’s oil and gas sector, is required to complete and submit Department of State reporting requirements as set forth in the Department of State’s Reporting Requirements on Responsible Investment in Burma.

MNCs are also paying close attention to recently released relevant National Action Plans on Business and Human Rights.  Since 2013, 10 states have developed national action plans on business and human rights as part of the state responsibility to disseminate and implement the UNGPs. Nineteen other states, to include the United States, have national action plans currently under development. The U.S government is expected to publish its National Action Plan on Responsible Business Conduct in 2016.  The plan is expected to detail efforts to implement the U.S. government’s commitment to the UNGPs.

The corporate challenge – moving from commitment to practice in business operations and relationships  

It’s not only that states are increasing business disclosure requirements, MNCs themselves have increasingly committed to business and human rights principles.

Over 8000 company chief executives (part of 12,000 + total signatories in 170 countries worldwide) have signed Letters of Commitment expressing their commitment to the United Nations Global Compact Ten Principles on human rights, labor, environment and anti-corruption. Principle 2 states that businesses should make sure that they are not complicit in human rights abuses.

Many MNCs have also endorsed the UNGPs, the first authoritative global framework to establish the responsibility to identify and address human rights risks related to business activities, and the OECD Guidelines for Multinational Enterprises which, while non-binding,  provide principles and standards for responsible business conduct in a global context, to include how corporate due diligence should be observed in a conflict region. The OECD Guidelines were updated to comport with the UNGPs.

The adoption rate of management practices to implement business and human rights policies differ by industry sector and risk exposure – companies with previous human rights incidents or that operated in a high risk industry were the earliest adopters. Many of these early adopters participated in  multi-stakeholder initiatives involving academics, civil society, governments, industry, and international organizations to develop business and human rights frameworks specific to their industry, to include the Voluntary Principles on Security and Human Rights for the extractive sector, the International Code of Conduct for Private Security Providers for the international security sector, the Fair Labor Association for the apparel sector, and the  Global Network Initiative for the information technology sector.

Individual companies have also demonstrated their commitment to business and human rights practices when investing in new markets.  When Ball Corporation, a U.S.-based can and tin company decided to enter Burma (Myanmar) to manufacture beverage cans for locally produced Coca Cola products, they conducted due diligence on how their products would impact local populations.  In Ball’s July 2015 Responsible Investment in Burma report, they described their approach to stakeholder engagement which was further elaborated on during an interview with company leadership on National Public Radio.

However, while companies are increasingly showing the commitment to adopting business and human rights policies and practices, it is far more difficult to translate these same corporate commitments to actual management practices and metrics at the operational and supply chain levels.

Consider the recent  article by Harvard Business Review (HBR) on an Amnesty International report on major global technology and automobile brands with reported human rights abuses in their extensive global cobalt supply chains. The Harvard article concludes that the implicated global brands cited in the report do want to make their supply chains more ethical and would not willingly tolerate human rights abuses in their supply chains. Instead, HBR points out that failure to address ongoing abuses may more revolve around “willful ignorance”.  Meaning that while companies do care about the ethics of their operations, they’re not actively investigating their supply chains to seek out this information. HBR feels that a reason for this may be that company decision makers may be wired or have “psychological mechanisms” to make them want to avoid difficult issues, such as initiating internal investigations.

Recent first hand reports such as this suggests that even the most respected of MNCs can still unknowingly fall short of their responsibility to respect human rights within their supply chains, regardless of the commitment of the company. Accordingly, MNCs need business managers familiar with business and human rights standards and able to identify and rectify gaps in their human rights management practices as it applies to their specific business operations and supplies chains throughout the world.

The global business environment has changed. The business school mission to prepare future business leaders has not.

It is not yet clear if business schools, with some notable exceptions, are sufficiently adapting their own programs to prepare future business leaders to apply and integrate human rights management practices into company operations sufficiently to responsibly lead and grow their businesses in today’s far more globalized and connected business environment.

The establishment of the Center for Business and Human Rights (CBHR) at New York University’s Stern School of Business in 2013 is certainly one indicator that business schools are adapting their programs to prepare MBA candidates for the human rights in business needs of MNCs in the 21st century. NYU Stern is the first business school to establish a specific center for business and human rights and sets the example for other business schools to follow.

However, several other indicators suggest that there is still a very long way to go for professional business education to sufficiently adapt to fully preparing future managers for the changing needs and challenges of companies operating in today’s global market.

The UN Global Compact Office and the Secretariat of the UN Principles for Responsible Management Education (PRME) maintains an open letter to academic institutions to make the case that demand for multidisciplinary business and human rights education is growing worldwide and that companies are looking to hire graduates with the skills to manage the human rights risks and opportunities of business activities and relationships.

In 2014, the Financial Times published an Op-ed by Professor Ken McPhail detailing his view that business schools are ignoring the emergent role of companies in modern society, rightly pointing out that the power relationship between states and MNCs has shifted dramatically over the past 40 years.  In 2016, Professor Dorothée Baumann-Pauly of NYU Stern and HEC Lausanne, expanded on the view that business schools could be more innovative when she  articulated a number of current challenges of teaching business and human rights at a business school.

Business schools must be responsive to the needs of businesses operating in a hyperglobal economy where both conditions and stakeholder expectations have evolved significantly.  Business schools can, and should, prepare their MBA candidates to integrate human rights due diligence and good management practices into company operations and supply chain relationships. Not doing so fails to support the full development of management talent now required for multinational firms to competitively operate.

Until this happens, companies are well advised to seek outside human rights management expertise as needed to meet their human rights due diligence requirements.  There are cost-savings and efficiencies in drawing on such expertise to identify means to mitigate potential reputational, legal, operational, and financial liabilities.  An outside perspective can provide a valuable independent, critical analysis of companies’ existing policies and practices.  Furthermore, the expertise of third parties with experience in assisting companies in meeting their human rights commitments can be leveraged to assist with developing the needed in-house capacities.

Business schools have played a crucial role in preparing leaders to maximize value in their organizations for nearly two hundred years. It is no less essential that they continue to do so in the 21st century.

Human Analytics announces new addition to its Advisory Board

James Yellin

(6 January, 2015) – Human Analytics LLC is pleased to announce the appointment of Ambassador James Yellin to its Advisory Board. Ambassador Yellin is a career diplomat with the U.S. Department of State and has served in a number of diplomatic assignments around the world to include ambassador, deputy chief of mission, consul general, political officer, economics officer, and acting USAID country director. Ambassador Yellin is also a military veteran and served as a member of the U.S. Army Special Forces in Vietnam.

“We’re thrilled to have Jim join our exceptional team of advisors. We will greatly benefit from his significant experience and expertise in multi-stakeholder dialogue, conflict resolution, and economic development in complex environments. He has done so much to serve this country and we are truly fortunate to have him as a resource,” said Rebecca DeWinter-Schmitt, Senior Managing Director, Human Analytics LLC.

With the addition of Jim to its Advisory Board, Human Analytics is extremely fortunate to be able to benefit from the experience and insight of thought leaders from the fields of private sector stability operations, human rights due diligence, business operations in complex environments, conflict mitigation, and research and analysis on international security matters.

 

Great expectations: Companies must demonstrate socially responsible business practices to keep consumers’ business

Coming to an aisle near you: Rising consumer expectations for socially responsible business practices.

A number of recent events, including this week’s Associated Press’ report linking Thai shrimp producers – such as those that ship to popular U.S. grocery stores and restaurants –  to slave labor, recent decisions by large publicly traded companies to establish corporate human rights policies and programs, and the findings of a recent national survey on consumer sentiment towards corporate social responsibility, indicate the increasing attention that companies, news organizations, and now consumers themselves are giving to a company’s ability to demonstrate ethical and socially responsible business practices.

Indicators of this increasing consumer expectation for ethical business practices also include the recent media statement from New Jersey Republican Congressman Chris Smith, a member of the House Foreign Relations Committee, in response to the Associated Press’ findings of slave labor links to the Thailand fish and shrimp industry’s supply chains, as well as this quarter’s release of a national consumer survey conducted by Aflac, a large U.S.-based insurer.

Representative Smith was quoted by the media as saying, “All of us may find ourselves eating a slave-made product without knowing it, but once we know it, we all have a moral obligation, I believe, to make a personal decision to boycott it.”

Details from the 2015 Aflac-Light Speed GMI’s Corporate Social Responsibility (CSR) survey fact sheet are based on a national survey that included 6,000 respondents (2,000 nationally representative and 400 within each of the top-10 Designated Market Areas in the United States). Expanding its scope to include the investment sector, Aflac also surveyed 355 investment professionals about how corporate social responsibility impacts their decisions.

While Aflac’s conclusions are drawn from a single survey research effort, the selected sample pool indicates wide representational coverage of the U.S. consumer markets and, at least in terms of the number of participants, a significant sampling of investment professionals. The findings are worth noting and indicate substantial consumer preference towards perceived ethical companies as well as a strong bias for working for companies with a strong CSR program and publically recognized ethics. In both areas, strongest consumer preferences for perceived company ethics/values are attributed to millennials, which, as a group, will continue to rise in overall market purchasing power.  Specific conclusions from Aflac’s research include:

  • 79% of consumers believe companies that stay true to their ethics/values outperform others in their field.
  • 82% of millennials believe companies that stay true to their ethics/values outperform others in their field.
  • 92% of millennials are more likely to purchase from an ethical company.
  • 75% of consumers said they would be happier to work for a company with a strong CSR program.
  • 44% of consumers feel that salary is most important when it comes to a prospective employer, but 74% of consumers are likely to seek out employment at a company that has been awarded publicly for its ethics.
  • 82% of millennials are likely to seek employment at a company that has been publicly awarded for its ethics, whereas 68% of people over 35 would.

 

While continued analysis is needed to further understand the specifics of rising consumer expectations for socially responsible business practices, the factors and events above seem sufficient enough to suggest that rising consumer expectations for firms to “know and show” socially responsible business practices has potentially very real commercial benefits and consequences for firms to consider.

 

Assessing Human Rights Risk in Banking: An OECD Approach

In the field of business and human rights, companies face a number of challenges in understanding how to undertake human rights due diligence. The UN Guiding Principles on Business and Human Rights establishes, in particular for companies, the responsibility to conduct due diligence in the context of business operations. Operationalizing this responsibility has resulted in businesses, academics and civil society developing approaches for conducting human rights due diligence largely in the context of “footprint” projects, that is, capital-intensive business operations that have a physical impact on people in surrounding communities. However, the task of assessing human rights impacts becomes amorphous in business sectors that have a more indirect impact on human rights, most notably in the banking sector.

In an interview conducted last year but recently released to the public, Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct explains how the due diligence process can be undertaken in the banking sector. In the interview, held at the annual meeting of the Association of Supervisors of Banks of the Americas in Montevideo, Mr. Nieuwenkamp explains the due diligence process in assessing risk for project financing. Interestingly, the methodology he presents has broader application to other financial products and services offered by banks and other financial institutions. Mr. Nieuwenkamp’s interview can be viewed in its entirety here.

In summary, Mr. Nieuwenkamp argues that due diligence for banks in their supply chains and value chains necessitates that these institutions take responsibility to not cause or contribute to human rights harm. To do this, Mr. Nieuwenkamp proposes a two-step process consisting of identifying, mitigating, and accounting for how risk is addressed and embedding the due diligence process into all business management activities. While this may seem obvious to some observers, he lays out a straightforward process for undertaking the due diligence process in the banking sector, framed as a problem of risk for the banking institutions.

With regard to assessing human rights and environmental risk, he argues that impacts on human rights and the environment cannot be totally avoided, but in managing these risks they must be prioritized in terms of the severity of the impact. In other words, it is not a zero tolerance standard, but an iterative process where these banks learn from their mistakes and improve their due diligence processes for avoiding similar risks in the future.

From this process, these financial institutions must develop and operationalize their human rights policies and, perhaps most importantly, develop mitigation and remediation strategies for future risks.

Mr. Nieuwenkamp also explains that the process for assessing risk should focus on the severity of the various risks in its business operations and prioritize human rights due diligence processes based upon this assessment.

Finally, Mr. Nieuwenkamp makes an important point about leverage, that is, the ability of a financial institution to influence business activity where it is playing a small part in project financing. He argues that where a lender has minimal influence, it should work with other financial institutions to urge the borrower to take appropriate action vis-à-vis impacted people and communities, thereby leveraging their collective influence to affect change. If this fails, only then should the institution divest its investment in the company or project in question. While the likelihood that a bank would engage or divest its financial interests in a business operation is minimal, the approach suggested is an interesting first step in developing due diligence processes in the financial sector. This approach has broader implications for investors generally when assessing the risks associated with their investments. Engagement rather than avoidance as the first step in addressing human rights risk is the logical approach to be undertaken.

The framework laid out by Mr. Nieuwenkamp can be extended to other banking products and services as well. The challenge facing banks is in assessing human rights risks, in terms of their severity and the possibility of occurrence. The global mortgage crisis of 2008, from which people, communities and banks are still recovering, speaks to the need to develop a deeper understanding of the probability and impact of specific financial services as well as the political will to take action in the face of lost revenues from financial products and services not provided. The challenge, then, is in the will of banking institutions to take this internal political risk that places human rights in the path of core banking operations.

Applying the identification/assessment process and the subsequent embedding of the due diligence into banking operations presents both practical and political challenges that may prove daunting.

Current human rights impact assessment methodologies are ill suited to the task of assessing impacts from banking activities with attenuated links to those impacts. A case in point is where commodity derivatives sold by a number of major banks resulted in a massive flood of investor capital that resulted in a dramatic spike in global food prices. In this example, institutional investors were seeking ways of exiting the mortgage-backed securities market because of the collapsing housing markets in the U.S. and Europe. As an alternative, banks offered investors commodity index swaps, a complex derivative pegged to the commodity markets. The appeal of these derivatives was the notion that commodity prices did not track equities or other traditional asset classes. Investors moved literally trillions of dollars into swaps that drove demand to record levels with the price of those commodities increasing as a result of the demand. By some estimates, the cost of commodity foodstuffs rose more than 100%, driving tens of millions of people into poverty.

The revenues from these swaps were significant to say the least. Had this human rights risk been identified at the outset, would the banks that realized substantial returns have acted any differently? Perhaps but the problem is that there were no apparent due diligence processes in place that would have allowed for the consideration of these risks that became a reality. Putting aside the clarity of hindsight, the human rights due diligence process that could have occurred required the identification of the potential risks, assessing their impact and putting in place mitigation strategies to prevent undue harm. In the case of commodity index swaps, forecasting demand in light of the collapse of the mortgage backed securities market and the mass exodus from those investments should have been a warning of the commensurate demand for this new investment product.

More importantly, the institutional willingness to embed human rights analysis into the operational process of the derivatives trading units within these banks pose the greater challenge. History suggests that these banks could not resist the lure of significant profits from derivatives trading and by inference, suggests that commodities regulators around the world failed with respect to their duty to protect their citizens from the deleterious effects of these swaps.

Mr. Nieuwenkamp’s modest proposal, if undertaken by financial institutions, would at the very least focus attention on the human rights implications of this particular financial product, thereby ameliorating the impact on millions of hungry people. Whether banks undertake this analysis remains unclear.

National Action Plan Topic at the UN Forum on Business and Human Rights

UNFBHR 2015

The development and implementation of a National Action Plan (NAP) for business and human rights is a significant effort for any country to undertake – both from the perspective of the State developing the NAP and the stakeholders contributing to the process. In late September 2014, the White House announced that the United States would develop a National Action Plan (NAP) to promote responsible business conduct abroad, consistent with the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. This effort is ongoing today with a significant number of civil society organizations, businesses, and academics contributing input and recommendations to assist the U.S. government with developing and releasing its approach.

To gain stakeholder input as part of its NAP development process, the U.S. government has conducted a series of dialogue events over the last year, both at locations around the country and through web-based sessions, with members of the private sector, civil society, academia, and the public-at-large. The U.S. government has utilized these events, along with requests for written input, to obtain feedback and views from U.S. businesses and civil society.  The International Corporate Accountability Roundtable (ICAR), an NGO focused to business and human rights, maintains a website that tracks most of the stakeholder recommendations submitted to date for the U.S. National Action Plan.

In addition to the ongoing U.S. national efforts, development and implementation activities for NAPs for business and human rights continues in multiple countries around the world. To date, NAPs on business and human rights have been released from the United Kingdom, the Netherlands, Denmark, Finland, Lithuania, Sweden, and Norway. Stakeholders that wish to gain a deeper understanding of the content and process of these NAPS may wish to consider ICAR’s report released earlier this month. ICAR has analyzed each released NAP “in terms of their content and processes in order to assess best practice and to suggest areas for improvement going forward” for both planned future NAP initiatives, as well as those currently underway.

A separate NAP analysis is provided through a recent business briefing co-authored by the Global Business Initiative on Human Rights and Clifford Chance, an international law firm. Their report provides an overview of the various NAP initiatives underway around the world, pointing out that the business community must stay abreast of ongoing NAP developments to be prepared for any legislative or regulatory change. The report also explains the processes through which NAPs are developed (such as consultations and outreach) and the opportunities this presents for business to engage with States and other actors to share knowledge and experience, and to build collaborative and strategic partnerships.

Finally, in addition to utilizing the references above, businesses following the development of National Actions Plans for Business and Human Rights may well want to consider attending the 2015 United Nations Forum on Business and Human Rights taking place next week in Geneva, Switzerland since a  significant focus topic of the conference is the ongoing development and implementation of National Action Plans on business and human rights. Senior representatives from the U.S. and other national governments (including Korea, Columbia, and Germany) are scheduled to address the forum’s session on the challenges and lessons learned in developing National Action Plans for Business and Human Rights.

While the forum will provide a key opportunity for national governments, multilateral institutions, and civil society to exchange views and experiences related to the various ongoing National Action Plan efforts around the world, having business participate as part of this discussion can only increase the benefit of the forum for all stakeholders. Registration for the forum is still open and can be accessed here. Those unable to attend in person can also access live coverage of the conference here.

 

 

 

Two New Publications on Security and Human Rights

Human Analytics is pleased to announce the release of two new publications on security and human rights written by Senior Managing Director Dr. Rebecca DeWinter-Schmitt. “Transnational Business Governance through Standards and Codes of Conduct” appears as a chapter in a volume edited by Rita Abrahamsen and Anna Leander entitled Routledge Handbook of Private Security Studies. The chapter examines whether soft-law regulatory initiatives for the private security industry, such as the International Code of Conduct for Private Security Service Providers and ANSI/ASIS PSC.1: Management System for Quality of Private Security Company Operations, meet benchmarks for best practice in terms of their likely effectiveness in addressing the human rights impacts of security operations.

In conjunction with the 10th annual summit of the International Stability Operations Association, Dr. DeWinter-Schmitt co-authored an article for the summit journal, “The Changing Landscape of Federal Government Procurement: Addressing the Human Impacts,” with Nick Forster of FSI Worldwide. FSI Worldwide is a responsible workforce solutions specialist with global operations across many industries. Mr. Forster participated in a summit panel moderated by Dr. DeWinter-Schmitt entitled “Implementing Corporate Responsibility in Complex Environments,” along with Pete Dordal of GardaWorld and Mark Wielga of Temkin & Hardt LLP and NomoGaia.

RDWS at NPC for ISOA Summit 28 NOV copy

Why Political Risk Matters

This is the first in a series of articles that looks at human rights risk and how to integrate principles of risk analysis into global business development.

What is political risk and why does it matter to businesses? The following situation is playing out as we speak and exemplifies the problem facing transnational corporations operating overseas.

In 2013, the Rana Plaza building in Savar, Bangladesh collapsed, killing more than 1000 garment workers. The tragedy set in motion significant reputational, compliance and supply-chain impacts on many global apparel brands and retailers who employed local manufacturers at Rana Plaza and elsewhere in that country. Consumers and civil society groups in the U.S. and Western Europe reacted and drew unwanted scrutiny on the products sold by the likes of H&M, Walmart, The Gap and dozens of other businesses. However, while the event was shocking, it was not entirely unpredictable. Bangladesh has few labor protections and they are rarely enforced. Wage rates are extremely low and while that is appealing to the apparel industry, which seeks to keep their costs low, this pressure on local manufacturers ensured that working conditions and building standards were going to be ignored. For companies that failed to account for this eventuality, the financial and reputational costs were significant.

Simply stated political risk is the loss of revenues or assets that result from a range of non-financial risk factors. These risk factors could broadly include governmental, social or economic factors. Historically, political risk is thought to emanate from governmental actions (e.g. taxation, expropriation, corruption) or in this case, human rights risks. However, in recent years, that definition has become much more broad to include a range of societal problems in addition to macro economic effects on a business or industry. For example, community opposition to a mining project in the Andes or the possibility that Russia might invade Ukraine are other examples of political risk not directly related to the internal actions of a government. (The latter example reflects external political forces from a neighboring superpower that can impact businesses.)

For companies entering into a new market or expanding existing operations, political risk factors are sometimes overlooked but cannot be ignored and while some companies rely on internal expertise or undertake a cursory assessment of possible impacts on business, there is a danger that such superficial approaches will miss significant risks that ultimately become a reality. As a starting point, it is important to understand the components of political risk, namely the probability of a risk factor occurring and the impact that such an event will have on a business. The diagram below illustrates how these two aspects of political risk work and sets the stage for developing a fuller understanding of possible problems ahead.

PRA-PID

Obviously, attention should be paid to high probability, high impact risks that a company might face in its business operations in a country or region. Identification of those risks and developing appropriate mitigation strategies are key. However, risks that fall into the high impact, low probability range of risks are perhaps the most dangerous types of risk as it is often overlooked or ignored.

Ian Bremmer discusses these types of events in his book, The Fat Tail describing the term as “the unexpectedly thick “tails” – or bulges – that we find on the tail end of distribution curves that measure risks and their impact. They represent the risk that a particular event will occur that appears so catastrophically damaging, unlikely to happen, and difficult to predict, that many of us choose to simply ignore it. Until it happens.”

The Greek tale of the Trojan Horse describes just the sort of event that, while posing a catastrophic risk for the city of Troy, was unimaginable to its protectors. Who would ever think that soldiers would hide inside a wooden horse and subsequently open the gates of the protected city? Clearly the Trojan army had not given it a thought, to its peril. Modern versions of these sorts of high risk, low probability events occur with some frequency, most notably, the Arab Spring and the subsequent regional upheaval.

Some in business argue that these kinds of risks are simply a cost of doing business but little can be done to account for such events. However, a careful analysis of the political events that lead up to these financially disastrous events can be anticipated, and better informed business decisions can be made to account for these possibilities. This is the essence of political risk analysis. The Political Instability Task Force (formerly the State Failure Task Force) has for a number of years considered a range of factors that increase the probability that a state would fail due to revolution, civil war and other obvious events. In hindsight, the PITF indicators of state instability suggested that the unraveling of many of the Middle Eastern countries could have been foreseen, even though most political risk analysts failed to foresee the dramatic events that continue to unfold today.

In a sense, political risk analysis is a framework for considering non-financial risks to a business enterprise. Combined with a deep knowledge of a country or region and a methodical approach to the subject, political risk analysis can reduce unforeseen costs to a project or business activity.

As a starting point, framing the analysis is vital. Commonly, political risk is understood as country risk. Such an analysis looks at governmental (political), societal and economic factors that individually or in combination could create risks for an enterprise. Consider the following political risks in a particular country. Is the government authoritarian or democratic? Is there a high degree of grand corruption or is it pettier in nature (bribing the port customs officer)? Is there a high level of infant mortality? Is HIV/AIDS on the rise? How unequal is the income distribution in the country? At first glace, all of these questions suggest simple answers but in fact, the answers are far more complex and applying them to a particular business activity may not be straightforward. More importantly, each of these indicators suggests the possibility of political risks that could impact a business enterprise operating in that state.

Several studies have shown that authoritarian governments tend to be less likely to fail than fledgling democracies. Infant mortality is often an indicator of dissatisfaction in society that if left unaddressed, may lead to internal conflict manifesting itself in a variety of ways (See: State Failure Task Force Report: Phase III Findings at 14). Corruption, depending on the amount and at what levels it occurs, can have widely different consequences – hiring the president’s son to facilitate an oil deal is different from paying off traffic cops and can have profound impacts on an oil company seeking an exploratory gas lease in the country. Such an analysis, though important to understanding the political risks in a country is only the starting point. This macro level approach to understanding risk must also be complemented with an analysis of the specific risks to the business in question, its industry and the specific location where it is intending to operate in a country. This micro risk is more likely to be overlooked by companies undertaking an analysis of non-financial risks but is often posing serious if not perilous circumstances to the company, its employees and other stakeholders.

Next installment: How micro risks can impact business operations.

 

Human Analytics discusses human rights and PSC.1 at ASIS 2015

ASIS2015Human Analytics LLC recently served as a panel member at the ASIS International 61st Annual Seminar and Exhibits (ASIS 2015) held in Anaheim, CA from September 28th to October 1st. The annual ASIS International event is the security industry’s top educational event and included over five days of exhibits, presentations, and educational sessions to cover emerging developments and topics of importance to the global security industry.

On Monday, September 28th, ASIS International 2015 conducted an educational session to highlight and discuss specific legal, human rights, risk management, and security operation elements of the ANSI/ASIS PSC.1-2012 Management System for Quality of Private Security Company Operations – Requirements with Guidance (PSC.1).

The educational session consisted of a panel moderated by Dr. Marc Siegel of the ASIS International Global Standards Initiative and featured Pete Dordal of GardaWorld International, Lisa DuBrock of Radian Compliance LLC, and James Schmitt from Human Analytics LLC. Material was also presented from leading experts Chris Mayer of the Department of Defense and Dr. Ian Ralby of IR Consilium, LTD. to elaborate on U.S. Department of Defense requirements and legal implications of the standard. Pete Dordal presented an informative case study on GardaWorld’s implementation of the PSC.1 standard, while Lisa DuBrock focused on specific details and considerations of the overall Quality Assurance Management System (QAMS) aspects of PSC.1. James Schmitt completed the presentations by focusing on the significant number of key human rights provisions of PSC.1 and how these relate to private security companies, their clients, and their partners. Dr. Marc Siegel, as the panel moderator, facilitated questions from the audience as well as presenting additional questions related to PSC.1 to the panel members.

As part of its presentation, Human Analytics LLC covered key human rights provisions of the standard to include the requirements and rationale for companies to establish grievance mechanisms for populations impacted by private security company operations, the need and benefit for companies to publicly communicate their Statement of Conformance with the PSC.1 standard, as well as a company’s responsibility to assess human rights risk in their operations, to include their supply chain. A copy of Human Analytics’ presentation can be found here.

The PSC.1 standard is now recognized internationally as the most detailed international risk management framework relevant to security company operations. It is viewed as the industry standard and provides auditable criteria.

The educational session, “ANSI/ASIS PSC.1 Standard: Enhancing Management of Security Operations”, was designed for companies to better understand and successfully implement the new standard which is becoming increasingly required by both public and private sector utilizers of private security companies. “It was so important to see the growing number of companies that are committed to implementing the PSC.1 standard, or have actually done so already,” one participant said after the session. “It is not only the PSCs themselves that have moved to embrace the PSC.1 standard, it is also the organizations and government agencies that utilize PSCs and have made it a contractual requirement.” The session was attended by a number of representatives, to include individuals from private security providers, independent consultants, government, trade association, and industry.

Radian Compliance and Human Analytics Welcome the Publication of ISO 18788 for Private Security Operations

ISO18788Radian Compliance and Human Analytics welcome the publication of ISO 18788 Management system for private security operations — Requirements with guidance for use. This new ISO standard details a risk management framework for conduct of security operations and is invaluable to organizations providing and contracting security services. Two years in the making, the purpose of ISO 18788 is to enable consistent provision of security services in challenging environments while maintaining the safety of clients and ensuring respect for human rights, national and international laws, and fundamental freedoms.

The U.S. Department of Defense, which already requires its security providers operating overseas to demonstrate compliance with ANSI/ASIS PSC.1 – 2012: Management System for Quality of Private Security Company Operations, is updating the DFARS to also recognize compliance with ISO 18788 as fulfilling necessary contractual requirements. ANSI/ASIS PSC.1 formed the basis for ISO 18788. With ISO 18788, organizations can demonstrate their ability to adequately manage risk, assess and manage their impact on local communities, and be accountable to relevant laws and voluntary commitments to which they subscribe.

In February of this year, Radian Compliance and Human Analytics joined forces to assist organizations with meeting private security operations standards such as ISO 18788 and ANSI/ASIS PSC.1 standard. Human Analytics Senior Managing Director Rebecca DeWinter-Schmitt chaired the U.S. Technical Advisory Group to the ISO Project Committee that drafted ISO 18788. Radian Compliance Managing Partner Lisa DuBrock was an active member of the Working Group that wrote the standard. The two firms, by combining core competencies, deliver a one-stop resource for exceptional technical expertise in security operations management, risk management, and human rights compliance.

Radian Compliance is a well-established consulting firm supporting clients with governance, risk, and compliance expertise for today’s constantly evolving international standards. Its extensive assessment, implementation, and training expertise is focused on quality and risk management in both private and information security management systems. Radian Compliance clients have been 100% successful in achieving their goal of ISO certification. Radian is an economically disadvantaged women-owned small business. For more information contact Lisa DuBrock at ldubrock@radiancompliance.com.

Human Analytics helps public and private organizations develop and implement programs to mitigate human rights risks associated with operating in complex environments, with specific emphasis on private security providers and organizations that utilize them. Human Analytics has extensive expertise in human rights, international business management, security management, and organizational risk management, and works with clients to meet and exceed international business and human rights standards. For more information contact Rebecca DeWinter-Schmitt at rdewinter-schmitt@human-analytics.net.

 

Business and Human Rights: What is in Store for 2016?

Each year, the Business and Human Rights Resource Centre (BHRRC) releases a list of what they consider the top issues in the field of business and human rights for that coming year. This year is no exception and the BHRRC has announced that the list for 2016 will be released in the coming weeks. Reflecting on 2015 list, it is worth noting developments related to these ten issues and looking to 2016, conjecturing what the new year brings. For those unfamiliar with the list, here is what the BHRRC identified as the top issues this year.

Top 10 business & human rights issues for 2015

1. Reinforcing Citizen Participation in the Business and Human Rights Agenda, including by Protecting Human Rights Defenders

2. Overcoming Barriers Preventing Access to Effective Remedies for Corporate Related Human Rights Abuses

3. Scaling Up Efforts to Eradicate Forced Labour, Slavery and Trafficking from Services, Manufacturing, and Global Supply Chains

4. Strengthening Trade Union Movements in an Era of Growing Casualisation of Work

5. Protecting the Right to Privacy and Ending Mass Surveillance of Digital Communications

6. Ensuring Corporate Use or Acquisition of Land Does Not Undermine the Rights of Small Farmers and Local Communities

7. Developing Policy and Regulatory Architecture to Tackle Human Rights Abuses Arising from Tax Avoidance and Illicit Financial Flows

8. Combating Sexual Violence in the Workplace

9. Making the Private Sector Role in the UN Sustainable Development Goals (SDGs) work for Human Rights

10. Strengthening State Approaches to Implementing the UN Guiding Principles on Business and Human Rights, including through National Action Plans[1]

In the U.S., the State Department’s lead role in developing a National Action Plan for the U.S. government has raised a host of issues and has drawn comments from advocates. Perhaps the biggest issue of concern to civil society organizations is the fact that the National Action Plan will apply primarily to companies operating outside of the U.S. This is a troubling issue as many domestic human rights problems continue to develop – workplace rights, rights of migrant workers as well as privatized prisons, water services and other functions normally within the province of government being at the forefront of the debate.While this Top 10 list is not predicting the future as much as reflecting of the growing trends in the field, it is interesting to examine some examples of how these issues have developed over the year.

In the cyber realm, right to privacy remains a concern with continuing recognition that some ICT companies play an important role, if not complicity, in government surveillance. The revelation that a European cyber security company, Hacking Team, was providing invasive Internet security services to a number of repressive governments around the world reflects a growing concern about the risks facing companies that cooperate with host governments everywhere, particularly if governments are not being transparent with their data collection policies and how they are handling the obtained information.

Eradication of forced labor remains a hot button topic, with the ongoing labor problems in Qatar related to the construction of the World Cup facilities creating considerable concern. With more than 2400 foreign workers dying on the job, and massive corruption within FIFA, the World Cup sponsor, attention is high on the problems facing those workers as well as others around the world.

With regard to casualization of labor, the current debate surrounding drivers working for the virtual taxi service, Uber, keeps this issue in the minds of many people. In addition, the recognition of the important role that unions play in securing adequate pay and acceptable working conditions for people has become acute when people witness titans of industry seeing annual massive pay raises while workers’ wages remain stagnant.

So what is in store for 2016?

While we cannot predict what the people at the BHRRC will identify for 2016, based on what we have observed this year, a couple of predictions are in order.

First, missing from the list for 2015 is the increasing move toward the development of a business and human rights treaty. Viewed by some as a misguided effort prompted by Ecuador and several other states not normally associated with respecting human rights, the issue continues to gain traction in the business and human community and promises to become one of the top issues in 2016.

Second, with the anticipated release of the U.S. draft National Action Plan in 2016, there will likely be heated debate not only from the advocacy community but from business as well, with both sides taking predictable positions on the scope, implementation, and effectiveness of the Plan.

Third, with the influx of refugees from Syria and other Middle Eastern countries into Europe, the risk of labor exploitation will increase along with the attention being paid to the issue. Combined with the simmering nationalism expressed by a handful of companies in Europe with similar noises coming from politicians both in the E.U. and the U.S. about the myriad threats to society posed by immigrants, the spill over effects into mainstream business activities remains a growing concern.

Finally, as sustainable energy development remains a major goal in the global economy, environmentally responsible energy production and supply will likely come up against the realities of working people exploited in manufacturing of solar energy equipment, land use for the installation of massive solar arrays, and the displacement of local populations affected by large-scale wind and solar farms.

What the issues revealed by the BHRRC list will be is not yet known. Unfortunately, there is no shortage of human rights issues involving business going forward.

 

 

 

[1] Business & Human Rights Resource Centre, Top 10 Business and Human Rights Issues for 2015, Dec. 19, 2014, http://business-humanrights.org/en/institute-for-human-rights-and-business-publishes-top-10-business-human-rights-issues-for-2015#c108055.

Global companies can have a positive impact in volatile countries

Map painted on hands.Concept of having the world in our hands

This week’s article by Oliver Balch in the Guardian, “What can a South Sudan brewery teach us about business in conflict zones?”, explores the promises and perils of investing in conflict and other complex environments. His overall view is that when done well, corporate investment in volatile countries can be both profitable and have a positive local impact – but companies need to first understand the risk. As a key starting point for companies to consider, we could not agree more.

International development practitioners have frequently used methodologies to establish and foster community-driven local enterprises to enhance area stability, reduce violence, and mitigate local drivers of conflict in areas of strife. In recent years there have even been several academic, foundation, and government efforts related to the idea of generating peace through commerce. But what happens when international corporations invest in business enterprises in conflict, or more often, post-conflict zones with the hopeful promise of lasting stability, for the purpose of growing their business and generating a reasonable rate of return – can these top-down driven corporate investments enhance local stability as well? And, as importantly from the perspective of sustainability and return on investment, can these companies profitably operate in such a volatile environment over the long term? Not surprisingly, with both questions it depends.

It begins with understanding the environment and assessing the risks.  To illustrate his point, Balch highlights the situation of SABMiller’s brewery in South Sudan. SABMiller is the world’s second-biggest brewer and built the first brewery in South Sudan. Its commercial enterprise, however, is now suffering from the return of increased instability and civil unrest to South Sudan and the company’s diminished access to essential raw materials and hard currency amid conflict-induced inflation. As a result, Bloomberg reports that SABMiller may be forced to halt operations in South Sudan. Through this example, Balch examines and presents considerations related to the question of how companies can establish a long lasting presence which benefits both the business and the region.

In addition to possessing local knowledge and risk awareness, companies must also have the right policies and practices. To operate sustainably in a complex environment, the way in which a company establishes and administers itself is particularly critical. Beyond assessing the commercial viability of its offerings, companies must identify and understand the potential pitfalls and increased risks of operating in the far less predictable and volatile environments that post-conflict environments present. As far as possible companies must accurately identify all known and potential relevant risks to the enterprise and then apply mitigation policies and practices to address the same. For companies that operate in complex environments, increased human rights risk carries high reputational, legal, operational, and financial consequences if not sufficiently addressed with appropriate company policies and practices. Company leadership must commit to respecting human rights – building a business that is both commercially successful and socially responsible, including developing and publishing a corporate human rights policy statement reflecting this vision.

Company human rights policies must also include and address the use of subcontractors and supply chain partners who may directly contribute to a company’s human rights risk exposure through a business relationship.

Companies should consider conducting human rights due diligence to mitigate corporate risk exposure and foster local stability through effective community engagement practices.  Companies are able to mitigate some of the more heightened risks associated with corporate operations in areas of instability by conducting human rights due diligence activities as called for by the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. Implementing human rights due diligence at the beginning of an investment decision process will help company decision makers more fully understand the local operating environment as it relates to planned operations. As part of this process, companies should conduct local human rights risk and impact assessments to identify and address actual and potential human rights impacts associated with the planned business operations. Doing this effectively requires the company to engage with the local communities in order to solicit feedback and establish complaint mechanisms, all of which help to support local stability and community support of company operations.

Other large global consumer product companies invest in post-conflict environments – and provide good evidence that their presence can benefit both the region and the business.  Coca-Cola, like SABMiller, provides its products to consumers around the world – over 200 countries according to the company and including recent post-conflict environments such as South Sudan and Sri Lanka.

The companies do have a business partnership for non-alcoholic bottling operations in Africa and both companies publicly communicate their commitment to managing human rights risks (see SABMillers’ 2015 Sustainability Report  and Coca-Cola’s Human Rights policy – available in 17 languages).

However, there seem to be differences with how the global consumer brands implement their respective human rights policies. Coca-Cola has made explicit commitments to globally implement its human rights due diligence process to identify, prevent, mitigate and be accountable for human rights abuses as well as to implement processes to enable the remediation of any adverse human rights impacts the company causes or to which it contributes.

Furthermore, Coca-Cola has developed a long-standing partnership with UN-Habitat to promote water sustainability in several developing countries around the world (to include South Sudan).

Carrying out effective human rights due diligence neither assures a company’s profitable return on investment in a high-risk environment such as South Sudan, nor guarantees that the company’s local presence will have a positive impact benefiting both the region and business. It will, however, provide tangible benefit by reducing corporate risk exposure by identifying, preventing, and mitigating risks long associated with operating in such environments and will foster local stabilization efforts in areas afflicted by conflict. But Mr. Balch is exactly right: done well, corporate investment in volatile countries can have a positive impact.

The Viability of Multi-stakeholder PSC Regulation

Individuals that follow the regulation of Private Security Companies (PSCs) will be particularly interested in Dr. Sorcha MacLeod’s recently published article, Private Security Companies and Shared Responsibility: The Turn to Multistakeholder Standard-Setting and Monitoring through Self-Regulation-‘Plus’.

MacLeod focuses on both the merits and questions concerning recent international multi-stakeholder initiatives related to PSC standards, certification, and oversight, specifically the Montreux Document, the International Code of Conduct for Private Security Providers (ICoC), the  International Code of Conduct Association (ICoCA), and ANSI/ASIS PSC.1-2012 Management System for Quality of Private Security Company Operations  (PSC.1), deliberately walking through each of these efforts and the intended role and interrelated nature of each.

Taken together she deems these multi-stakeholder processes for regulation of PSCs the “self-regulation-plus” approach because of the involvement of not only industry, but also states and civil society organizations.  However, MacLeod concludes, among other points, that this approach “is not the definitive solution.” In the end she feels that unless several cited issues with the current approach are adequately addressed “the likely effectiveness of the ICoC and ICoCA human rights model as applied through a standard such as PSC.1” remains an open question.

It is in the interest of all – the PSC industry itself, as well as the states, commercial enterprises, and NGOs that utilize PSCs – to have effective and universally accepted standards, certification, and oversight frameworks. MacLeod’s stated significant concerns (listed below with comments) with the new PSC regulatory mechanisms should be reviewed carefully and taken into consideration by each of the three member pillars of the ICoCA (states, industry, civil society) as well as by the commercial and NGO entities that utilize PSCs. The latter are not well represented in the state-client focused ICoCA.

State involvement and support. The ICoCA oversight mechanism must be perceived as strong and functional. In the United States, conformance with the PSC.1 standard is now required by the Department of Defense for all contracted private armed security overseas and the Department of State has recently stipulated in its largest protective services solicitation that each bidder must confirm compliance with the requirements set forth in PSC.1 (as well as demonstrate that it is a member in good standing with the ICoCA).  In the United Kingdom, the Foreign Commonwealth Office has stipulated PSC.1 compliance for overseas contracted security services. MacLeod questions how the ICoCA, with its focus to the state clients of PSCs, can be extended to the other commercial and NGO clients of PSCs.

Ability to deal with non-certified and rogue PSCs. Furthermore, MacLeod queries how the ICoCA can contend with non-certified PSCs. She makes the case for states to weigh in to encourage PSC clients in the NGO and commercial sectors to use only ICoC compliant PSCs.

Scope of the certification. MacLeod recommends that clients of certified PSCs know the scope of their PSC’s certification. Is the company globally certified to the PSC.1 standard or is the scope of the certification limited to a specific operating unit or geography?

Auditor competence. MacLeod stresses that certifying auditors must be competent in human rights. The human rights elements in PSC.1 are significant and require the use of auditors with suitable expertise. Additionally, it can also be argued that it is essential that PSCs draw upon human rights expertise themselves if they are to fully and adequately develop, implement, and sustain the human rights components of the PSC.1 standard. Failing to sufficiently develop, implement, and sustain the human rights risk management provisions of the PSC.1 will be corrosive to the credibility of the PSC’s certification as well as a significant undermining factor in demonstrating their responsibility to respect human rights and prevent adverse impacts.

Human Rights Impact Assessments. MacLeod highlights the current lack of clarity on how a PSC should assess human rights risk and impacts and what tools they should use to do so. She is spot on here. While PSC.1 does not explicitly require PSCs to conduct human rights risk and impact assessment (HRRIA), human rights is a specified component of the risk assessment process. As part of the risk assessment process, PSCs have the opportunity to conduct an HRRIA to identify specific human rights risk exposure and develop the processes to address each risk. PSC.1 also requires the establishment of a complaint and grievance mechanisms with external stakeholders. An effective HRRIA conducted with the cooperation and involvement of the local impacted community can greatly facilitate this process. HRRIAs are an imperative part of the overall risk assessment process and should be conducted as part of every pre-deployment survey or advance party at the tactical and operational level. Like security, human rights risk mitigation is most effective when it is developed and integrated at the initial project planning stage and not implemented as a “bolt on” or reactionary activity.

Client awareness, education and training. This certainly requires a greater awareness effort and MacLeod rightfully argues that the effectiveness of PSC.1 certification will be dependent upon the extent to which all clients, government, commercial, and civil society, understand the certification process. The ICoCA, with its multi-stakeholder three-pillar approach, can, and undoubtedly will, be instrumental in this regard.

By identifying areas of perceived potential weakness with the multi-stakeholder process as it currently now stands, MacLeod goes a long way in spotlighting the specific areas that must be addressed in the short term if a credible and viable “self-regulation-plus” PSC industry regulatory mechanism is to continue for the long term.

 

Measuring Human Rights Impacts with Geospatial Information

Today, human rights investigators have unprecedented access to information. Access to government archives, corporate information and a range of data on people around the world abound. In recent years, human rights activists have also turned to satellite imagery as another means for collecting evidence of human rights issues. With all of this available information, the challenge is to understand what all of this means to both assessors and the people impacted by business activity.

At a recent conference hosted by the American Association for the Advancement of Science (AAAS) in Washington, DC several speakers touched on geospatial information as a source of data for identifying human rights problems. Commonly thought of as satellite mapping, geographic information systems (GIS) is a technology that has been in active use since the 1970s. As the technology for gathering geospatial information has improved, the data gathered has become readily available to the public and many new applications using GIS have been developed.

In the field of human rights, the use of GIS data has been used for identifying mass grave sites, the burning and destruction of communities, gas flaring and the after effects of aerial bombardment. In each of these cases, the scope of destruction lends itself to relatively easy identification of human harm from above, often by comparing views of a specific location over time.

In the field of business and human rights, the use of geospatial data and GIS may seem less obvious. When assessing the human rights impacts of business activities, GIS can provide valuable data on the physical impacts arising out of “footprint” projects, that is, physical business operations that can transform a community. For example, prior to the start of an open pit mining operation, an understanding of the physical environment viewed from above serves as a baseline for identifying changes brought about by the physical destruction of a given area.

For example, in 2013, the government of Myanmar entered into an agreement with a Japanese consortium to develop the Silawa Special economic Zone (SEZ). Located approximately 15 miles (25 kilometers) south of Yangon (Rangoon). Approximately 4500 people were displaced by the project. While the Japan International Cooperation Agency (JICA), a partner in the development, has argued that impacted villagers were provided land as compensation for being displaced, the impacted villagers have complained about the new, largely uninhabitable land. Satellite imagery of the area taken in 2012 and again in April of 2015, reveal profound changes to the physical environment that reveal the impact of the development project.

Thilawa SEZ 2012: Courtesy of Google Earth
Thilawa SEZ 2012: Courtesy of Google Earth

 

Thilawa2015-1
Thilawa SEZ April 2015: Courtesy Google Earch

However, interpreting this data provides a more nuanced understanding of the human rights impacts arising out of this project. When people living in the path of this project were relocated, their new land was found to be unsuitable for human habitation due to marshy conditions. By analyzing the geospatial imagery of the area, human rights assessors could identify specific impacts on the economic and social rights (right to adequate housing, right to food) as revealed by the destruction of farmland and the presence of water in marshy areas surrounding the project.

Combined with GPS tagged data collected in the community (location of homes and people, and agricultural land, water sources, and access routes), GIS data can inform a clearer analysis of human rights impacts in and around business activity. Markers inserted as layers on the GIS map that include links to photographs taken at specific locations on and near the affected site and field notes gathered can provide human rights assessors with a deeper understanding of the scope of the problems facing impacted people.

Geographic information systems are an invaluable tool for understanding the human rights implications of business activity. With the technology readily available, its use will inform a better understanding of the range of human rights concerns facing communities and aid human rights experts in their work.

 

 

Corporate Social Responsibility and the Halo Effect

Credit: Branding Strategy Insider
Credit: Branding Strategy Insider

In a recent study by Harrison Hong of Princeton University and Inessa Liskovich of the University of Texas and reported by the Economist, a company’s corporate social responsibility efforts can reduce its liability when it is prosecuted for corruption. The study found that, “among prosecuted firms, those with the most comprehensive CSR programmes (as measured by MSCI ESG, a provider of corporate indices) tended to get more lenient penalties.” In the context of business and human rights, does this “halo effect,” as the authors characterize the phenomena, have implications for how companies address human rights in the context of their business activities? The authors note that “either eliminating a substantial labour-rights concern, such as child labour, or increasing corporate giving by about 20% results in fines that generally are 40% lower than the typical punishment for bribing foreign officials.”

The findings of this study align with how companies are subjectively perceived when human rights problems arise out of their business activities. For example, would U.S. retailer Costco get a break if it were prosecuted for health and safety violations at one of its stores in comparison to Wal-Mart, a company whose reputation vis-à-vis its workers is less than stellar? While Hong and Liskovich’s study looked at the relationship between a company’s corporate social responsibility practices and the severity of its punishment arising from the Foreign Corrupt Practices Act, extrapolating to those circumstances to where a company was found complicit in a serious human rights violation and was subsequently prosecuted or more likely, become the subject of a social media firestorm, raises interesting questions.

As companies endorse the UN Guiding Principles on Business and Human Rights, the due diligence processes they undertake may have the unintended consequence of minimizing sanctions arising out of corporate misconduct. Though some legal experts have suggested that adopting CSR practices or signing on to the UN Guiding Principles puts a company at greater risk of legal liability should the company fail to adhere to its stated policies, one could conclude that if undertaken in a meaningful way, adoption of human rights policies and the follow on due diligence practices could mitigate the degree of civil or criminal liability if it could be shown that the company earnestly sought to address the possibility of human rights harms.

Further study is necessary to better understand the relationship between voluntary compliance with the UN Guiding Principles and subsequent litigation arising from human rights misconduct, but quantifying the follow on effects of systematic human rights mitigation strategies within a corporate enterprise may lead to a more rapid adoption of these emerging human rights norms.

 

UK NCP Final Statement on Complaint against G4S Relevant to all PSCs

 

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The recently released Final Statement from the OECD’s UK National Contact Point (NCP) on a complaint made by an NGO against a leading UK-based private security company’s (PSC) subsidiary operations in Israel warrants close attention by the wider PSC industry.

On June 9th, 2015 the UK NCP for the OECD Guidelines for Multinational Enterprises released its Final Statement on G4S’s business activities in Israel following a detailed review into a human rights complaint made by the Lawyers for Palestinian Human Rights (LPHR), a UK-based non-governmental organization focused on Palestinian human rights issues. G4S, a UK-headquartered company, is the world’s largest PSC and G4S Israel (Hashmira) is the largest private security provider in Israel.

The OECD’s UK NCP’s findings, conclusions, and recommendations presented in its Final Statement were drawn from its Initial Assessment and examination considering the human rights complaint that G4S had breached the OECD Guidelines for Multinational Enterprises. The OECD Guidelines are voluntary principles for responsible business conduct. Each government that adheres to the OECD Guidelines is required to designate a National Contact Point to handle enquiries and contribute to the resolution of issues that arise from the alleged non-observance of the Guidelines in specific instances. In addition to the United Kingdom, there are 44 other nations with specified NCP’s to include France, Germany, Israel, Norway, Sweden, and the United States.

In this particular case, the UK NCP concluded in its Final Statement that they did “not find any general failure by the company to respect the human rights of the people on whose behalf the complaint is made or any failure to respect human rights in regard to its own operations.”

However, the UK NCP also concluded that G4S has not adequately met the requirements under OECD Guidelines Chapter IV, Paragraph 3 to seek to address the human rights impacts of its business relationships. Specific to this point, the UK NCP further concludes “…that there is evidence that the G4S has leverage, and could take action such as: lobbying immediate business partners and/or government and legal representatives, sharing best practices (with business partners, stakeholders, and the wider sector), and committing to new practices in regard to future contracts.”

In its own announcement about the Final Statement, G4S notes “G4S employees do not operate the equipment, play any part in prison regimes, or have any interaction with prisoners or those traveling through checkpoints along the separation barrier.” G4S has also commissioned an independent review of its operations that concluded that the company “has no causal or contributory role in human rights violations.”

Still, the OECD’s UK NCP message to PSCs (and beyond to other companies) is clear: as a PSC your actions may not cause or contribute to adverse human rights impacts, but under OECD Guidelines you have a responsibility to seek ways to prevent or mitigate adverse human rights impacts directly linked to your business operations, products, or services by a business relationship, even if you do not contribute to those impacts.

As PSCs (and the users of PSC services) consider their responsibilities to respect human rights, they will do well to closely examine as part of their human rights due diligence process how the OECD Guidelines extend to their business relationships. And, as the UK NCP’s Final Statement makes clear, PCSs that have leverage in their business relationships are expected to take actions with business partners and other stakeholders to mitigate adverse human rights impacts they are linked to by contracts.

The UK NCP’s Final Statement also provided specific recommended actions for G4S to consider if it is to fully comply with its responsibilities under the OECD Guidelines.  While these recommendations are specific to the OECD findings related to the complaint against G4S, the application of the principals related though these recommendations, which are based on the UN Guiding Principles on Business and Human Rights, are relevant everywhere. The UK NCP recommends:

  1. That G4S considers how it may be able to work with business partners in Israel to support action to address adverse impacts referred to in the complaint;
  2. That G4S communicates to stakeholders and business partners any actions it is taking in regard to the issues raised in the complaint;
  3. That G4S implements across its operations a contract approvals process that includes assessment of human rights risks and application of mitigations, as it has indicated its intention to do in the new governance risk and compliance management procedures shared in its comments on this statement.

G4S has indicated to the UK NCP that in July 2015 it intends to refine its contracts approvals process “to include assessment of human rights risks and assurance that appropriate mitigations are in place.” By establishing a policy commitment to respect human rights, PSCs and organizations that utilize PSCs can contractually require an up-front human rights due diligence process to identify potential adverse impacts of their business operations and related mitigation steps for all programs and business relationships. Doing so will allow PSCs to avoid causing or contributing to adverse human rights impacts and to prevent and mitigate impacts they are directly linked to by a business relationship – and in the long run may assist in avoiding costly litigation.

The applicability of the UK NCP’s findings, conclusions, and related recommendations to G4S amplify far beyond this specific complaint. Our view is that international PSCs will improve their services and the effectiveness of their operations, as well as guard against reputational and legal risks, by taking heed now rather than later.

ICGN: Investors and Human Rights Risk

Recently, the International Corporate Governance Network (ICGN) published an article, “Viewpoint: Human Rights Through a Corporate Governance Lens.” The crux of the piece was that human rights pose governance risk to the corporate enterprise and investors must consider human rights in assessing corporate conduct. As noted in the article, “Human rights are at once a growing business risk for companies, and they also present important questions of business ethics that both companies and investors must consider as a fundamental component of good management and long-term stewardship.” This insight by a leading voice in the corporate governance community is a promising development in the promotion of human rights protections in the course of business development. The authors, Lauren Compere and George Dallas, raise several interesting questions that all investors should ponder as human rights norms intersect with business activities throughout the world.

The first question that Compere and Dallas pose is what should investors expect of companies with regard to human rights management? Noting the UN Guiding Principles on Business and Human Rights, they recognize that companies have a responsibility to conduct the necessary due diligence to ensure that human rights risks are considered as part of business operations and that boards must hold management accountable and create a corporate culture that ensures management of those risks.

The second question raised in the Viewpoint is perhaps a more critical one for institutional investors: What should be expected of investors in companies where human rights concerns may arise? Implicit in that question is the notion that investors have some duty to respect human rights as described in the UN Guiding Principles. For readers unfamiliar with the UN Guiding Principles on Business and Human Rights, the Principles set forth a framework for governments and businesses: States have a responsibility to protect human rights in the context of business activities that may infringe on those rights; Companies have a responsibility to respect human rights in the conduct of business activity, and; There must be adequate remedies afforded people whose human rights have been impacted by business activity. In this context, investors have a responsibility to respect human rights impacted by their investments in business activities. While at first glance this notion seems tenuous in terms of passive investment and rights affected, it is becoming the norm.

For example, with the easing of sanctions against the government of Myanmar as it began to ease social and economic restrictions on its citizens, the U.S. State Department imposed its “Reporting Requirement” for investments in excess of $500,000 by U.S. companies operating in that country. Several of the initial reports from companies operating in Myanmar that fit in the definition of the Reporting Requirement made the argument that passive investment in business development in the country was exempt from the Reporting Requirement. However, the Reporting Requirement makes no distinction with respect to any investment in excess of $500,000. In another context, the ICGN authors note that the OECD National Contact Point network found that:

“[H]uman rights concerns at the South Korean steel company POSCO resulted in two prominent European investment funds facing OECD criticism on the basis that they may have applied insufficient human rights due diligence in monitoring or engaging on human rights at POSCO—even though both were only minority shareholders with relatively small stakes in the company.”

This raises a fundamental question as to what institutional investors should do to address human rights concerns. ICGN suggests that investors should (1) develop proportionate due diligence with respect to their investments; (2) develop appropriate strategies with respect to their investment policies and practices; (3) public disclosure of investors’ human rights policies; and (4) engage in public policy and multi-stakeholder initiatives in order to extend their influence in regard to business and human rights.

All of the actions proposed by the ICGN are not new concepts for institutional investors but what has changed is the recognition that there exists emerging international legal norms that investors must recognize as part of their obligations as investors. Shareholder engagement, appropriate due diligence with respect to their investments and transparency with respect to investment policies are all subjects that have been discussed by responsible investors for some time. What has changed is the recognition that institutional investors cannot remain on the sidelines as human rights pose ever-increasing risks for companies throughout the world. The traditional view of investors and the corporate enterprise wherein investors are only liable to the extent of their investment is rapidly giving way to the recognition that non-financial risks, including human rights impacts, transcend those 20th century views.

 

 

Human Rights, Development and the Global Economy

When thinking about human rights in the context of the banking and financial sector, how traditional notions of human rights due diligence – as described by the UN Guiding Principles on Business and Human Rights – apply to the vast array of financial products and services in today’s economy is not always readily apparent. There are a wide range of examples of how the financial sector can negatively impact on human rights, from project financing for controversial mining projects to the sale of credit default swaps that drive up commodity food prices that become unaffordable to millions, but in many instances the traditional human rights due diligence framework does not allow for a clear understanding of the harms linked to the financial sector.

For “footprint” project financing, such as a non-recourse loan to finance an open-pit mine, assessing the impacts arising from business operations are relatively straightforward. When an institutional lender provides the necessary capital for a mining company, it is clear at the outset that, for example, access to water and displacement of indigenous people can create serious risks. If the mine operator moves forward without having done adequate due diligence to assess and mitigate the human rights risks, the lender is implicated in the harms.

In contrast, the purchase and sale of credit default swaps as a means of managing portfolio risk by an institutional investor seems, at first glance, disconnected from any sort of human rights impacts. In 2007, commodity index swaps, a type of financial derivative, began to flood the financial markets dramatically driving up food prices around the world as price pressures were created by massive demand via these synthetic financial products. This problem became acute in 2008 when global food commodity prices (rice, corn, wheat, et al.) skyrocketed more than 200%. Commodity spot prices (the price of commodities on a given date) spiked as the massive volume of money, estimated at close to a trillion dollars, flowed into these exotic derivatives. While historically commodity futures sold at a discount to spot prices, the sheer weight of new money injected into the commodity markets lifted futures prices above current market prices and “pulled up” spot prices to predicted future price levels. This distortion of the commodity markets can be attributed to the deregulation of the commodity markets in the early 1990s and seized upon by Wall Street banks bent on selling new investment products to unsuspecting investors. However, when considered as part of a systematic process, these particular derivatives were a primary cause of the economic collapse of 2008 that resulted in massive human rights impacts and played a key role in human rights harms – millions of jobs lost, collapse of the housing markets and dramatic increases in global hunger. But the question remains: how do we go about assessing the human rights impacts ex ante?

Is this the financial equivalent of the Butterfly Effect as suggested by Edward Lorenz in his seminal thinking in the development of chaos theory? This effect, described aptly by the analogy of a butterfly flapping its wings in North Africa, thereby causing a massive hurricane in the Caribbean some weeks later has seeming parallels to derivatives and the resulting economic crisis in 2008. This raises some profound questions about the culpability of institutional investors purchasing swaps and other derivative products and the creation and sale of these financial products by individual banks in the U.S. and Europe; but the common response from the banking sector can be summarized as “Who knew?”

From a human rights perspective, this would appear to be an intractable problem given the attenuated relationship between individual financial institutions and the harms done to the global economy. The question remains as to how should financial institutions go about human rights due diligence in a manner that adequately accounts for these global human rights risks? A clue might be found in the way in which we look at the problem. At a recent meeting of economists and human rights advocates hosted by the UN Environment Programme in Washington DC in April 2015, an expert on economic policy was queried about the problems that have arisen from the conduct of banks characterized as too big to fail. He put it quite simply, “It’s not the few bad apples that’s the problem. It’s the barrel.”

This shift in thinking suggests that human rights due diligence is not simply a process that needs to be applied to individual financial institutions, but rather entails a rethinking by governments and their proxies (Organization for Economic Cooperation and Development, International Monetary Fund, G20 and the Financial Stability Board) about the human rights implications arising out of macro-economic policies and financial regulation. While this should not come as a surprise to anybody paying attention to the goings on in the global economy, what is necessary is a paradigm shift in economic leadership thinking from fixing the economic mechanisms that brought about the disaster in 2008 to a more inclusive approach to the problem that accounts for all stakeholders in the global economy. From the perspective of the UN Guiding Principles, addressing the problem of human rights in the financial sector has been centered on the “corporate responsibility to respect.” However, government leaders must shift their thinking to incorporate the UN Guiding Principles’ recognition that governments have an obligation to “protect human rights.” This is not to suggest that financial institutions should be absolved of their responsibility to respect human rights in every aspect of their business activities, but a more expansive view of due diligence must be developed to address these complex financial activities.

So far, governments and these related organizations have failed take such a broader and critically necessary view of global economics as a root problem for human rights everywhere. It is time to rethink this approach to global economic policy if human rights are to have any meaning for those billions impacted by global economic policies. To do this, the G20 countries must begin to think about financial reform in human rights terms, not just in terms of prevailing economic theories.

 

 

 

 

 

Multi-stakeholder forum addresses standards for managing human rights risks in complex environments

 

Human Analytics 9 APR event
Human Analytics’ Dr. Rebecca DeWinter-Schmitt

Over 60 speakers and participants from private industry, the U.S. government, multilateral organizations, international NGO’s, professional associations, and business and human rights groups gathered in Washington, D.C. on April 9th  to attend the Managing Human Rights Risks in Complex Environments forum. The forum, co-sponsored by the International Stability Operations Association (ISOA), an international trade association focused on the stability support sector, and The Fund for Peace, a non-profit research and educational organization that works to prevent violent conflict and promote sustainable security, was hosted by Foley Hoag LLP and facilitated by Human Analytics LLC.

The purpose of the one-day forum was to provide updates of standard setting initiatives to address human rights risks associated with operating in complex environments. The event initiated with opening remarks from Gare Smith, Partner, Foley Hoag Corporate Social Responsibility Practice and Ado Machida, President, ISOA and the forum’s keynote address provided by James Kunder, Principle, Kunder/Reali Associates and Senior Fellow, German Marshall Fund and former Deputy Administrator of the U.S. Agency for International Development.

Speakers at the forum represented a cross-section of professionals ranging from U.S. government (USG) officials, civil society, industry, humanitarian organizations, law firms, and professional associations, allowing for a multi-stakeholder dialogue reflecting a variety of experiences and perspectives on identifying and addressing risks linked to operations in complex environments.

The first panel, Governments as clients: Key human rights concerns from the perspective of state actors, featured perspectives from USG officials at the U.S. Agency for International Development, the Department of State, and the Department of Defense. The panel presented updates on USG efforts related to business and human rights, to include newly developed, or developing, mandated provisions in procurement rules for demonstrating contractor conformance with human rights and security standards. The panel also discussed the USG’s effort to develop a National Action Plan (NAP) on Responsible Business Conduct, to include recent and upcoming stakeholder consultation dialogues. One hoped for outcome of the NAP is greater horizontal policy coherence across USG agencies, i.e. a “whole of government” approach.

The second panel, Recent developments in standards for complex environments, provided background and highlighted updates and developments concerning the Voluntary Principles for Security and Human Rights (VPs), the International Code of Conduct for Private Security Providers (ICoC), the ANSI/ASIS PSC.1 Management System for Quality of Private Security Company Operations (PSC.1), and the draft international standard ISO 18788 Management System for Private Security Operations. Additionally, the panel addressed standards in the humanitarian space from the NGO and civil society perspective. Speakers agreed on the largely complementary nature of the respective standards, specifically that compliance with PSC.1 also necessitates conformity with the ICoC.   The speakers also recognized that security specific standards should incorporate the evolving normative consensus in the field of business and human rights, such as reflected in the UN Guiding Principles of Business and Human Rights.

The third panel, Ensuring the implementation of standards, featured perspectives from legal, management consulting, and auditing experts on human rights standards compliance. The underlying drivers for the creation of human rights and business standards, such as potential legal liabilities, were explored in detail. Speakers highlighted the necessary steps to prepare for and implement the internal management systems that build on the Plan, Do, Check, Act cycle and not only allow for conformity with standards, but also foster continuous improvement. The panel concluded with a detailed review of the process for auditing and certifying private security company conformance to the PSC.1 standard. Speakers reassured the audience that they likely have more of the needed policies and procedures in place than they think, and that certification is a deliberate, but by no means an insurmountable achievement.

The fourth, and final panel, Due diligence in the field: case studies of standards implementation, utilized specific examples of how companies and non-profit humanitarian organizations have tackled challenges and opportunities related to implementing standards. Members of the panel also highlighted specific organizational approaches used to mitigate human rights risk in the field and headquarters. Speakers were in agreement on a number of items, including the value of community outreach and stakeholder engagement and the importance of third-party verification and reporting to – in the language of the UN Guiding Principles on Business and Human Rights – “know and show” adherence to normative business and human right standards.

Business and Human Rights: Trends, Challenges and the Road Ahead

FinalBusinessandhr1The Human Rights in Business Program at the Center for Human Rights and Humanitarian Law, the International Bar Association and the American Bar Association are hosting a two-day conference, “Business and Human Rights: Trends, Challenges and the Road Ahead.” The conference will take place at American University Washington College of Law on Thursday, April 23rd and 24th. To register, click on the image to the right.

 

Do Banks Consider Human Rights?

As the UN Guiding Principles on Business and Human Rights continue to be operationalized in a variety of industry sectors, experts are beginning to take a closer look at exactly how businesses actually accomplish this goal. In the banking sector, establishing human rights policies and embedding those policies into banking operations is a significant undertaking. As a starting point, banks and other financial institutions are beginning to establish human rights statements, setting forth those institutions’ human rights policies and describing the manner in which those policies are operationalized within the enterprises. But is this enough?

Recently, we at Human Analytics undertook a review of the human rights statements at 5 large U.S. banks – Citi, Goldman Sachs, Bank of America, J.P. Morgan Chase and Morgan Stanley. What we found was that overall, each of these institutions had publicly available human rights statements in place and to varying degrees, had fulfilled their obligations to make a policy commitment with respect to human rights principles set forth in the UN Guiding Principles. For those unfamiliar with the UN Guiding Principles, of relevance to this discussion is Principle 16, which establishes 5 factors necessary to fulfill their policy commitments:

  1. The statement is approved at the senior level of the institution;
  2. The statement is informed by internal and/or external expertise;
  3. The statement stipulates the human rights expectations of personnel, partners, suppliers and others engaged with the institution;
  4. The statement is publicly available;
  5. The statement is reflected in the policies and procedures throughout the business enterprise.

Though conceptually simple, determining whether any institution has adequately addressed its responsibilities as laid out in Principle 16 is a bit more complex.

First, none of the human rights statements reviewed explicitly stated that they had been approved at the highest level of the organization but we made the assumption that because the statements were published on the institutions websites, senior management approved of them. However, implicit in the publication of the policies is that they are publicly available.

Second, none of the statements suggest that they were developed with the necessary expertise to make the policy statements meaningful in any significant way. Citi describes how the institution operationalizes its policy commitments, suggesting that it has developed the necessary expertise to carry out its policy commitments. However, the other banks made no mention of this. Below is a table that reflects how each of the banks fulfilled their policy commitments to respect human rights.

Bank-Table3

Bank-Graph-Key

But perhaps the most significant omission from all of the human rights statements was any reference to business products that impact human rights. The focus of each of the policies was on the human rights implications arising out of bank lending and capital financing activities but there was no mention about financial products that are the direct cause of human right violations, regardless of how those products were used by the banks’ clients. Thus, there was no reference to the human rights implications of complex products, such as derivatives, investment banking activities that, by their very nature could potentially lead to profound economic and human impacts in communities that were affected by mergers or acquisitions or creative securitization of other products such as mortgage backed securities. While a detailed analysis of the human rights implications of all of an institutions’ products and services is appropriate in a human rights policy statement, any mention of broad service areas (investment banking, derivatives, securities underwriting, etc.) is a broad omission by these financial institutions.

As development of human rights policies and procedures evolves, financial sector companies must own up to the fact that respecting human rights is not just about following the money as it is used by bank customers large and small but more fundamentally, how these institutions utilize capital in all aspects of global finance. If this is not done, the notion of respecting human rights is largely meaningless.

 

Bank Table

Bank Table

New ANSI/ASIS PSC.1 session offered on March 25th for Private Security Companies

ANSI/ASIS PSC.1 – Implementing the Private Security Company Management System Standard

Presented by: Lisa Dubrock, Radian Compliance and James Schmitt, Human Analytics

Cost: $75.00

Date: March 25th, 2015   Time: 6:00 PM to 8:00 PM

Where:  NOVA PTAC at the George Mason University Mason Enterprise Center, Fairfax, Virginia

Are you a Private Security Company operating on behalf of the DoD or commercial entities in complex international environments?

Private Security Service Providers including Private Security Companies (PSC’s) play an ever-expanding role in protecting both state and commercial entities while operating in high-risk international environments. Supported by the DoD, a series of Quality Assurance Management System (QAMS) standards have been developed. The goal of the standards is to assure a high quality of security services while protecting human rights and fundamental freedoms in circumstances where the rule of law has been weakened due to human or natural events, while allowing for the PSC to achieve their objectives and that of their clients.

Conducted in support of the Northern Virginia Procurement Technical Assistance Center (PTAC) at the George Mason University Mason Enterprise Center in Fairfax, Virginia, this 3-hour session provides an overview of ANSI/ASIS PCS-1. Learn the requirements of the standard and gain an understanding of how to implement a risk management framework and a human rights impact analysis, both requirements of the standard. Presented by Lisa DuBrock and James Schmitt, the program will review the requirements of this standard as well as share Lisa’s insight as a member of the ISO U.S.-TAG committee for making the PSC.1 standard an International Standard.

To attend this presentation please register at http://www.novaptac.org/eventcalendar/detail.asp?eid=612&sid=1305

Myanmar Investment Law vs. Human Rights

Courtesy of PWC
Courtesy of PWC

In an attempt to promote business and reconcile its investment rules with comparable laws in neighboring ASEAN countries, the government of Myanmar has recently released its draft Investment Law. Myanmar’s Directorate of Investment and Company Administration (DICA), with the assistance of the International Finance Corporation, has produced a draft law designed to consolidate the Foreign Investment Law (2012) and the Myanmar Citizen Investment Law (2013) and thereby create a level playing field for both local and foreign investors. However, the proposed law has raised concerns among legal experts that as currently framed it may usurp international human rights standards.

The purpose of the new investment law is to clarify a range of issues facing companies seeking to operate in that country. However, the draft law is not without its problems. The draft investment law would give investors the right to challenge new policies or laws in domestic courts and possibly in international arbitration and it would entitle them to full compensation if Myanmar government regulations impact their profits.[1]

The International Commission of Jurists (ICJ) has expressed concern that the Draft Investment Law establishes significant rights for investors without protecting the rights of those affected by business activity. It would require investors to follow national laws without acknowledging that the existing national legal framework does not adequately protect human rights or provide remedies for those whose rights have been violated.[2]

The Draft Investment Law does not establish or protect Myanmar’s ‘right to regulate’ to protect human rights or other social or environmental needs.  “The Draft Investment Law’s proposed legal framework would provide all investors the right to be consulted and challenge any new national law or regulation that may impact their profits,” said Daniel Aguirre, ICJ International Legal Advisor in Myanmar. “This framework would allow businesses to challenge government policies aimed at addressing legitimate needs within the country, and it could create a regulatory chilling effect in which Myanmar’s government would find itself in the troubling position of evaluating whether the passage of new social policies would lead to costly lawsuits from investors.”

Combined with the recently developed National Land Use Policy (see: Human rights in Complex Environments, Nov. 11, 2014), the Investment Law would set the stage for businesses to operate without regard for the human rights implications arising from their business operations. However, for western businesses operating in Myanmar, the increased human rights and reputational risks could prove to be a significant problem. As the global community pays greater attention to Myanmar as it becomes a greater economic force, the consequences of such growth without restraints on the rights of Myanmar’s people will likely become problematic. For western businesses entering into this frontier market, human rights due diligence with regard to business operations will be of even greater importance. As international human rights law plays a greater role in international business operations, domestic business laws that ignore human rights considerations will expose unwary businesses to greater risk.

 

[1] Myanmar Times, http://www.mmtimes.com/index.php/opinion/12356-protecting-profits-over-people.html

[2] ICJ, Press Release, https://businesshumanrightsburma.wordpress.com/2015/02/09/myanmar-investment-law-at-critical-drafting-stage/

New USG Rules Issued on Trafficking and Private Security

FAR DFAR Sup 2015On January 29th, the US government issued a final rule in the Federal Register / Vol. 80, No. 19, Ending Trafficking in Persons, amending the Federal Acquisition Regulation (FAR) to strengthen protections against trafficking in persons in federal contracts.

The Department of Defense also issued its final rules on January 29th in amending the Defense Federal Acquisition Regulation Supplement (DFARS) for further implementation of its trafficking in persons policy and for defense contractors performing private security functions.

These final rules are significant and US government contractors (and their subcontractors) are taking a close look at how these new provisions apply to their company operations conducted both overseas and in the United States and what must be done to comply with these new regulations. Companies (prime contractors) will also normally need to include the substance of these clauses in their subcontracts so that the same provisions apply to subcontractors. The DFARS final rules for Department of Defense (DoD) contractors went into effect immediately upon publication and the FAR final rule went into effect on March 2nd, 2015. The FAR rule applies to all new federal contracts and new Task Orders under existing ID/IQ contracts.

Companies Should Start with Due Diligence – Specifically Gap Analysis – To See How Current Policies and Processes Measure Up

Human Analytics believes that companies that contract with the federal government will want to analyze these new provisions carefully and then conduct the necessary corporate due diligence to ensure refinement and implementation of relevant internal policies and processes to ensure compliance. A recommend starting point is for company cross-functional teams to review and understand these new FAR and DFAR requirements and then conduct a gap analysis of how existing company policies and processes measure up. Given the contractual flow down requirements of these new provisions, companies will want to ensure similar due diligence and compliance policies and processes are in place with subcontractor firms.

By proactively taking a due diligence approach, companies subject to these provisions can account for and develop any new processes necessary to address and implement a compliance plan and annual certification. Under the FAR’s Ending Trafficking in Persons final rule, both actions are required for firms performing contracts outside the United States exceeding $500,000.

Companies subject to the DFARS final rule for defense contractors providing private security functions overseas should also conduct a gap analysis against the DFARS’ new provisions. Specifically, this DFARS final rule requires covered contractors to comply with ANSI/ASIS PSC.1-2012, American National Standard, Management System for Quality of Private Security Operations–Requirements with Guidance (PSC.1). Guidance for conducting a Gap Analysis is provided in Section A.4 of the Standard.

The DFARS final rule governing trafficking in persons requires hotline posters for combating trafficking and fraud as well as whistleblower protection hotline posters in English and in languages commonly spoken by the workforce to be displayed prominently in common work areas within business segments performing work under DoD contracts. If a company uses a website as a method of providing information to employees, the company must also display an electronic version of these required posters at the website.

The prime contractor must also include these provisions in all subcontracts that exceed $5 million (except when the subcontract is for a commercial item).

Additionally, by submitting a proposal offer the Offeror represents that it:

(a) Will not engage in any trafficking in persons or related activities, including but not limited to the use of forced labor, in the performance of this contract;

(b) Has hiring and subcontracting policies to protect the rights of its employees and the rights of subcontractor employees and will comply with those policies in the performance of this contract; and

(c) Has notified its employees and subcontractors of:

(1) The responsibility to report trafficking in persons violations by the Contractor, Contractor employees, or subcontractor employees, at any tier; and

(2) Employee protection under 10 U.S.C. 2409, as implemented in DFARS subpart 203.9, from reprisal for whistleblowing on trafficking in persons violations.

The DoD points out that this new coverage “is to ensure that employees of DoD contractors are fully aware of their labor rights and that they have a means of reporting suspected labor violations directly to the DoD Inspector General’s office.”

Managing Corporate Due Diligence Efforts Holistically Provides Companies With a Good Option For Ensuring Compliance With Different But Related Requirements

In cases where companies are subject to both the new FAR and DFAR requirements, for example, defense contractors that provide or subcontract security functions outside the United States, senior corporate management should consider conducting due diligence activities from an integrated practice approach with one designated champion and a functional stakeholder team to lead the effort across the enterprise. Gap analysis of current company policies and practices against the new FAR and DFAR requirements conducted concurrently, rather than in separate, piecemeal, efforts by different business or account groups can better facilitate the development of comprehensive policies and practices from the start, thus reducing duplication efforts and possibly costly (in terms of time and resources) revisions later. Private security companies, in particular, should consider obtaining certification to ANSI/ASIS PSC.1, the referenced standard for the DFARS final rule for defense contractors providing private security functions overseas, since it also has provisions regarding combating trafficking.

Radian Compliance And Human Analytics Forge New Partnership To Help Private Security Providers Meet PSC.1 Standard

CHICAGO and WASHINGTON, Feb. 24, 2015 /PRNewswire/ — Leading security and quality management system consulting companyRadian Compliance (www.radiancompliance.com) and human rights consulting firm Human Analytics (www.human-analytics.net) announce a groundbreaking strategic partnership to help organizations implement quality assurance and risk management standards for complex environments. Fueled by the U.S. Department of Defense and U.K. Foreign Commonwealth Office’s strong support for a certifiable standard for private security operations, Radian Compliance and Human Analytics have joined forces to assist organizations with meeting the ANSI/ASIS PSC.1 standard. By combining core competencies, the two firms deliver a one-stop resource for exceptional technical expertise in security operations management, risk management, and human rights compliance.

The ANSI/ASIS PSC.1 – 2012: Management System for Quality of Private Security Company Operations – PSC.1 – enables contracted private security companies operating in complex environments to improve and demonstrate consistent quality of services within a framework that ensures respect for human rights and national and international laws, while also maintaining the safety and security of their operations and clients.

Radian Compliance and Human Analytics are uniquely qualified to help private security providers and their clients understand, implement, meet, and maintain the PSC.1 standard. The expert team includes Human Analytics Senior Managing Director Dr. Rebecca DeWinter-Schmitt, who participated in the committee responsible for drafting PSC.1, and Radian Compliance Managing Partner Lisa DuBrock, a fellow member of the committee who also currently serves on the ASIS International Standards and Guidelines Commission.  Both teams utilize experienced veterans in private and information security to support this practice.

“Radian Compliance is dedicated to providing high quality certification consulting services for our clients, 70 percent of which are defense contractors,” said DuBrock. “Becoming certified to the PSC-1 Standard will also help our clients stay ahead of the game on the road to the pending ISO standard.”

“Human rights risk management is a core component of PSC.1,” said DeWinter-Schmitt. “Not only is respecting human rights the right thing to do, it makes good business sense and is critically important to PSC.1 compliance and certification.”

Radian Compliance is a well-established consulting firm supporting clients with governance, risk, and compliance expertise for today’s constantly evolving international standards. Its extensive assessment, implementation, and training expertise is focused on quality and risk management in both private and information security management systems. Radian Compliance clients have been 100% successful in achieving their goal of ISO certification. Radian is an economically disadvantaged women-owned small business.

Human Analytics helps public and private organizations develop and implement programs to mitigate human rights risks associated with operating in complex environments, with specific emphasis on private security providers and organizations that utilize them. Human Analytics has extensive expertise in human rights, international business management, security management, and organizational risk management, and works with clients to meet and exceed international business and human rights standards.

 

SOURCE Radian Compliance; Human Analytics

ASIS International covers new ground for security managers with article on social license to operate

SecMgmt Feb 2014“Required: License to Operate”, a lead story by Megan Gates in the February 2015 print edition of Security Management, ASIS International’s flagship publication, covers new ground not typically addressed in traditional security roles and responsibilities. ASIS International – the largest international organization for security professionals – is well suited to report on the evolving nature of corporate security best practices and has taken on new ground by highlighting security’s role in fostering a firm’s social license to operate.

Experienced international firms long ago developed operating policies to ensure compliance with the provisions of local and national law. But, when faced with local community opposition to companies’ operations, companies began to realize that a legal license to operate in and of itself does not equate to a social license to operate. Accordingly, many firms in the international development and extractive sectors now take steps to foster local community support for their international business operations. The community engagement program of Rio Tinto, a global mining and metals company shows one example of this approach.

What is most significant about this article, however, is the highlighting of the changing approach and role of security management in contributing to the creation of a company’s social license to operate by fostering local community support, particularly in complex environments.

Traditional security management roles for conflict-affected environments or areas with diminished governance and rule of law are well established (e.g. security subcontractor management, personnel and asset protection, risk advisory, local area knowledge, local liaison with public security forces), but in the effort to foster a social license to operate security professionals are now using new technical approaches and methodologies.

These new methodologies include:

Taking a very focused view to understanding the details about, and needs of, the local population – This includes their history, demographics, grievances, fears, differences among them and the sources of these divisions and conflicts, and community leadership, both formal and informal. Care is taken to include all sectors of the community in this analysis, particularly groups that are marginalized or historically underrepresented in local power structures. Communities can best articulate their own needs and concerns, and conveyed respect and simply listening are key success factors here.

Assess and understand how the company’s operations can impact local populations – The risk potential for human rights and security are particularly heighted in conflict-affected regions or areas of high social tension. In addition to conducting Social Impact Analysis (SIAs), Environmental Impact Analysis (EIAs) and local risk and vulnerability assessments related to the company’s local operations, firms are assessing human rights risk associated with company activities. This further facilitates a company’s social license to operate and allows a firm to publically “know and show” in a transparent fashion that it respects human rights and that it has taken steps to identify and mitigate human rights risk to impacted populations. The inclusion of professional security management in this process ensures that the scope of the Human Rights Risk and Impact Assessment addresses all relevant security activities associated with the project and provides security technical expertise to the human rights assessment team.

Foster trust by establishing a mechanism for dialogue and engagement with community representatives and stakeholders – Communities respond much better to companies when they know that they have standing access with designated company representatives. Companies that provide this level of accessibility to local communities create the conditions for an effective “access to remedy” mechanism in the event of perceived or actual grievances brought about by company operations or subcontractors. The establishment of a local community-company engagement council with regularly scheduled meetings helps to facilitate this. The adage that progress “moves at the speed of trust” specifically applies, and minimizing the frequent change out of a company’s local representatives entrusted with this role is key. Community council participation must include representation from all elements of the local population and this must be insisted on. Security managers will also want to take into account the level of trust that the local community has with public security forces. Depending on the local situation, this trust may be bolstered if the community elects to include public security on the engagement council. Likewise, human rights and community advocacy groups may be included on the council as appropriate and if desired by community representatives.

Ensuring that all subcontracted security activities align and comply with your firm’s policies, protocols, and procedures – Locally subcontracted security support (indeed, all subcontracted services) must reinforce, not derail, a company’s effort to obtain a social license to operate with local communities and stakeholders. Security managers should ensure that compliance with codified private security company operations standards such as the International Code of Conduct for Security Service Providers and ANSI/ASIS PSC.1 is reflected in the terms and conditions with the subcontracted security providers. Subcontracted security services provide first line interface with local communities so ensuring their positive contribution to the company’s overall community engagement effort is essential.

These additional approaches for security managers support effective interaction with communities and extend beyond traditional community relations and corporate social responsibility efforts. By viewing local communities as a resource; by listening to their concerns and aspirations; by fostering an ongoing dialogue with community representatives; and by developing an understanding of community grievances – both real and potential – a company not only gains insight to preclude and mitigate security concerns, security managers themselves contribute to their firm’s ability to obtain a social license to operate by fostering an atmosphere of mutual respect and open engagement with the community.

It is often said that optimal security comes from the local population itself and that no amount of gates and guard services can deliver this alone. By the same token, new techniques for security management in higher risk environments can enhance security and reduce project risk by helping their organizations generate an enduring social license to operate with local communities. “Required: License to Operate”, in this month’s ASIS International’s Security Management magazine shows us that by taking the view – and following up with actions – that local communities are a resource to understand and value, security managers can better engage with the local population to help achieve their company’s mission in a challenging environment.

 

 

Business and Human Rights: Trends, Challenges and the Road Ahead

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The Human Rights in Business Program at the Center for Human Rights & Humanitarian Law at American University Washington College of Law, in conjunction withe the American Bar Association Center for Human Rights and the International Bar Association are sponsoring a two-day conference on April 23rd and 24th at the Washington College of Law. Registration for this event and additional information can be found here.

Human Analytics Co-sponsors Sean McFate Presenting “The Modern Mercenary”

McFate_ModernMercenaryEVENTFLYER_JDSV3Human Analytics, in conjunction with the Human Rights in Business Program of the Washington College of Law Center for Human Rights & Humanitarian Law, the Global Governance, Politics & Security Program and the Ethics Peace & Global Affairs Program at American University’s School of International Service, are sponsoring a presentation by Sean McFate, author of The Modern Mercenary, published by Oxford Press. The event will take place in the SIS Ambramson Family Founders Room from 3-5 pm on Tuesday, February 24. No registration is required.

 

Code of Conduct for Myanmar Manufacturers Announced

Courtesy: womensenews.org
Courtesy: womensenews.org

This week, the Myanmar Garment Manufacturers Association, in conjunction with the European NGO, SMART, announced the release of a code of conduct for small and medium sized enterprises in the Southeast Asian country. As manufacturers face the requirement to comply with a range of international social audit standards, this code of conduct should come as no surprise. While the details of the code have not yet been made available, the framework for this new standard addresses a range of concerns according to industry observers.

According to several reports, the new code embraces the International Labor Organization’s (ILO) Core Conventions, including the right to assemble, organize and collectively bargain, and prohibitions on forced and child labor. This is good news given that, by some estimates, Myanmar has more than 300 garment companies currently in operation and more than 150,000 workers employed, with exports in 2014 expected to exceed US $1 Billion.

The garment industry code is the latest of several efforts led by governments and civil society organizations in the EU and the US to apply human rights standards to the rapid development in Myanmar since the Thein Sein government began its economic liberalization in recent years. But there is a growing chorus of concern that all of these initiatives, along with the social reforms put forth by the Naypyidaw-based government may have limited effect in ensuring that the people of Myanmar will participate in the rising tide of economic growth.

With the hope that economic liberalization is moving apace, the Obama Administration has been exploring cooperation between the US and Myanmar militaries. This is a surprising move considering the Myanmar military’s long and troubling history of human rights abuse coupled with its ongoing conflict with a number of ethnic insurgent groups around the country. But in Washington, “lawmakers who oversee U.S. foreign policy say it’s ill-timed. Political reforms have stalled, tens of thousands of minority Muslims are still living under apartheid-like conditions in displacement camps after attacks by Buddhist extremists, and fighting is heating up between the government and ethnic rebels.” This development comes to light as Democracy activist Aung San Suu Kyi says no significant social and human rights reforms have been made in two years.

With respect to the garment industry code, European apparel companies face the possibility that despite the new code, which contains auditing standards, it may amount to window dressing. This poses potential reputational risk for those companies should the code be inadequately operationalized by the Myanmar-based garment manufacturers. This new standard, like the US State Department’s human rights and anti-corruption Reporting Requirement, may amount to little appreciable change in practice. The Reporting Requirement has no enforcement mechanism, leaving it to civil society organizations in the country and internationally to use the failure to adhere to the reporting as a means for naming and shaming companies who inadequately address their human rights obligations. Given the attacks and incarceration and killing of activists and journalists in recent months, the likelihood that advocates will serve as a brake for government-backed developments seems uncertain. This leads to the inevitable problem that in the race to enter the latest emerging market in the world, international businesses face uncertainty and a range of political risks should human rights standards not keep pace with economic reforms.

The ANSI/ASIS PSC.1-2012 Standard: A comprehensive framework for managing private security company operations

UntitledIn the coming months, numerous private security companies (PSCs) and their clients will bring the requirements and standards of ANSI/ASIS PSC.1-2012: Management System for Quality of Private Security Company Operations (PSC.1) into their contractual and management practices – several private security companies (PSCs) have already done so and many more are beginning. The following discussion points address the context of the PSC.1 standard, implementation, and its applicability to PSCs and their clients.

What is PSC.1 and why was it developed?

Over the last decade, PSCs were implicated in several high-profile incidents while operating in complex environments. These events triggered new multi-stakeholder codes and management standards to provide guidelines to PSCs on responsible business practices. Among these codes and standards, PSC.1 is the most detailed international risk management framework relevant to security company operations. It is viewed as the industry standard and provides auditable criteria.

What is the purpose of PSC.1?

Ultimately, PSC.1 is a quality assurance risk management system that adopts the Plan-Do-Check-Act Model at the core of management systems. PSC.1 provides PSCs and their clients with auditable standards and guidance for the quality of private security operations and the assurance of human rights in conditions where governance and the rule of law have been undermined by conflict or man-made or natural disaster. PSC.1 was designed to integrate with other management systems within an organization (such as, but not limited to, ISO 9001:2008). The PSC.1 standard is based on business and risk management principles. Conformity with PSC.1 communicates to internal and external stakeholders that the PSC is able to manage its safety, security, and legal obligations, as well as respect human rights.

How was PSC.1 developed?

The U.S. Department of Defense funded ASIS International, the largest organization for security professionals, to develop the PSC.1 standard. To create this standard, ASIS worked with the American National Standards Institute (ANSI) and through an inclusive Technical Committee consisting of over 200 individuals from twenty-five counties. Members of the Technical Committee included representatives from PSC clients, PSCs themselves, governments, civil society organizations, and other interested parties. PSC.1 was developed to support the objectives of the Montreux Document On Pertinent International Legal Obligations and Good Practices for States Related to Operations of Private Military and Security Companies During Armed Conflict (released in 2008) and the International Code of Conduct for Private Security Service Providers (released in 2010), by operationalizing their principles into business practice standards. PSC.1 was approved and released in 2012.

What are the industry drivers for PSC.1?

In the United States, both the Department of Defense and the Department of State are developing contractual provisions for PSC.1 compliance. In the United Kingdom, the Foreign Commonwealth Office has already stipulated PSC.1 compliance for overseas contracted security services. This trend is continuing with other countries and organizations that procure PSC services.

Is PSC.1 applicable to my organization?

PSC.1 is applicable to private security service providers – particularly PSCs operating in circumstances with weakened governance where the rule of law has been undermined by human or naturally caused events. PSC.1 is also applicable to PSC clients to conduct due diligence, management oversight, and quality assurance of services retained from PSCs. PSC.1 standards and requirements are also applicable when PSCs provide security advisory or management services and manage subcontracted security services. In this situation, PSC.1 is also applicable to ensure that security services subcontractors also meet the requirements of PSC.1.

How do PSCs establish conformity with PSC.1?

Conformity with PSC.1 begins with the development of a quality assurance management system in accordance with the specific principles and requirements of PSC.1. To do this firms will need to design and implement a quality assurance management system based on the Plan-Do-Check-Act Model, specifically: establish the management system (to include relevant policy, objectives, processes, and procedures), implement and operate the management system, monitor and review the management system, and maintain and improve the management system.

How should PSCs define the scope of their PSC.1 Quality Assurance Management System (QAMS) implementation?

PSCs will need to determine and document the scope of their PSC.1 management system development and implementation. Is initial PSC.1 conformity and certification sought for a single operating unit or enterprise-wide? Is the scope applicable to a specific line of business in multiple geographical locations or scoped to the company’s operations in a designated country? Within the defined scope, how are subcontractor services managed and controlled within the management system? PSC.1 is clear that the organization shall define the scope of the management system “in terms of and appropriate to its size, nature, and complexity from a process of continual improvement.” PSCs will also need to carefully consider and select which operating or business unit will take on the responsibility for leading and sustaining the company’s PSC.1 implementation effort and continuous improvement cycle.

How do PSCs obtain PSC.1 certification?

PSCs seeking to obtain PSC.1 independent, third party certification will need to demonstrate conformity with the requirements of PSC.1. The certification process is conducted through a series of both internal and external audits as detailed in ANSI/ASIS PSC.2-2012: Conformity Assessment and Auditing Management Systems for Quality of Private Security Company Operations. Third party audits are conducted by accredited Certification Bodies or Registrars that can grant certification. Internal and external auditors for PSC.1 conformity must have competencies related to security operations, human rights normative standards, and risk management. PSCs should take note that there are currently only two accredited Certification Bodies to provide third party certification, MSS Global and Intertek. Both are credentialed by the UK Accreditation Service. However, due to reciprocity agreements among International Accreditation Forum members, of which UKAS is one, PSCs located in other countries, such as the U.S., can also gain recognized certifications from these certification bodies.

PSC.1 was specifically conceived and developed to provide PSCs (and their clients) with the detailed guidelines to operationalize the provisions outlined in the International Code of Conduct for Private Security Providers (ICoC), including the requirement for signatory companies to: “(1) establish and/or demonstrate internal processes to meet the requirements of the Code’s principles and the standards derived from the Code; and (2) once the governance and oversight mechanism is established, become certified by and submit to ongoing independent Auditing and verification by that mechanism.” The multi-stakeholder ICoC Association is currently drafting certification procedures, which will likely build on certification to PSC.1 with some added requirements for human rights related information. Thus it should be relatively straightforward for PSCs with PSC.1 certification to also receive ICoCA certification – which is currently a requirement for PSCs based in Switzerland or providing security services to the Swiss government, PSCs serving the UN, and possibly in the near future Department of State security providers.

The UN Guiding Principles: a Video

The Danish Institute for Business and Human Rights just released a 3 minute video that explains the UN Guiding Principles on Business and Human Rights. For those not familiar with the UNGPs, Mike Baab at the Danish Institute has done an excellent job presenting the the business and human rights framework.

For a detailed analysis of the the corporate responsibility to respect human rights, take a look at our presentation here.

Watch the video below.

[youtube height=”400″ width=”600″]https://www.youtube.com/watch?v=BCoL6JVZHrA[/youtube]

Business and Human Rights Will Continue to Move Up as a Corporate Priority in 2015

NYSE
New York Stock Exchange

 

On December 31 2014, Forbes magazine published the article, Eight CSR Trends to Watch Out For in 2015. Of the eight corporate social responsibility trends presented, the prediction from Christine Bader (formerly responsible for human rights matters at BP and the author of 2014’s The Evolution of a Corporate Idealist: When Girl Meets Oil) that companies step up to tackle human rights issues domestically and globally resonates particularly strongly when you consider the following developments and activities that have recently occurred or will be occurring in 2015:

  • The establishment of U.S. government business and human rights reporting requirements for U.S. firms operating in Myanmar continues to facilitate human rights due diligence from companies that meet the reporting criteria.
  • Likewise, the U.S. government’s Dodd-Frank conflict minerals provisions for companies that source specified minerals from the Democratic Republic of Congo and other covered countries continues to help minimize the exploitation and trade in conflict minerals by armed groups in the DRC region. Section 1504 of the Dodd-Frank Act also requires companies registered with the Securities and Exchange Commission (SEC) to publicly report how much they pay governments for access to oil, gas, and minerals.
  • In 2015 the continued adoption of new human rights and security standards and management frameworks (ANSI/ASIS PCS.1 and The International Code of Conduct for Private Security Service Providers) by private security companies and their clients, and the emergence of third party certification bodies to audit to the standards, will continue to further differentiate among security providers (and utilizers) and will create providers of choice in the private security industry.

When a business publication as established and respected as Forbes points out that the rising trend of business and human rights is on companies’ radars it shows that the concept has come of age.

 

 

 

 

 

Human Rights and the Institutional Investor

As businesses and governments operationalize the UN Guiding Principles on Business and Human Rights, their application to a wider range of business activities is becoming more apparent. This is true when applying the Guiding Principles to institutional investors faced with an array of investments. In this article, we propose several ways to consider how institutional investors can go about integrating the UN Guiding Principles on Business and Human Rights into their investment processes.

For those unfamiliar with institutional investors, this broad group includes public and private pension funds, public institutions including Universities and other educational institutions, local state and national governments, sovereign wealth funds, insurance companies, mutual funds and other large investors. In a 2005 study, the Bank of International Settlements estimated the worth of institutional investors in the U.S. at almost $22 trillion and the combined value of institutional investors in 18 countries including the U.S., total in excess of $46 trillion. Nine years later, this number has no doubt risen significantly.

While an increasing number of institutional investors are beginning to consider non-financial factors in their investment processes, including human rights implications of investment decisions, the vast majority of institutional investors simply do not consider human rights as part of this process. However, out of necessity, institutional investors will eventually face the realities of a changing world and steps must be taken to address this issue.

For those unfamiliar with the UN Guiding Principles on Business and Human Rights (UNGPs), the underlying rubric for applying human rights principles to business activities falls within the “Protect, Respect, Remedy” framework. In particular, the responsibility to respect the human rights of people falls on companies whose operations impact affected individuals and communities. In addition, a number of voluntary principles have been developed that establish responsibilities for financial institutions in a variety of situations. The Equator Principles is one such example, in that they establish “a risk management framework [that is] adopted by financial institutions, for determining, assessing and managing environmental and social risk in projects and is primarily intended to provide a minimum standard for due diligence to support responsible risk decision-making.” In addition, the Thun Group of Banks, an assemblage of U.S. and European banks met in Thun, Switzerland in 2013 and released their paper, UN Guiding Principles on Business and Human Rights: Discussion Paper for Banks on Implications of Principles 16–21, which laid out an interesting starting point for discussion about financial institutions and their responsibilities with regard to respecting human rights.[1] The process of adopting human rights policies and procedures in the context of the financial sector is in its infancy but is progressing as these institutions develop a better understanding about how they should go about establishing these policies and procedures to the unique circumstances of the financial sector.

Given that the financial sector is in the early stages of adopting the UN Guiding Principles, we would argue that institutional investors must look at human rights in their investment decisions in two ways. First, they must consider the human rights implications for various asset classes. Second, their investment management providers, whether in-house or as is most often the case, outside professional advisors retained to provide these services.

Human Rights and Investments

With regard to applying the Guiding Principles to asset classes, it is important to understand what those asset classes are: Equities (stocks), debt (bonds), real estate, alternative investments (hedge funds, derivatives) as well as an array of other investment vehicles. Within each of these broad classes is any number of sub-classes of investments. For example, real estate includes direct ownership of domestic and/or foreign land, agricultural and commercial property financing, infrastructure investments and the like. In addition, indirect ownership through pooled investments and by other means must be added to the mix. Each of the other asset classes also has many specific types of investments within those categories. This makes the task of applying the U.N. Guiding Principles much more difficult and time consuming since different approaches to human rights due diligence is required for each of these different kinds of investments.

An Assessment Methodology

To simplify this process, we propose a methodology for addressing human rights due diligence for institutional investors. First, investors must look at how their service providers address human rights as part of their investment decision-making. Second, specific due diligence approaches to the broad classes of investments must be developed, if for no other reason than to begin a discussion about the application of a human rights rubric to a range of investment products. This approach is implicit in the analysis laid out by the Thun Group paper and is expanded upon below.

With regard to applying a human rights due diligence framework to the selection of investment management professionals, institutional investors face a seemingly intractable problem. This problem is manifested in part by investors’ fiduciary duty to the beneficiaries of the investments made on behalf of the institutional investor (pension beneficiaries, mutual fund share owners, etc.). The concept of fiduciary duty has been the subject of many years of debate with the predominant view being a vary narrow reading that can be summarized in the phrase, “maximizing investor return.” What this means in practice is that advisors to institutional investors argue that the safest way to ensure that representatives of institutional investors act within legal norms is to invest in those assets that maximize a risk-adjusted rate of return for that asset class. For example, a conservatively managed pension fund containing an aging beneficiary base may not want to invest in a real estate venture in Zimbabwe with an annual rate of return of 30%, opting instead for a similar investment in real estate in New Zealand, where the estimated rate of return is much lower.

Fiduciary Duty vs. the Responsibility to Protect

The practical reality is that institutional investors, saddled with the responsibility to act prudently with respect to their investment decisions at the risk of personal liability will more often opt for the safer investment route. In addition, their investment managers, investment consultants, legal counsel and other professional advisors all approach the investment decision in s similar narrowly defined fashion. That is not to say that specific investment advisors do not consider other factors. Examples abound with regard to socially responsible investors who consider non-financial factors in their investment decisions but do so up front and with the understanding that investor rates of return will reflect for these additional considerations. However, the predominant approach with regard to fiduciary duty is the more narrow view.

With regard to investment managers, they are also constrained by pressures from a variety of constituents, some of who are not concerned about human rights as part of their investment decisions. In addition, many investment managers are part of larger financial institutions that provide a range of services to an array of clients, including the very companies that they invest in through various means: equities, debt instruments, capital lending and so on. This mix of client interests and pressures places investment management professionals in a quandary. As one senior manager at a prominent Wall Street firm once told me, “I don’t want to read about my investment decisions on the front page of the New York Times.”

From an investor perspective, applying the UN Guiding Principles to their investments is a complex exercise and cannot be effectively done within the operational and financial constraints of the institution. However, this problem is circumvented in other contexts through the development of guidelines that their investment professionals are obliged to address as part of their investment responsibilities. For example, with the growing concern by investors that they must address a range of corporate governance issues by way of voting their proxies received through their equity holdings, Proxy Voting Guidelines[2] have been developed that set forth a range of policies for voting proxies in a variety of circumstances, e.g. executive compensation, social responsibility, director elections, and so on. An analogous approach could be taken by requiring that investment management firms establish human rights policies with an accompanying demonstration of operationalizing those principles within the company.

Asset Class Guidelines

A more significant challenge faces institutional investors when they try to apply the UNGPs to specific asset classes. Here, institutional investors, along with investment management professionals and human rights and business experts must come together and begin to develop asset-specific approaches to the application of the UN Guiding Principles.

Applying the Guiding Principles to specific asset classes won’t be easy but there are a few starting points for moving this effort forward. For example, investors should require their equity managers to evaluate the policies established by their portfolio companies with respect to human rights due diligence. While investment managers may be constrained in their buy/sell decisions to include human rights policies as part of the decision-making, the managers should report back to their investor clients whether those policies are in place for the equities held in the client portfolios. Extending this precatory approach to other asset types, institutional investors can begin to send a message to their clients, industry and to the capital markets that human rights considerations are on the rise as part of their overall investment processes.

[1] See also, Domiano De Felice, Banks and Human Rights: The Thun Group and the UN Guiding Principles on Business and Human Rights, 2014, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2477126, which is a critique of the Thun Group paper.

[2] As an example, see Glass Lewis & Company, Guidelines: 2015 Proxy Season, 2014, http://www.glasslewis.com/assets/uploads/2013/12/2015_GUIDELINES_United_States.pdf.

Chaos, Complexity, and PSCs

Chaos, Complexity, and PSCs

A guest post by Christopher T. Mayer
Director, Contingency Contractor Standards and  Compliance
Office of the Deputy Assistant Secretary of Defense (Program Support)

CTM

This month will see four important events in realizing the goal of effective and responsible provision of private security services. The first of these, coming on December 4th, is the first Annual General Assembly meeting of the International Code of Conduct Association.  A few days after that, the International Organization for Standardization (ISO) will release the Draft International Standard (DIS) for the management of private security services.  This is the ISO, or international version of the American National Standard (ANSI) that has been in effect since 2012.  At about this same time, the new Defense Federal Acquisition Regulation Supplement  will be published which requires compliance with the ANSI PSC standard in all DoD contracts for contingency and peace operations. This will make the existing requirement in contracting officer instructions much more effective. Finally, there is the first meeting of the Forum for Montreux Document Participants. None of these are without problems (and I think it would have been much better for them to happen in reverse order) but individually and collectively they indicate how much work has been done in improving the quality and accountability of the PSC industry. They also point the way forward for continual improvement and inspire confidence in seeing that improvement continue.

The different initiatives involving PSCs may give the impression of complete chaos; a Gordian knot of regulations, associations, treaties, agreements, and standards that appear as a tangled and unintelligible web of competing efforts. From an insider’s perspective, I assure you that it often feels that way, too. Chaos theory proposes that what seems to be chaotic is often just very complex. This is true for the operations of PSCs, too. Some sense of order can be derived from this complex and apparently chaotic situation when you think of three complementary tracks (in military terms, that would be called “lines of operation”): international agreements; national regulation; and private sector initiatives.

International agreements consist of formal international law, such as International Human Rights Law, the Law of Armed Conflict, customary international law, and non-binding agreements such as the Montreux DocumentThis is the domain of the sovereign interests of States. Such international agreements, however, are informed by their citizens and the private sectors affected by those sovereign interests. The formation of the Montreux Document Forum is a major step in States working together to implement the Montreux Document, keep it relevant in a changing global environment, and working with the other lines of operation. The first major tasks which will be taken up by the new forum will be liaison with the ICoC Association — ensuring that the Association remains cognizant of State interests, regulation, and concerns — and expanding the scope of the Montreux Document’s good practices to the maritime domain, with particular concern for State use of private sector security in response to piracy and armed robbery at sea.

National regulation implements the international agreements described above in a manner appropriate to the specific circumstances of individual States as well as their own national policy objectives. For the United States, this includes a range of regulatory initiatives including, but not limited to, the Military Extraterritorial Jurisdiction Act (and expanding that to cover all civilians operating in contingency areas), relevant sections of the Code of Federal Regulations, Agency directives, and military orders. The Federal Acquisition Regulations (FAR) and the Defense Federal Acquisition Regulations Supplement (DFARS) form part of this regulation. The current ANSI standard for PSCs has been required as an instruction to contracting officers since May, 2012. It was intended to incorporate the ANSI standard into the DFARS after publication of a new FAR for PSCs affecting all government agencies. That FAR was published in July 2013 and work began on the new DFARS clause immediately thereafter. That it is only now being published demonstrates how hard it is to change the DFARS. It would still not be ready except that no objections were raised during public comment period.

Private sector initiatives include codes of conduct, generally accepted industry practices, and other self-regulatory efforts. They can be national or have an international but non-governmental character. To be legitimate, they must be consistent with (that is, do not violate or contradict) international agreements and State regulation. The ICoC and its Association are examples of this, as is the Voluntary Principles for Security and Human Rights. Industry associations are critical to promoting common industry practices that raise the performance bar across the sector. Examples include the British based Security in Complex Environments Group (SCEG) and the U.S. based International Stability Operations Association (ISOA)  (Both organizations have international membership.) The ICoC and its Association have been called “multi-stakeholder initiatives” as governments and non-governmental organizations participate. This cross sector participation exists, but it does not alter the essentially private sector nature of these initiatives. The ICoCA was formally established a year ago. It is still in the process of standing up. It has not yet come to grips with its position vis a vis the other tracks of PSC regulation. The Annual General Assembly is an opportunity for the Association to report to its members and receive feedback from those members to chart out a way forward, working with the other tracks to promote the responsible provision of security services across the globe.

Standards are cross cutting. They include all three elements. Although private sector in nature, they include State oversight and can be included in State regulation. The ANSI standards development process requires a balance of interests in the drafting committee. This balance mandates a rough equality among the participants from the affected industry, purchasers of the goods or service, and other interested parties or stakeholders. Development of the ANSI PSC standard included more than 200 committee members from 24 different countries drawn from PSCs, purchasers of PSC services, human rights organizations, academia, governments, and standards development experts. The publication of a standard by ANSI or ISO represents a consensus of the different stakeholder groups that the practices described in the standard will produce predictable and repeatable results. For PSCs this means protection of its clients in a way that is consistent with international agreements, State regulation, and industry best practices. Adherence to standards can be subject to contract law. Operations that ignore standards or willfully violate them can be considered negligence in tort law. False representation that a company is in compliance with such standards when it is not can be subject to criminal law. The ISO version of the PSC standard will enable adoption of the practices and procedures described in the ANSI PSC standards in many more States than is possible under any national standard. In this way, it will support international agreements as well as the State regulation referenced in the standard.

Progress in PSC regulation seems complex because it is. It is a necessary complexity reflecting the nature of the contracted service. As the definitions in the ICoC and the ANSI PSC standard say, PSCs operate in complex environments. They operate at the nexus of human rights law, the laws and customs of war, and national criminal and corporate law. Addressing this complexity requires interdependent approaches within and among the different tracks or lines of operations. This complexity fosters Clausewitz’s principle of friction. Understanding the role of these lines of operation and ensuring unity of effort among them is necessary to overcome this friction and keep chaos at bay. The events of this month coming together as they are demonstrate commonality of purpose, a commitment to work together, and an indicator that we are moving forward.

Land Grabbing and Ethnic Conflict Pose Dual Risks in Myanmar

Credit: Burma Partnership
Credit: Burma Partnership

Slated by some in the business world as the last frontier, Myanmar, located between Thailand, China and India, contains a wealth of precious minerals, oil and gas, a cheap labor force and a potential market for goods and services that has had little contact with the rest of the world for more than 50 years. Yet, despite the promising business environment, businesses face a range of challenges and risks in this emerging economy. At the forefront of these risks are land use and ethnic conflict.

Myanmar is coming out of an economic shell, hidden from the rest of the world by a repressive government that nationalized the economy and closed its borders to the outside world. Once a British colony, the Union of Myanmar remained under the firm control of the military junta until 1999, when mass opposition to the corrupt practices of the government eventually led to the easing of totalitarian control and an opening of the economy. Soon thereafter, countries from around the world began to enter Myanmar in the hope of taping into the countries wealth of resources and people. However, the panacea soon met reality as businesses recognized that the country lacked the necessary infrastructure to support any significant economic development. Roads, telecommunication, electricity and an educated workforce were all absent in Myanmar. As a consequence, economic development, while moving forward at a relatively rapid pace, was tempered by the reality on the ground.

Today, Myanmar is seeing the slow but steady development of its infrastructure. Mobile telephone systems have come online this year, more than 41 new power plants are due to be built by 2030 and urban growth is booming as reflected by the office complexes and luxury hotels opening in the major urban areas. As economic development moves from the country’s urban centers of Yangon, Mandalay and Naypyidaw into the countryside, some harsh realities face businesses seeking new locations to operate and expand.

The Realities of Land Use

Like many countries around the world that have not developed western-style land use systems that include formalized land titling and conveyance, ownership by private citizens and the like, Myanmar is only now coming to terms with land ownership in the western sense. Traditional forms of land use, in which communities and indigenous people use the land on which they live are giving way to the exigencies of economic reform. For many years, land considered valuable by the military junta was seized from local communities, leaving largely rural populations without homes and without the means to survive in the struggling agricultural society. Arriving with hopes of cheap land for economic development, businesses large and small have acquired property from the military-led government, often oblivious to the simmering and sometimes explosive conflicts surrounding them. A prime example of this problem can be found at the Thilawa Special Economic Zone, an industrial complex being developed 23 km southeast of Yangon city center in Myanmar. It is the flagship project of the Japan International Co-operation Agency (JICA) in cooperation with the Myanmar Government and Japanese and Myanmar companies. Residents in the small village located on the proposed 400-hectare site were forcibly relocated to a nearby plot of swampy land that was unsuitable for anything but breeding mosquitos. JICA and the various Japanese companies planning on developing the site have found themselves in a protracted struggle with local residents seeking fair compensation for their loses. This scenario is occurring with greater frequency throughout the country. Companies are often told that land they are acquiring from the central government is abandoned of fallow, only to discover that once work commenced, the land was held by the local community for a range of uses not previously disclosed. This systematic practice by the Myanmar government has led to a second problem that can directly impact the progression of development: ethnic conflict.

Ethnicity and Development

Burma’s military, largely of Burman descent, has been at war with most of the ethnic minority groups for decades. According to the U.N., one of the longest internal conflicts between the central government and Karen rebels, has spanned more than 60 years. Today, it is estimated that more than 400,000 people are internally displaced, living in refugee camps in the southeast of the country as a consequence.

Ethnic group Proportion of population

Location

Karen 7 percent Kayin State in eastern Myanmar bordering Thailand
Kachin 1.5 percent Kachin State in the north, bordering China
Karenni 0.75 percent Kayah State, on the border with Thailand
Chin 2.5 percent Chin State in western Myanmar, bordering India
Mon 2 percent Mon State in southern Myanmar
Rhakine 3.5 percent Rakhine State in western Myanmar
Shan 9 percent Shan State, bordering Thailand
Wa 0.16 percent Wa Special Region, on the border with China
Rohingya 0.15 percent Northern townships of Rakhine State, bordering Bangladesh

Briefing: Myanmar’s ethnic problems

While a number of ethnic groups have taken up arms, perhaps the greatest tragedy, in terms of ethnic conflict, is the ongoing forcible removal and internment of the Royhinga people, an ethnic Muslim population located largely in the northwest of the country. A UN human rights envoy says severe shortages of food, water and medical care for Rohingya Muslims in western Myanmar are part of a long history of persecution against the religious minority that could amount to “crimes against humanity”.

The Implications for Business in Myanmar

At first glance, the relevance of these two problems may seem remote for businesses entering into this Southeast Asian country. Much of the economic development is centered around the major urban areas, where land rights and ethnic conflict seems physically distant. However, such is not the case. An assurance that land is properly acquired or that the local population is without ethnic differences ignores the reality on the ground. Companies entering Myanmar must take special caution when opening up large footprint facilities and employing Myanmar nationals. It is critical that companies undertake a comprehensive due diligence process, paying particular attention on the origins of land possession, if not ownership, and a keen awareness of the underlying ethnic tensions that could impact its workforce.

For example, a recently announced solar power plant to be built in the Meiktila district of the country, located southeast of Mandalay, was recently the scene of violent ethnic fighting between Buddhists and Muslims. Since 2012, hundreds of people have died and tens of thousands of people have been displaced due to the conflicts between Buddhists and Muslims in Myanmar. Cities such as Meiktila and Lashio have been devastated. Earlier this year, a BBC reporter said he saw about 20 Muslim bodies, which local men were trying to destroy by burning in the town of Meiktila. In the midst of this ongoing conflict, infrastructure development is underway with the risk of damage or destruction to the development projects combined with the real risk of labor problems that may arise from hiring practices that favor Buddhists over Muslims and the broader problem facing local communities excluded from the solar power distribution system.

If these political risks on the ground seem removed from the reality of operating in Myanmar, the reputational risks posed by these dual points of conflict can have a profound impact on the profitability of any development in this slowly emerging economy.

 

 

Myanmar Land Use Policy: a Solution or a Panacea for Development?

Credit: The Asean News
Credit: The Asean News

In October of this year, the government of Myanmar released its draft National Land Use Policy (NLUP) for public comment. As the Thein Sein government races into the 21st century after decades of isolation, this policy promises to address problems with land use and reflects the government’s reform process in regard to land rights, which have been at the heart of many of the conflicts throughout the Southeast Asian country. This presents potentially good news for foreign investors in Myanmar but it is not without its pitfalls.

For decades, land confiscation has been at the center of many of Myanmar’s ethnic conflicts. However, as noted in a recent article in the Burma Times, “[t]he current Myanmar government is working hand-in-hand with former military-favored businessmen and their companies, enabling them to gain access to the country’s biggest and most promising new billion-dollar asset: land.” This exacerbates well founded fears that the draft policy legitimizes land seizures in the name of “rule of law.” “[T]he new land-related laws are haphazardly and improperly applied to legally turn farmers into “squatters” and their farm fields into “vacant wastelands” for corporate investment,” according to the Burma Times.

Recognizing that “[f]orcible and uncompensated land confiscation is a source of conflict and abuse in Burma, protests and fear of “land grabs” have escalated as the state opens its markets to foreign investors and pursues policies to dramatically increase industrial agricultural production.” USAID has actively supported this model of land use reform. However, this draft land use regulation masks serious conflicts between the central government and ethnic groups throughout the country.

In its Statement of Ethnic Community Development Forum and the Customary Land Protection Committee Concerning Myanmar’s National Land Use Policy, a coalition of 31 Myanmar organizations laid out a 12-point critique of the draft NLUP.

The Statement notes that the draft of the national land use policy prioritizes and gives special privileges to business investors, which could spark more land grabs and create further conflict. In addition, a major omission in the draft plan is a failure to address the previous military government’s land seizures as well as the current land problems in various parts of the country and there are no provisions in the draft policy that addresses issues of land distribution, restitution, and the right to return for internally displaced peoples. This is of particular concern for the more than 100,000 Rohingya people, ethnic Muslims displaced and interred in refugee camps by the Burmese government. Finally, the draft policy does not address the principle of free, prior, informed consent nor is it consistent with the Tenure Guidelines of the Food and Agriculture Organization of the United Nations, according to the Committee.

These reforms come at a time when the country is seeking foreign direct investment in order to bolster its economy. While the proposed rules promise a more certain future for economic development, land use remains fraught with risk for businesses entering this emerging market. While businesses entering into Myanmar may take comfort in greater regulatory certainty that is promised by this new policy, inadequacies in land use regulations will inevitably lead to all too common conflicts arising out of disputes between the central government relying on the rule of law and rural ethnic communities that lose their lands and livelihoods from new business development. Ignoring this problem puts businesses at serious reputational if not financial risk.

Private Security Providers and Social License

PSC

In a recent analysis published by YaleGlobal Online, John Morrison argues that in the age of globalization, businesses now need “the consent of local people and not just a certificate from the town hall or central government” in order to set up operations. He rightly points out that consent by local populations is increasingly linked to the concept of “social license” – an acceptance by the impacted local communities of the business activities and a necessary requirement for firms to establish and sustain community support for their activities.

The concept of a “social license to operate” is not new, but it is one that is continuing to gain increased resonance as an essential management practice beyond the extractive and apparel industry sectors – traditional bases where corporate policies and management practices first shifted to adopt guidelines for local consent and community engagement. Today, corporate commitment to social licensing has expanded beyond its traditional base to new industry sectors ranging from solar power to mobile telephony to private security.

Take private security – a polarizing industry for many but one that is certainly here to stay. Traditionally, experienced international private security providers developed policies to ensure compliance with all provisions of local and national law (to include the company’s domicile state, the states from which it drew its employees, and the states in which it operated) but in the aftermath of the Afghanistan and Iraq-driven growth of the industry, a look back shows that operating within these legal parameters, while essential, was insufficient. A legal license does not equate to a social license and new guiding frameworks were codified to ensure respect for human rights and foster local community support.

These frameworks and guiding principles, most notably the recent International Code of Conduct for Private Security Providers (with 708 separate corporate signatories at last count), the UN Guiding Principles for Business and Human Rights, and the ANSI/ASIS PSC.1 2012 – Management System for Quality of Private Security Company Operations provide specific provisions for private security providers to “know and show” how their policies and practices respect human rights and provide remedies (such as local community grievance mechanisms) to foster engagement and trust with local communities to prevent and address issues when they occur.

While compliance with these new normative standards will not, in and of itself, achieve a social license to operate, non-adherence will certainly create a significant barrier for the private security provider and, by extension, its client, to obtain and maintain the consent and trust of the local population necessary to achieve a social license for the firm’s activities. Private security providers are businesses and have the same obligations to rights-holders as any other commercial activity. Forward-looking private security providers know this and are adapting their practices accordingly.

Human Rights Risk and Materiality: Risk at the SEC

dbpix-mary-jo-white-2002-tmagArticleIn a recent series of speeches, SEC Chair Mary Jo White and fellow Commissioner Daniel Gallagher Jr. have begun to make the case that the Securities and Exchange Commission (SEC) should not be burdened with oversight of companies non-financial disclosure obligations established by the Dodd-Frank Act. Unfortunately, their rationale that this regulatory obligation to compel companies to disclose their dealings in conflict-risk areas around the world detracts from the SEC’s oversight responsibilities is misguided to say the least.

At issue is Section 1502 of the Dodd-Frank Act that requires companies to disclose whether certain minerals used in the manufacture of various products is sourced from the Democratic Republic of the Congo or neighboring countries. “[T]he SEC should not be responsible for those reports and “many, if not most” of its Dodd-Frank mandated functions,” Commissioner Gallagher said in a speech yesterday at Fordham University School of Law in New York. “Those mandates distract from the SEC’s proper regulatory oversight and strap its limited resources,” according to the Wall Street Journal.

Previously, SEC Chair White recently spoke to a crowd at Fordham Law School where she noted that “[s]eeking to improve safety in mines for workers or to end horrible human rights atrocities in the Democratic Republic of the Congo are compelling objectives, which, as a citizen, I wholeheartedly share. But, as the Chair of the SEC, I must question, as a policy matter, using the federal securities laws and the SEC’s powers of mandatory disclosure to accomplish these goals.” Her reasoning is that “other mandates (the Conflict Minerals Rule), which invoke the Commission’s mandatory disclosure powers, seem more directed at exerting societal pressure on companies to change behavior, rather than to disclose financial information that primarily informs investment decisions.”

While no doubt that these statements will be used as fodder for the never-ending industry litigation seeking to halt the implementation of Dodd-Frank regulations, the Commissioner’s narrow view of material disclosure puts both companies and their investors in peril should the human rights risks arising out of undisclosed business activities come to fruition. Embracing for the moment the neoliberal-free market notion of ”letting the market decide,” disclosure of risks before they become a reality is at the core of the SEC mandate to bring about greater disclosure for investors – a lesson that we have learned from the mortgage crisis of 2008.

Today, a number of enlightened public companies are undertaking human rights due diligence processes aimed at circumventing risks arising out of business operations around the world. Assessments of non-financial risks, including impacts on local communities and people from the taking of land, implementing of security measures and human trafficking are increasing in industries once thought to be out of touch with respect to human rights concerns. The reason for this change is simple: Human rights impacts arising out of business activities are becoming material for the corporate enterprise and ignoring those risks put companies at financial risk. In referring to other provisions of the Dodd-Frank Act to which she is in agreement, Chairwoman White forcefully states that “[t]hese are measures directly aimed at making our financial system and the protections for investors stronger.” Such is the case with respect to human rights due diligence in business activities around the world and the Commission should heed their own words.

Moving at the Speed of Trust: Establishing Company Programs in Complex Environments

Speed of Trust

When establishing a presence in high risk or complex environments, investing foreign enterprises would do best to consider the maximum utilization of local personnel for the implementation of their programs. While complex environments take many forms (conflict, post-conflict, natural disasters, ethnic or religious tensions, political transition, diminished rule of law, etc.), each one possesses a mix-ratio of instability drivers that is specific to the local population at hand. The common thread that runs through each of these community situations, however, is that no matter what the local circumstances, establishing trust with impacted local communities is a baseline prerequisite for a successful company program.   Achieving and maintaining local community trust in a complex environment will only occur – and last – with a thoughtful, deliberate community engagement effort on the part of the firm. Sometimes referred to as “moving at the speed of trust” a company’s level of trust with a local community depends both on what the company does and fails to do. And while never easy – the company’s best foot forward usually comes from a locally delivered step. The following points are a few highlights of the well-established considerations when working with local communities in complex environments.

The expatriate footprint is best left invisible.

In areas of high-risk particularly, one primary factor for fostering local trust is to operate from the maxim that the expatriate footprint is best left invisible. Much has been written of the expatriate “three cups of tea” approach to conducting local community engagement in areas of high of insecurity. In these environments, expatriates that travel openly often do so at great personal risk. Certainly the use of accompanying protective security by these expatriates is prudent and warranted to prevent potential abductions or worse. However, by the same token, foreigners that utilize protective security must also take great care in the selection, practices, and oversight of their chosen protective security provider, particularly in relation to the local population. Additionally, in many high-risk environments, the expat is often transitory in his or her community engagement role, staying in the local “hardship” environment for some months, weeks, or even days before leaving the area and “parachuting in” at a later time or switching out with a replacement. Efforts to develop local relationships, knowledge, and trust-building efforts begin all over again with every switch out. For these (and several other) reasons the use of expatriates to conduct sustained community engagement in high-risk environments is less than ideal.

Organizations that take these lessons to heart know that local staff provide the truest interpretation of the local dynamics and conflict-drivers for any given community, as well as providing the most effective interface to establish, build, and maintain trust. Effective community engagement operates from a system of mutual respect; while the business has its goals to achieve, the local community – often times at both formal and informal levels – does as well. Knowing how to read and interpret these needs is essential and the local community engagement manager will always get this better then the expatriate community engagement manager (no matter how many times he/she has “worked in the field”).

Communities can best determine and express their own needs.

Communities also best determine and express their own needs. I am reminded of a well-meaning firm that built houses with “modern” amenities for a community only to find that the houses were abandoned after a short time because the residents preferred their traditional housing. Had a local community engagement staff been in place it is doubtful that the decision to build houses (instead of what the community truly wanted) would have occurred.

Supporting the establishment of community engagement councils facilitates open dialogue between the community and the business operations. Councils should be representative of ALL members of the community and should have direct and open access to local business officials to ensure an effective complaints mechanism for the community to address ongoing and future concerns regarding business activities. Since communities are not monolithic and differing factions need to be heard, companies will also gain a better understanding of the critical local political dynamics by fostering inclusive community engagement councils.

Additionally, understanding the power dynamics within a community is important, i.e. speak to local leaders but also find ways of engaging with those who may be more marginalized, like women or other minority groups. Not only will a local community engagement manager have a much greater sense of the various groups that constitute an impacted community, he/she will be much more effective in connecting with them.

Effective community engagement extends beyond the project’s immediate vicinity.

Social and economic connections among geographically contiguous communities are often very strong. When firms engage with local communities in the areas directly impacted by their business operations, they should also plan to understand and work with other additional communities in the surrounding vicinity. Here, too, local team members will provide the best insight to facilitate engagement with all impacted communities.

Working with public security forces requires careful and deliberate actions.

While companies must always coordinate their activities with local police and security forces, in some cases these forces are contributors to local instability. Project leaders should always maintain a close dialogue with their in-country embassy staff, such as the assigned Regional Security Officer, as well as being clear in their commitment to international normative standards regarding human rights and the use of force. When establishing relations with local public security forces companies should share their corporate human rights policies and local security protocols to communicate standards of behavior and transparency, as well as to demonstrate adherence to local, national, and international law and security best practices.

When projects utilize private security providers, the use of local guard forces employed from the local population is essential to maximizing trust and acceptance with the local population. Companies should ensure that guards are adequately vetted and trained, and understand the companies’ commitment to ensuring respect of the local population’s rights by security providers, as detailed in key standards for private security operations, such as the International Code of Conduct for Private Service Providers and the ANSI/ASIS PSC.1 Management System for Quality of Private Security Company Operations (see below).

Coordinate and engage with established NGOs operating in the area.

International NGOs will be among the first organizations to operate in areas of transition, often having years of on the ground experience in the local environment. Informal engagement and liaising with NGOs can be quite valuable in several areas. Companies will find that NGOs have a wealth of local knowledge and will usually be able to provide “ground truth” of a local environment. In turn, NGOs will normally appreciate a company’s efforts to engage and coordinate with them on planned program efforts for community engagement in areas where both company and NGO programs are active. International NGOs also tend to have strong ongoing relationships with local NGOs and individuals and in many cases can make introductions for potential partnering or hiring requirements for local technical staff.

While establishing business operations in complex environments is not new, the normative standards and guidelines to consider for these operations are.

Implementing commercial projects in complex or high-risk environments is not new, but the standards and best practice approaches that companies now utilize to build trust with local populations have evolved. While the above practices focus to the benefits of localization to support effective community engagement plans, new standards and guidelines for managing projects in complex environment are now easily accessible for companies to consider when designing and implementing their business programs in high-risk environments. These standards include the Voluntary Principles on Security and Human Rights, the International Code of Conduct for Private Security Service Providers, the UN Guiding Principles on Business and Human Rights, the ANSI/ASIS PSC.1-2012 Management System for Quality of Private Security Company Operations, and the DCAF/ICRC Toolkit for Addressing Security and Human Rights Challenges in Complex Environments.

U.S. Announces Development of National Action Plan

WhiteHouse-FactSheetWhiteHouse-FactSheet2On September 24th, the White House announced its Global Anti-Corruption Agenda, confirming its commitment to long-standing programs across the U.S. government to promote anti-corruption, transparency and open government both domestically and overseas. In addition, it announced “the United States will develop a National Action Plan to promote and incentivize responsible business conduct, including with respect to transparency and anti-corruption, consistent with the U.N. Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines on Multinational Enterprises.” This news was welcomed by the human rights community and generally acknowledged as long overdue.

Within the context of the “Protect, Respect, and Remedy” framework at the heart of the U.N. Guiding Principles on Business and Human Rights, the UN Human Rights Council has called on Member States to develop National Action Plans (NAPs) to support implementation of the UNGPs within their respective national contexts. Already, a number of western states have issued National Action Plans including the U.K., the Netherlands, Italy, Denmark and Spain and two other states (Finland and Switzerland) are currently developing plans.

As noted in their recent report, National Action Plans on Business and Human Rights: A Toolkit for the Development, Implementation, and Review of State Commitments to Business and Human Rights Frameworks, the International Corporate Accountability Roundtable (ICAR) and the Danish Institute on Human Rights (DIHR) note that “UN human rights treaty bodies, the UN Working Group on Business and Human Rights (UNWG), national human rights institutions (NHRIs), and civil society groups have begun to supply some thematic guidance on business and human rights that is directed toward States and that takes the UNGPs into account. Yet, there have been no studies so far that directly address the full scope of [the Guiding Principles]. As such, tools for those within governments who are given responsibility for the UNGPs portfolio are lacking, as are benchmarks for those outside government who are tasked with monitoring implementation by the government and holding the State to account.” It is within this context that the U.S. is moving forward to develop its own NAP.”

In the months to come, both the process and the framework utilized by the U.S. government will come under close scrutiny from both civil society groups and businesses concerned with the final form of the NAP. As a starting point, the U.S. government will face the initial challenge of developing an impartial national baseline assessment with respect to how it currently contributes to the realization of the UNGPs. This initial step in the development of a U.S. NAP will lay the foundation for a hopefully comprehensive assessment of both of sector-specific issues as well as thematic problems facing the U.S. in its role as the home state for many of the largest transnational corporations in the world. In addition, the plan will need to properly address the jurisdiction of the U.S. government both within its borders and globally.

This process will undoubtedly set the stage for considerable debate and will likely trigger ideological posturing in Washington. Whether informed thinkers from government, business and civil society can overcome political pressures and find a reasoned consensus for the development of a NAP remains to be seen. But as noted in the ICAR/DIHR report, “[w]hile business entities themselves must take responsibility for their impacts and amend their policies and practices to better respect human rights, it is ultimately up to States, individually and collectively, to protect the human rights of individuals and communities. . . The process for developing NAPs must be clearly owned, adequately resourced, transparent, and involve the full spectrum of relevant stakeholders, including businesses, civil society actors, affected communities, and rights-holders.”

Infrastructure in Myanmar: Telecommunications, Energy and Human Rights?

Credit: Mizzima, Jan. 16, 2013
Credit: Mizzima, Jan. 16, 2013

Recently, several U.S. companies announced new projects to be launched in the coming months in Myanmar. While these new endeavors suggest a growing interest by businesses looking to enter this new market, the risks to these and other companies in the region is a continuing impediment to long-lasting business stability that must be heeded.

Cummins, a U.S. based manufacturer of heavy equipment secured a contract from Irrawaddy Green Towers (IGT) to supply a mix of solar and battery hybrid and diesel generator power solutions for more than 750 cell-tower sites in Myanmar. “IGT will roll out the cell-tower sites during the next 12 months as part of a contract with Telenor Myanmar to build and operate them nationwide. Two-thirds of the sites will be off the country’s primitive power grid and located in remote locations. Poor road infrastructure in some regions is another challenge as refueling and maintenance of diesel generators can significantly add to tower network operating costs,” according to Recharge.

In addition, under an agreement between U.S.-based ACO Investment Group and the Ministry of Electric Power, two 150-megawatt solar plants are due to be built by 2016, most likely in the Myingyan and Meiktila districts, near Mandalay.

This news reflects the critical need for infrastructure development that has long been lacking in Myanmar. Until the telecommunication, electrical and transportation infrastructures have been developed, the Myanmar economy will continue to face challenges as the Thein Sein government seeks to liberalize and open up the Myanmar economy.

There is also renewed hope that the many ethnic conflicts that have plagued the country for more than 60 years finally may be coming to an end. “Myanmar’s efforts to secure its first-ever nationwide ceasefire agreement (NCA) appears to be nearing fruition, as the fifth round of negotiations between the government’s Union Peace Working Committee and the National Ceasefire Coordination Team (NCCT) representing 16 ethnic armed groups drew to a close in Yangon in mid-August.” (See: The Nation Sept. 9, 2014) While many hurdles remain, all sides to the conflict are hopeful.

But with all of this new development in the country’s infrastructure and the general optimism within the country that ethnic conflict is close to ending, there remains a significant range of human rights concerns that business will face as they enter the market.

At the top of the list is what will the central government do with regard to land rights of people impacted by these infrastructure development projects? This is not a trivial question, particularly when large swaths of land will be repurposed for infrastructure development. Will traditional property rights of local populations be respected as these projects begin? Will local residents be compensated for any losses that they incur from the development? In the case of the solar power arrays, significant land areas will be utilized for the panels and right-of-ways to accommodate the transmission lines will necessitate incursions into communities, agricultural areas and property of cultural value.

When power is generated, will the local communities that sacrificed land for the development share in the power distribution? While is it premature to say one way or another if power will be provided to local communities when these projects go online, the central government does not have a strong record in this area.

With regard to the cell tower development around the country, the human rights risks are less clear but potentially pose even greater long-term harms to local populations. Will the privacy of people using cell phones be protected from government eavesdropping? Should ethnic tensions rise again, will the government use the cell technology to track its opponents or worse, will cell towers be shut down prior to military intervention as a means of cutting off communication to its opponents? These are all real problems that must be addressed as these infrastructure projects move forward. While these companies may dismiss these risks as problems that the government must address, absolving them of any liability, history has shown that corporate complicity, whether knowing or inadvertent, remains a serious problem that all businesses must face in the 21st century.

 

 

 

 

 

Human Rights Impact Assessments – a critical tool for gauging human rights risk

HRIA 28 AUGSince the endorsement of the United Nations Guiding Principles on Business and Human Rights (UN GPs) in 2011, corporations have increasingly embraced the UN GPs to include the responsibility to “identify and assess any actual or potential adverse human rights impacts with which they may be involved either through their own activities or as a result of their business relationships” (Guiding Principle 18).

Principle 18 of the UN Guiding Principles further states that in order to gauge human rights risks, this human rights due diligence process should:

“(a) Draw on internal and/or independent external human rights expertise;

(b) Involve meaningful consultation with potentially affected groups and other relevant stakeholders, as appropriate to the size of the business enterprise                and the nature and context of the operation.”

This is especially critical for businesses operating in environments with weak or low levels of governance, diminished rule of law, and historically inadequate access to remedies for rights-holders experiencing adverse human rights impacts. A human rights risk assessment process in alignment with the UN GPs is of particular relevance to the extractives and private security sectors where engagement with the local population is the norm rather than the exception.

But how do companies, particularly within these industries and in these types of operating environments, “identify and assess” the potential and actual human rights impacts of their projects as called for in the UN GPs? To meet these responsibilities companies typically conduct Human Rights Impact Assessments (HRIAs) as part of their human rights due diligence process, and as a means to demonstrably “know and show” how their policies and procedures respect human rights. HRIAs should be an integral and on-going component of their business operations.

A HRIA, if properly conducted, allows a company to know definitively if, and how, their project impacts human rights, both positively and adversely. The HRIA methodology involves several distinct, but linked, iterative data-gathering and analytical phases, to include substantial and meaningful engagement with local rights-holders. Project supply chain and subcontractor relationships also must be considered, as well as project and community touch points, to include with NGOs and local government and security forces. All factors are assessed from the contextual aspects of the local environment and the project activity itself. The HRIA differs from Environmental and Social Impact Assessments (though can leverage data from these sources) and has a specific scope to identify and assess human rights risks posed by the project from the perspective of internationally recognized human rights norms.

Confirmed human rights impacts that are identified from the HRIA process are used to adjust or modify a project’s operating procedures to eliminate any adverse impacts to rights-holders. Additionally, a successful community engagement process also facilitates the building of trust and communication between the local community and the business project and lays the groundwork for future feedback – a key element for the establishment of grievance mechanisms for the community to utilize in any future instances of real or perceived adverse human rights impact.

Identifying and addressing human rights impacts is not only the right thing to do; it is the business smart thing to do. Failure to manage risk, including human rights risks, can be costly to a company, potentially resulting in disruption of commercial operations, reputational damage, and legal liability – and ultimately the loss of a company’s social license to operate.

Human Analytics provides the needed external human rights expertise and offers customized and cost effective solutions to our clients seeking to manage the risks of operating in complex environments. Working in close partnership with our clients, we bring our team’s expertise and experience to bear to ensure that we develop solutions that fit our clients’ needs, are appropriate to the size of their enterprise, are fitting to the nature and context of their operations, and evolve with changes in the operating environment.

The Nicaragua Canal: The Human Rights Implications

Credit: BBC News
Credit: BBC News

In recent weeks, media reports have come out of Nicaragua about a Chinese telecom titan, Wang Jing, which with the support of the Nicaraguan government is planning to construct a canal to connect the Caribbean and the Pacific. An ambitious plan by any measure, the initial cost estimate is around US$50 Billion. If constructed, the canal would extend 173 miles across the second poorest country in the region, eclipsing the Panama Canal by more that 120 miles. While dismissed by many familiar with the plan, the developer, with likely financial backing from the government of the People’s Republic of China, could act on his plan to move forward and start construction in December of 2014. While environmental experts have expressed alarm over the impact of such a massive project, much less has been said about the human rights impacts on the many thousands of people in the path of this project though the implications for human rights abuses are significant.

The purpose of this blog is to look at the possible human rights implications of such a massive and disruptive project and suggest an approach for addressing the potential risks.

Since human rights experts do not have the benefit of ex post observations that would readily identify possible human rights problems before the start of a development project, there are certainly a number of potential risks that can be identified, based on the experience from other development projects around the world. Displacement of local populations in the path of the massive project, access to potable water put at risk by the commercial activities as well as the construction itself, the impacts on indigenous people and risk to health conditions of the local population affected by workers coming from outside the region all pose real human rights challenges.

Since 2011, analyzing human rights problems arising from business development has gained greater attention. That year, the UN Guiding Principles on Business and Human Rights were published, establishing voluntary standards for business and government within the “Protect, Respect and Remedy” framework. Within this framework is the recognition that companies should undertake human rights due diligence as part of their business activities. One approach is to commence a “[h]uman rights impact assessment (HRIA) [which] measures the impact of policies, programmes, projects and interventions on human rights. There are different types of impact – it can be positive when the human rights situation improves as a result of activities and interventions, or it can be negative when the human rights situation worsens.”[1]

The Nicaraguan government has extolled the economic (and by implication human rights) benefits from the project, most notably jobs creation and the general improvement and improvement in per capita gross domestic product. This can certainly be considered a positive human rights impact if all goes as promised. Nicaragua said it had chosen the route so it would avoid areas of great biodiversity, indigenous territories and environmentally protected lands [2] and the government estimates it will lift more than 400,000 people out of general poverty by 2018 with the help of revenues created by the project. [3] But a complete assessment of all of the potential human rights problems arising out of the canal development has not seen the light of day.

If and when the Nicaraguan government releases its anticipated environmental and social impact reports, there will be considerable attention paid to the findings and question arise as to the proper scope of the assessment.

According to James Harrison, a leading academic in the field of human rights impact analysis, a properly undertaken HRIA serves a number of purposes:

First, human rights impact assessment utilises a set of norms and standards that are based on shared values and have been developed over many years and are therefore represent a solid normative foundation on which to base impact assessment. Second, a human rights framework ensures engagement with specific rights, such as freedom of expression that might be ignored in less legally grounded forms of assessment like social impact assessment. Third, the human rights model shifts the focus from aggregate welfare and requires impacts to be disaggregated to specifically focus on the most vulnerable, poor and otherwise disadvantaged whose rights are often the most likely to have been violated. Fourth, human rights represent legal obligations of States, rather than simply aspirations that one hopes to achieve (e.g. better social outcomes).

Harrison goes on to note the value in the HRIA process, to wit: HRIAs provide evidence-based arguments in support of policy debates; they have the potential to impact policy development in relation to a project; they have the potential to prevent human rights violations before they happen if they are undertaken at a point in the policy cycle before decisions are made and before people are affected; and importantly, “they can have an impact on institutional cultures by enabling human rights to be mainstreamed, and; they have the potential to raise awareness about human rights issues in affected communities and more widely in society and increase public debate around the issues raised and the accountability of decision-makers.” [4]

In evaluating the human rights impacts from the canal project, understanding the problem through the lens of rights-holders is key. Numerous studies, along with potential problems, have not been made public for the canal project. In addition, the legality of the award itself, along with measures taken to free up land for the project, are under question. Moreover, property seizures that include the loss of indigenous peoples’ lands and other incursions could at the very least bring additional court challenges, if not outright civil unrest. [5]

While it seems unlikely that a rigorous human rights impact assessment of the Nicaragua Canal project will occur given the sense of urgency that the Nicaraguan government has placed on the project going forward and the less than stellar record of PRC-based companies integrating human rights considerations into their projects in other parts of the world, its high profile footprint will likely present itself as an interesting study in a wide range of human rights issues.


[1] Human Rights Impact Resource Centre, An Introduction to Human Rights Impact Assessment, http://www.humanrightsimpact.org/hria-guide/overview/ [2] BBC News, Nicaragua canal route: Atlantic-Pacific link unveiled, http://www.bbc.com/news/world-latin-america-28206683. [3] Ibid, 2. [4] James Harrison, Measuring Human Rights: Reflections on the Practice of Human Rights Impact Assessment and Lessons for the Future, http://ssrn.com/abstract=1706742. [5] Global Investing Insights, 3 Big Concerns About the Nicaraguan Canal Plan, http://www.thinkadvisor.com/2014/07/24/3-big-concerns-about-nicaraguan-canal-plan?page=3.

UN Global Compact – Organizing the Corporate Human Rights Function

UNGC LogoU.N. Global Compact on Emerging Corporate Good Practices for Organizing the Human Rights Function

The recently released Good Practice Note from the United Nations Global Compact Human Rights and Labour Working Group on organizing the human rights function internally advises companies that there is no single ‘right’ answer to how to organize the human rights function. To illustrate this point the publication leads readers through various models that have been utilized by corporations seeking to comport with the principles laid out in the UN Guiding Principles on Business and Human Rights (“Guiding Principles”).

The Good Practice Note (which was prepared for the Working Group by Shift) makes clear that effective corporate approaches take into account an individual company’s particular operational and organizational context. How corporations organize to accomplish the human rights function internally is a matter of self-assessment and corporate determination.

The report assists companies with this process. The Working Group assessed the practices and experiences of several companies (primarily large, multinational corporations) to identify the specific models utilized by these corporations to organize their human rights function. The models provide useful benchmarks for similar companies to consider when conducting their own decision making process on how to organize and manage their own human rights function.

Presented through four easily accessible sections, the report framework facilitates utilization by senior corporate managers in both functional and operational roles. Individual corporate experiences are framed through four identified models utilized to implement the human rights functions within the corporation. While the report itself goes into significant detail on the potential advantages and disadvantage for each model, general discussion and observation for each of the four highlighted models follows:

          1.   Cross-functional working groups. Cross-functional working groups are organized to bring together different departments from across the company to create a shared responsibility for leading and implementing the human rights function within the organization. Corporations often undertake this approach when adopting a change management strategy to facilitate internal vertical and horizontal program implementation within the organization. However, to ensure sustained implementation beyond roll out, specific roles and responsibilities – to include individual accountability and standards – must be clearly defined at every level of the organization to ensure ownership at each corporate activity throughout the enterprise.

           2.  Hosting a ‘guide dog’ function within existing business departments. Here companies elect to nest the human rights function within an existing corporate functional area. This approach provides a designated clear point of contact and “home” for human rights within the corporation, but care must also be taken to ensure that human rights function accountably and oversight is not inadvertently undermined, or given mere lip service to established corporate compliance standards, by placing the function outside of established business unit reporting chains. Conversely, the “guide dog” approach may grow the capacity of human rights within an organization by encouraging operational business units to view the human rights function as a supporting resource by which to gain technical advice and assistance without fear of repercussion.

           3.  Legal and/or compliance-driven ‘guard dog’ models. This approach is taken when companies place the human rights function within their legal or compliance division. Compliance and accountability is emphasized and may be appropriate given the context of the corporation’s organizational structure and operational model but can occur potentially at the cost of open dialogue with business units on human rights functional management or potential impacts. Here, too, ownership of the human rights function may be perceived as a corporate and not a business line responsibility.

           4.  Separate responsibilities allocated across different departments. Delineating clear and separate responsibilities across different departments (i.e. corporate sustainability, risk management, and human resources) for the human rights function allows corporations to benefit from the combined specific expertise, perspective, and capabilities that different functional areas bring to bear. This can insure a more comprehensive approach to managing the human rights function as well as implicitly communicating the message that it is a core company function – central to everything the company does. However, companies must also carefully consider the central coordinating requirements, priority alignment, and decision making protocols incumbent when responsibilities are shared among separate organizational elements.

Managers will take particular interest in the provided advantages and disadvantages for each of the four corporate models identified in Section II, as well as the nine emerging good practices developed from analyzing the ways in which companies “have tailored the design of these basic models to achieve a more well rounded approach that combines features of more than one model” in Section III.

Building from the analysis of the models (Section II) and the emerging good practices developed from this analysis (Section III), Section IV concludes the report with the concept that no ‘one size fits all’ approach exists for companies to consider in determining how to best structure the “right” company-specific human rights function. The report concludes that each company is different with specific operating contexts, corporate culture, existing policies and processes, the nature of its business activities and corresponding human rights risks, and how far along the company is in meeting its human rights responsibilities.

The corporate focus in determining the appropriate company-specific approach should therefore be on helping managers to first ask the right questions. Asking questions that self-examine and consider the “who, what, why and how” of a company’s operations may help to provide the best direction to companies as “they design – and re-design – the function”. To assist in this process the section provides key questions for companies to consider as they initially structure or assess an existing corporate human rights function.

Large, multinational companies that are undertaking their responsibility to respect human rights by developing and implementing a human rights function will want to take advantage of the U.N. Global Compact Human Rights and Labour Working Group’s work and read the Good Practice Note reviewed here. The findings of the Working Group offer not only insights from the experiences gleaned from other multinational companies conducting related activity, but also a careful consideration of the emerging good practices and key questions to ask that were developed from the models and approaches identified from these experiences.

Free Webinar – Human Rights Due Diligence in the Private Security Industry

HRDD-webinar-concept-8-5-14-JSEdit2

 

Join us on Tuesday, September 9, 2014 at 12:00 EDT for an educational webinar: “Human Rights Due Diligence in the Private Security Industry.” This online event, co-sponsored with INSSA is free to the public. For more information and to register for this event, click here.

 

With the unanimous endorsement of the UN Guiding Principles on Business and Human Rights by the UN Human Rights Council in 2011, companies are increasingly being encouraged through laws, regulations, and voluntary commitments to ensure respect for human rights throughout their operations. This webinar will explore one key element of the corporate responsibility to respect human rights, the need to conduct human rights due diligence. Through a human rights due diligence process companies can identify, prevent, mitigate, and account for how they address their human rights impacts. An adequate human rights due diligence process is particularly important for the security industry which operates in complex environments where human rights risks are greater due to lack of governance. A number of recently developed standards specifically applicable to security providers include human rights due diligence requirements. This webinar will examine those requirements and offer a case study of a corporate human rights risk assessment.

 

Transparency and Responsible Business in Myanmar

Credit: The Irrawaddy 2013
Credit: The Irrawaddy 2013

In a recent article posted on the Irrawaddy, the Myanmar Center for Responsible Business (MCRB) reports that among 60 of the largest Myanmar companies, only a handful reported their human rights, health, safety and environment safeguards, organizational transparency and anti-corruption efforts. The report points out that 25 of the companies polled did not have websites, making any disclosure all but impossible. As noted by MCRB, “[m]ajor companies without a website include Eden, IGE, Ruby Dragon, Shwe Thanlwin, Yuzana, Zaykaba, and the two military-owned conglomerates, Union of Myanmar Economic Holdings (UMEHL) and Myanmar Economic Corporation (MEC).” 

“This is a study of what information companies publish, and not an assessment of their actual performance in these areas,” Vicky Bowman, director of the Myanmar Centre for Responsible Business, said of the survey, which was based on methodology of Transparency International’s research into 100 of the world’s biggest companies.” “Companies scored fewest points in the areas of human rights, including land acquisition, and [health, safety and environment], where the center was seeking evidence both of policy approaches and information about their implementation, given that these issues are of significant concern to the Myanmar people,” the center said in a press release.

The implications for international companies entering the Myanmar market are significant. In particular, joint ventures with local companies pose serious human rights risks for foreign businesses, particularly those operating in manufacturing and agriculture. Given the history of land seizures by the military from local farmers and the lack of adequate land tenure laws, the risk of engaging in new business development places companies in a position of potentially violating international human rights norms, including the right to food, the rights of indigenous peoples and the right to housing, among others. An interesting analysis of land rights and international human rights law can be found here.

Given this lack of transparency, U.S. companies in particular, facing the Burma Reporting Requirement for businesses operating in the country, face added risk for underreporting the human rights impact of their business operations when engaging with local partners.

 

Valuable New Resources on Security and Human Rights Available


ICRC-DCAF ToolkitNew Security and Human Rights Toolkit and Knowledge Hub Provides Comprehensive Tools, Techniques, and Practices

Within the context of security and human rights, operating in a complex environment or conflict zone is difficult enough; operating in these same environments without specific technical tools or guidance is even harder for companies. Fortunately, earlier this month the Geneva Centre for the Democratic Control of Armed Forces (DCAF) and The International Committee of the Red Cross (ICRC) took a concrete step to help companies mitigate these challenges with their release of the “Addressing Security and Human Rights Challenges in Complex Environments” Toolkit (http://www.securityhumanrightshub.org/sites/default/files/publications/DCAF-ICRC%20Toolkit.pdf )  and the establishment of a related publically-accessible website, The Security and Human Rights Knowledge Hub (http://www.securityhumanrightshub.org).

Though nearly all companies experienced in complex environment operations have pre-existing robust technical SOPs concerning security and safety provisions for their staff in host country programs, the addition of integrated security and human rights considerations and provisions is often absent or conducted on an ad hoc basis at the local level of operations. The ability of companies to draw from established norms and practices associated with security and human rights aligns with a growing corporate need as companies mature and apply their operational practices consistently in complex environments and conflict zones. This is precisely what these products help achieve.

While the Toolkit incorporates a number of key resources available for security and human rights planning and implementation, according to DCAF and the ICRC the intent of the Knowledge Hub online portal is to “bring together a much wider selection of resources related to security and human rights.”

The website contains several sections and is organized to present information in the following areas:

1. General Guidance
2. Stakeholder Engagement (covering engagement with host governments, communities and civil society)
3. Risk Assessment
4. Public Security Forces
5. Private Security Providers
6. Case Studies
7. The Toolkit

The website is publically available and users can sign up for a newsletter, check for updates within each area, or provide comments or input for each section, the latter being clearly encouraged.
Designed to “contribute to improving respect of human rights and international humanitarian law by companies operating in complex environments, while maintaining the safety and security of their operations,” the Toolkit is intentionally practical and geared for use by practitioners. Its substance is conveyed through easily referenced 29 identified security and human rights implementation challenges and correspondent best practices in several issue areas pertaining to host government and public security forces. Users can quickly search and locate relevant challenges through a user-friendly table listing of identified challenges with embedded hyperlinks to the specific section of interest. The Toolkit highlights challenges experienced by companies when engaging with host governments and public security in multiple different scenarios. Specific recommendations on how to address these challenges are based on the provisions of the Voluntary Principles (VPs), the VPs Implementation Guidance Tools, and the UN Guiding Principles on Business and Human Rights (GPs).

While the Toolkit’s self-described primary audience are companies facing security and human rights challenges in complex environments, there is also utility for civil society, host governments, and home governments to take under consideration. Though corporate staff and program mangers may find the identified challenges and best practices particularly useful and relevant in helping to guide their approach and coordination with host governments and public security forces at each level of operation, other stakeholders will find the references and guidelines equally valuable as they work with companies and host governments to introduce and/or strengthen the VPs and GPs within the national, regional, and local areas of operations.

Future Toolkit iterations will also benefit from the continued contributory local knowledge provided through civil society and other implementers’ field practices and experiences. In fact, the DFAC and ICRC authors specifically solicit input and feedback for the development of new guidance and tools and comments from practitioners through email at PPPs@dcaf.ch or through the Knowledge Hub’s “Comment” function found in each section of the site.

The Toolkit remains a living document and in 2015 a companion document “Working with private security providers” will be released and in 2016 a separate volume on “Working with communities” is scheduled for release.

Both products provide useful tools, knowledge, and techniques that have been identified and captured from previous security and human rights desk research and fieldwork conducted in Colombia, Peru and the Democratic Republic of the Congo (DRC), and will cover down upon many of the issues and challenges companies face when operating in like or similar environments.

All of us in the practice space of security and human rights can appreciate and applaud the efforts of the DCAF and ICRC for taking the initiative to provide these products and tools for the public’s use and look forward to their continued development in future iterations.

Tangguh Panel Offers Hope for West Papua

Courtesy of BP
Courtesy of BP

Last week, I had occasion to attend a briefing from two members of the Tangguh Independent Advisory Panel (TIAP), Pak Augustinus Rumansara and the TIAP Chair Tom Daschle. Held at the law offices of DLA Piper in downtown Washington DC, the purpose of the briefing was to inform the public about the progress and challenges facing a consortium led by BP in Bintuni Bay located in West Papua. Mr. Rumansara and Senator Daschle shared their findings contained in the recently released FIRST REPORT ON OPERATIONS AND PROPOSED EXPANSION OF THE TANGGUH LNG PROJECT, which can be found here. By way of background, the Tangguh gas field lies in Bintuni Bay, in the province of West PapuaIndonesia. The natural gas field contains over17 TCF of proven natural gas reserves, with estimates of potential reserves reaching over 28 trillion cubic feet. Production began in June 2009.

According to the report, the TIAP, which has been in existence since 2002, “focuses on matters relating to security, human rights, governance, revenue management, the political environment and the broader issues relating to how Tangguh affects the people of Bintuni Bay and Papua and how the Project is perceived by them.” BP’s goal is to make Tangguh “a world-class model for development.” In addition, the TIAP provides advice about non-commercial aspects of the Tangguh LNG Project and to provide assurance to external stakeholders on the standards BP is following. Since it is difficult for international media or international NGO to enter the area of Papua, having an independent panel that makes independent reports makes it easier for BP in managing dialogue with international NGOs, especially in London and Washington DC – the panel provides an independent view of Papua and Tangguh Social Performance.

The TIAP’s work is shaped by a number of business and human rights standards, among them the OECD Guidelines for Multinational Enterprises, the Voluntary Principles on Security and Human Rights, the UN Guiding Principles on Business and Human Rights, and the IFC Performance Standards on Environmental and Social Sustainability.

As noted in the report, “TIAP focuses on matters relating to security, human rights, governance, revenue management, the political environment and the broader issues relating to how Tangguh affects the people of Bintuni Bay and Papua and how the Project is perceived by them. These factors relate directly to whether BP can achieve its goal of making Tangguh a world-class model for development.” As part of its evaluation of the project, the Panel seeks to promote “best practices, including adherence to the Universal Declaration of Human Rights; the Organization for Economic Cooperation and Development (“OECD”) Guidelines for Multinational Enterprises; the International Labor Organization Convention Concerning Indigenous and Tribal Peoples in Independent Countries; the World Bank Operational Directive with respect to indigenous peoples and the U.S. – U.K. Voluntary Principles on Security and Human Rights.”

This is the Panel’s third full report and it comes as BP has just completed the public consultation phase for the social and environmental impact statement (“the AMDAL”)  as expansion of the facility gets underway. Tangguh’s third line, known as a train, is projected to start production as early as 2018 after construction begins in this year. The facility will cost $11 billion and produce as much as 3.8 million metric tons a year of the fuel. What I found of interest in the report were the challenges facing the company and the project. First, the macro-level political risks emanating from a resource nationalism that resulted “in antagonism toward foreign investment in the natural resource sector and its impact on the company and the Tangguh project. It is an election year, and it is possible that some of this rhetoric is political and will not translate into policy. But nearly every candidate for President, even those most supportive of foreign trade and investment in the past, has voiced a theme of natural resource nationalism that is critical of the status quo on resource development,” reports BP. Second, the report points out BP’s continuing progress on balancing its ongoing security needs at the facility while remaining sensitive to potential human rights implications arising from activities at the facility. BP is providing its own security for the project because it doesn’t want to have to pay big protection fees to guards from the Indonesian Defense Forces (TNI). Also mindful of its international image, BP doesn’t want any soldiers based at Tangguh lest it suffer the fate of other multinationals, such as FreeportMcMoRan and ExxonMobil, which have been accused of complicity in human rights abuses perpetrated by their military guards. BP has recruited at least 82 guards from local villages for its Community Based Security Program and plans to hire a total of 250 over the coming years when construction work peaks. The company says the project has also begun recruiting and training Papuan employees to operate and maintain the expected offshore production platforms. This sensitivity to human rights in the context of plant security and the surrounding communities would appear to be paying off. There were only 38 grievances or concerns submitted by the community in 2013, substantially fewer than the 115 grievances filed in 2011. I find the Tangguh operation to be an interesting case study in doing it right and hope that we will see similar approaches on development projects in the future.

Ooredoo and the Monks

iStock_000004803771SmallAs noted in an article here at the Human Rights in Complex Environment blog on June 6th (Responsible Mobile Investment in Myanmar), Ooredoo, a Qatar-based mobile phone provider was awarded of a license to develop cellular infrastructure in Myanmar by the central government. Today, it was reported in Burma Business Weekly that Buddhist monks are protesting the award of the license to the Ooredoo consortium because the company is based in a Muslim country and owned by the Qatar government. Given the ongoing tension between the largely Buddhist population and the government and the minority Muslim population, the stage is set for an interesting if not problematic challenge facing the Naypyidaw government. 

In an article in the June 6th New York Times (The People vs. The Monks), an unholy alliance has developed between nationalist monks and the government that has led to religious radicalism and even further discrimination against Muslims. “One of the darkest aspects of Myanmar’s political transition is a surge in religious intolerance, especially toward Muslims. Liberalization has lifted the lid on many pent-up grievances, and old-timers in the government and the monkhood are stoking these sentiments,” notes Min Zin at the Times. The challenge facing the government is the backlash that is now emerging with Ooredoo and the nationalist Buddhists. While this nationalism serves the government well in dealing with domestic religious differences, it poses serious risks for both the government and the Qatar company in developing the country’s telecommunications infrastructure.

The Burmese Nationalist Youth has been passing out fliers in Yangon, calling on people not to buy Ooredoo’s SIM cards when they come on the market next month, according to the World Bulletin. Critics of the ultra-nationalist monks make no reference to the human rights implications of the anti-Muslim violence but are focused on the monks failure to speak out against the rampant poverty in the southeast Asian nation. They point out that the government crackdown on the monks, which garnered considerable international attention, had much to do with the monks interference when they protested a Chinese copper mine. The implications for the Ooredoo consortium pose real challenges in tapping this underdeveloped market.

UN Working Group Survey of Companies Reveals Some Counterintuitive Results

UNWGonHR
The UN Working Group on Business and Human Rights, which was tasked by the UN Human Rights Council with promoting dissemination and implementation of the UN Guiding Principles on Business and Human Rights, recently released a draft report with results from a survey of 153 companies. The survey is meant to help the UN Working Group: 1. understand progress in the dissemination of the UNGPs; 2. highlight implementation motivations and challenges; and 3. understand the support companies need to meet their responsibility to respect rights. While the survey used a snowball sampling method based on the existing networks of the business associations involved in the survey (rather than a representative sample of companies), a wide range of small and large companies from 39 countries and an array of sectors were represented.

Interestingly, some of the findings run counter to conventional wisdom about companies’ commitment to respect human rights. One often hears that many companies are unaware of the GPs, with the exception of large, brand name companies in high profile sectors, such as extractives, ICT, apparel, and food and beverage. However, the survey found that three quarters of the respondents had heard of the Guiding Principles and that three out of five have a public policy statement on human rights. This result may be linked in part to the sampling methodology – and disappointingly only a little more than half of the companies had engaged in any effort to actively respect human rights. While three quarters of respondents have dedicated corporate responsibility/sustainability departments responsible for implementation of their human rights policies, nearly one in two companies indicated that moving from policy to practice remains a challenge.

Counter to popular belief that companies require a business case to respect human rights, when asked what motivates them to address human rights, “it is the right thing to do” – an ethical justification – ranked in the top three answers. Equally as interesting, and contrary to the idea that companies only act in response to public scandals, few respondents selected a negative issue in the company’s past as a driver of behavior. Finally, contrary to the popular belief that companies shun mandatory regulation in favor of voluntary regulation, over 45% of respondents indicated that government enforcement of local laws would support their efforts to respect rights, and one out of five indicated that legally mandated human rights due diligence requirements would be of value. Four respondents even indicated they would find value in a binding international treaty.

The bottom-line is that despite methodological shortcomings this survey assists in the development of a more nuanced understanding of what motivates companies to respect human rights and what challenges they face when attempting to do so. Relying on conventional wisdom will not get us far in fostering the dissemination and implementation of the Guiding Principles.

Responsible Mobile Investment in Myanmar

Oceanic oclgroupGroup, a Wellington New Zealand-based telecom operator, is part of a successful bid by global communications giant Ooredoo for one of two mobile phone licenses awarded to private companies by the Myanmar Government. Ooredoo is building the mobile network in Myanmar, where less than 10 per cent of the 65 million residents have mobile phones, and only 13 per cent have access to electricity, according to the Timaru Herald. The Myanmar government is hoping for an 80% market penetration into the wireless market that today sees only 10% of the population using cellular technology. However, as Western governments open up trading with Myanmar, some in the international community are expressing concerns with regard to the human rights impacts from the influx of new business activity. In a report issued in 2013, “REFORMING TELECOMMUNICATIONS IN BURMA: Human Rights and Responsible Investment in Mobile and the Internet,” Human Rights Watch laid out a number of steps that companies receiving licenses from the government should consider when operating in the country, including:

  • Assess human rights risks raised by potential business activity.
  • Develop strategies to mitigate the risk of abuses linked to business operations.
  • Adopt human rights policies outlining how the company will resist government requests for censorship, illegal surveillance, or network shutdowns.
  • Ensure transparency by publishing terms of operating agreements and information on consortiums formed to operate in Burma, and by reporting on the number of government requests received for censorship and surveillance and how the company responded.
  • Vet potential business partners to ensure they are not implicated in human rights abuses or corruption.
  • Conduct due diligence to address human rights concerns that may arise from land acquisitions and security arrangements.
  • Commit to independent and transparent third-party monitoring to ensure compliance with human rights standards.

These recommendations are in line with the U.S. government’s requirements imposed on U.S. companies investing more than $500,000 in Burma when it lifted sanctions for doing business in the country. Oceanic, a privately held New Zealand-based company, and its partner Ooredoo, which is based in Qatar, do not appear to have human rights policies that are made available to the public. Whether this telecom consortium adopts policies that address the potential human rights risks arising out of their business in Myanmar remains to be seen.

SEC Conflict Minerals Filing Deadline Fast Approaching

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Credits: Missionary Oblates of Mary Immaculate

On August 22, 2012, the Securities and Exchange Commission (SEC) issued a final rule on Section 1502 of the Dodd-Frank Act relating to the use of  conflict minerals (defined as tin, tantalum, tungsten or gold from the Democratic Republic of the Congo (DRC) or an adjoining country).  The provision requires U.S. – publicly traded companies to disclose annually if an issuer’s conflict minerals originated in these areas and, if so, to submit a report to the SEC that includes a description of the measures it took to exercise due  diligence on the conflict minerals’ source and chain of custody.  Companies have until June 2nd, 2014 to submit their initial filings to the SEC.

To accomplish the goal of  helping end the human rights abuses in the DRC caused by the conflict, Section 1502  uses the securities laws disclosure requirements to bring greater public awareness of the  source of issuers’ conflict minerals and to promote the exercise of due diligence on  conflict mineral supply chains. In the final rule the SEC determined that Congress’s main purpose for Section 1502 is “to attempt to inhibit the ability of armed groups in the Covered Countries to  fund their activities by exploiting the trade in conflict minerals. Reducing the use of such conflict minerals is intended to help reduce funding for the armed groups contributing to the conflict and thereby put pressure on such groups to end the conflict.”

On May 14th, 2014, the U.S. Court of Appeals for the District of Columbia Circuit refused to block a June 2 deadline for issuer’s filings to the SEC.  According to the Wall Street Journal, “the SEC said companies still had to determine whether any conflict minerals are necessary for their products and then investigate the origin of those minerals. Certain details about investigative efforts by companies are still due to be reported to the SEC.”