Human rights regulations and transparency requirements continue to be an emerging regulatory trend worldwide. Legal advice is needed to identify areas of responsible sourcing and to build risk mitigation strategies.
Sarah Altschuller is an attorney at Foley Hoag LLP, one of the first law firms to develop a practice assisting clients with corporate social responsibility, international risk management, and globalization strategies. The CSR practice group’s clients include governments, multilateral institutions, and members of the extractive, manufacturing, agribusiness, financial services, and high technology business sectors.
What legal trends do you see in the field of business and human rights?
We’re starting to see voluntary standards being incorporated into laws and regulations around the globe. Governments are passing legislation to hold companies accountable for their management of human rights-related concerns.
What we see from within a law firm is that more companies are seeking advice on human rights because of concerns about compliance with mandatory requirements, not just alignment with voluntary standards. Determining how best to comply with these new requirements may involve engagement with disparate functions within a company, ranging from the General Counsel to the Chief Procurement Officer.
A wide range of industry sectors has been affected by these developments. For example, legislation like the California Transparency in Supply Chains Act and regulations like the conflict minerals rule emerged from the Dodd-Frank Financial Reform Act require companies in diverse industry sectors to evaluate human rights concerns deep within their supply chains. Fifteen years ago, a limited number of companies, primarily in the apparel sector, were being asked to evaluate such concerns. This has changed.
These new requirements are frequently focused on due diligence and disclosure. The California Transparency in Supply Chains Act requires companies to disclose on their corporate websites what actions they are taking, if any, to evaluate and address the risks of human trafficking and slavery in their supply chains.
The conflict minerals rule calls for disclosures to the Securities and Exchange Commission (SEC) regarding corporate due diligence efforts to identify the source and chain of custody of certain conflict minerals.
What new legislation and regulations might companies expect to see in the coming years?
The U.S. Government is in the process of developing a National Action Plan on Responsible Business Conduct. While the development of this plan doesn’t commit the Government to any specific form of legislation or regulation, the release of the plan will likely signal certain legislative priorities.
One area that companies should focus on is government procurement. The U.S. Government is evaluating ways in which it can align its procurement processes with its human rights commitments. One example of this is the recently released amendments to the Federal Acquisition Regulation, which are intended to strengthen existing prohibitions and requirements related to trafficking in persons. Certain federal contractors will now be required to certify that, having conducted due diligence, to the best of their knowledge, neither they nor their subcontractors, subcontractors or their agents is engaged in any trafficking activities. Alternatively, if such activities are identified, companies will need to certify that they have taken appropriate remedial action.
Bringing in the legal team seems like the first step before pulling together resources and a plan. What is your experience with this and how can companies move forward with meeting their obligations?
As lawyers, our first engagement with clients is often focused on helping them understand specific requirements and how they apply to their business. We focus on the expectations of both regulators and a broader set of stakeholders, including investors and consumers. We then work with companies to develop compliance plans.
Our engagement with clients is often multi-faceted. We may speak with people in the General Counsel’s office about specific compliance requirements, including the broader implications of public disclosures to bodies like the SEC. We may also speak with people in a company that are more focused on Corporate Social Responsibility about the company’s policies and procedures on specific human rights concerns and how the company’s compliance efforts will be communicated to difference audiences.
Each part of a company looks at requirements through a different lens. With new expectations being embedded in law, companies know they need to comply but also that there are aspects of their performance that may be “beyond compliance” and that will affects their reputational risk.
Most companies have a diverse supply chain and source from around the world. Will these new regulations force companies to view responsible sourcing as a high and important priority?
Companies are increasingly aware there are significant human resource impacts tied to their sourcing activities. There are industries that have made responsible sourcing a high priority for over 20 years. As noted above, the apparel industry comes to mind first and foremost. Many large apparel companies have had programs in place for decades to monitor and improve work rights, freedom of association, factory safety, and wages.
Other industries are new to this conversation. They might have little to no visibility into their supply chains beyond tier 1. They have focused only on the functionality and cost of their products over the years and not how the products are made or the impacts on the people and environment. For some companies, the need to address concerns deep within their supply chains will be solely a matter of legal compliance, but others may see a broader range of benefits to making responsible sourcing a priority.
Do companies see new requirements as burdensome or as a positive step toward corporate responsibility?
I think it depends on the company. Some companies with a high-level of brand exposure are focused on reputational risks and the need to protect the brand. They want to demonstrate the strength of their corporate social responsibility efforts. Such companies will be early leaders on emerging issues and will seek to go beyond minimum requirements. These companies are responsive to a broad range of stakeholders and want be industry leaders.
Other companies will wait and see what happens within their industry. They will evaluate the compliance efforts of peers and seek to develop an approach that meets basic requirements. For these companies, new requirements may be perceived as a significant burden as compliance efforts are not aligned with existing strategic priorities.
There appears to be flexibility in how companies can build their compliance programs. Does this help or hinder the process?
As noted above, many of the new requirements are focused on due diligence and disclosure. Companies are being asked to disclose what efforts they are taking to manage certain issues. There may not be a specific set of compliance requirements beyond the call for disclosure. This can create anxiety as companies seek further guidance on what may be expected or required.
There is a certain degree of flexibility within some of the requirements and this presents both opportunities and challenges. Companies can tailor compliance efforts so that they are appropriate to the nature and scale of their operations. Certain companies will have higher risk profiles than others and this can, and should, be reflected in the design of their compliance programs. Companies need to demonstrate that they have undertaken a responsible evaluation of the risks specific to their companies and that they are taking appropriate steps to manage those risks. For some companies, evaluation of human rights-related risks is a new exercise and this is a challenge.
What do companies need to know about human rights regulations and what might they do next?
I think companies should see many of these new requirements are reflective of a broader trend towards transparency. Companies in a range of industries will need to be more transparent in the coming years regarding their efforts to manage certain human rights-related risks. This transparency may come as the result of specific legal requirements, or due to pressure from investors, consumers, and even employees. The risks in question could be linked to company’s supply chain or could be tied to the use of the company’s products. Companies will need to demonstrate that they have evaluated these risks and that they are taking steps to manage them.
Bio:
Kelly Eisenhardt is Co-Founder and Managing Director at BlueCircle Advisors, an environmental compliance and sustainability consulting and training firm based in Massachusetts (www.bluecircleadvisors.com.) In her role at BlueCircle Advisors, she is responsible for providing business intelligence, strategy and implementation of environmental, social and governance (ESG) risk programs. Her experience aligns well with her client’s needs for technology, compliance, and sustainability expertise by helping companies create and manage their corporate environmental and social responsibility programs.
To contact Kelly Eisenhardt, send emails to kelly.eisenhardt@bluecircleadvisors.com or follow her on Twitter @KelEisenhardt. For more information about BlueCircle Advisors and the company’s products and services, please visit www.bluecircleadvisors.com, on Facebook at BlueCircle Advisors, on Twitter @OurBlueCircle, and on the LinkedIn group at the BlueCircle Advisors group.