Canada: Conducting Human Rights Due Diligence - Managing Legal And Reputational Risks

Human rights impacts of business operations will attract scrutiny at home and abroad if not managed well. Effective human rights management is thus a key element in minimizing a company's reputational and, increasingly, legal risks.

Litigation and activism

There is increasing activity in both shareholder and non-governmental organization (NGO) activism and litigation where human rights issues are central. This includes several litigation matters underway in Canada alleging tort damages for human rights-related abuses occurring abroad. Claims have been brought in Canada based on corporate connections to Canadian jurisdictions.

Very little case law has emerged that defines the parameters of the law for such claims, making the risks of such claims unknown. One recent decision in Ontario, however, has opened the door to such litigation, suggesting such tort claims could succeed depending on the facts. No decisions have yet rebutted that finding.

In the non-judicial sphere, shareholder activists and NGOs are also increasingly pursuing campaigns against companies alleged to have conducted inadequate human rights due diligence. Activism has recently included shareholder resolutions, published reports on corporate activity, government lobbying, and complaints to non-judicial grievance mechanisms such as the Canadian Office of the Extractive Sector Corporate Social Responsibility (CSR) Counsellor and the OECD National Contact Point. Key issues have included labour standards, health and safety, resettlement matters and indigenous rights.

This reality makes effective management of human rights important from both a legal and reputational perspective.

Canada's CSR strategy for the extractive sector

All of the international standards endorsed in the Government of Canada's CSR strategy for the extractive sector promote protection of human rights in some form or another. Most particularly, the CSR strategy endorses the United Nations Guiding Principles on Business and Human Rights (the Guiding Principles). The Guiding Principles address not only the state duty to protect human rights, but also elaborate on the responsibility of corporations to "respect" human rights.

The IFC Performance Standards on Environmental & Social Sustainability (IFC Performance Standards), also endorsed in the CSR strategy, encompass many requirements, particularly in relation to labour standards, indigenous rights (including free prior and informed consent), consultation, grievance mechanisms, resettlement, community health, safety and security, and other topics that have clear human rights implications. Importantly, since 2012 the IFC Performance Standards specifically refer to the Guiding Principles, requiring specific human rights due diligence to be conducted in "limited high-risk circumstances," in addition to the extensive due diligence already required for environmental and social risks more broadly defined.

The Voluntary Principles on Security and Human Rights (the VP), also endorsed by the CSR strategy, focus on the human rights risks presented by security forces. Due diligence of security providers is a core requirement for compliance with the VP.

Proactive response: human rights due diligence

Adopting any of the foregoing standards necessitates human rights due diligence, meaning human rights due diligence is an essential element of human rights risk management.

"Respect" for human rights is demonstrated, in part, by undertaking due diligence on human rights issues. This includes (1) developing a human rights policy, (2) assessing actual and potential human rights impacts of company activities and relationships, (3) integrating commitments and assessments into internal control and oversight systems, (4) tracking and reporting human rights performance, (5) promoting transparency and disclosure on human rights impacts and management (while protecting confidential and sensitive information).

This due diligence process includes, but may well go beyond, compliance with local laws that touch upon human rights. Risks of gross human rights violations should be treated as a legal compliance issue, wherever they occur.

The first step of the due diligence process is identifying human rights impacts. This means, in the language of the Guiding Principles, understanding whether the corporation is or will be causing, contributing or may be linked to adverse human rights impacts. International laws and standards such as the Guiding Principles and IFC Performance Standards can provide the appropriate benchmark to guide the due diligence process.

To identify such impacts, a human rights impact assessment may be conducted, which involves assessing identified impacts and developing mitigation approaches. This can involve processes of both desktop review as well as site visits and interviews with stakeholders. Conducting effective interviews with both internal and external stakeholders will be critical to an effective process.

In pursuing mitigation of adverse human rights impacts, the "leverage" of corporations over human rights outcomes is relevant. The more leverage a company has over business partners causing human rights impacts, the more responsibility it has to alleviate such impacts.

While many risks or impacts may be identified in an impact assessment, the Guiding Principles acknowledge that prioritizing impacts in light of limited resources is entirely legitimate.

Finally, the impact assessment and due diligence process is ongoing and should adapt to changing circumstances, rather than be treated as a once-and-for-all process.

Conclusions

There are few CSR topics as important as human rights, and none likely to generate as much attention, both positive and negative, for stakeholders or create associated reputational and legal risks. By understanding and applying the principles and approaches to human rights risk management set out in the standards endorsed by the CSR strategy, particularly the Guiding Principles, Canadian companies can get ahead of these risks and capture awaiting opportunities, building shared value along the way.

Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global legal practice. We provide the world's pre-eminent corporations and financial institutions with a full business law service. We have more than 3800 lawyers based in over 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.

Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and Fulbright & Jaworski LLP, each of which is a separate legal entity, are members ('the Norton Rose Fulbright members') of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the activities of the Norton Rose Fulbright members but does not itself provide legal services to clients.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.