Protect, Respect, and Remedy: The UN Framework for Business and Human Rights

Chapter 27
Protect, Respect, and Remedy: The UN Framework for Business and Human Rights

John Gerard Ruggie

1. Introduction

The UDHR1 of 1948 did not explicitly refer to the relationship between business and human rights. However, it provided in its preamble that ‘every individual and every organ of society, keeping this Declaration constantly in mind, shall strive by teaching and education to promote respect for these rights and freedoms.’ How can the existing international human rights system protect individuals and communities against corporate-related human rights harm? The international community is still in the early stages of adapting the human rights regime to provide more effective protection to individuals and communities against corporate-related human rights harm. This chapter, which I presented to the United Nations Human Rights Council in 2008 in my capacity as Special Representative of the Secretary-General for Business and Human Rights, and which the Council welcomed unanimously, presents a principles-based conceptual and policy framework intended to help achieve this aim. The framework comprises three core principles: the state duty to protect against human rights abuses by third parties, including business; the corporate responsibility to respect human rights; and the need for more effective access to remedies. The three principles form a complementary whole in that each supports the others in achieving sustainable progress.

Business is a major source of investment and job creation, and markets can be highly efficient means for allocating scarce resources. They constitute powerful forces capable of generating economic growth, reducing poverty, and increasing demand for the rule of law, thereby contributing to the realization of a broad spectrum of human rights. But markets work optimally only if they are embedded within rules, customs and institutions. Markets themselves require these to survive and thrive, while society needs them to manage the adverse effects of market dynamics and produce the public goods that markets under-supply. Indeed, history teaches us that markets pose the greatest risks – to society and business itself – when their scope and power far exceed the reach of the institutional underpinnings that allow them to function smoothly and ensure their political sustainability. This is such a time, and escalating charges of corporate-related human rights abuses are the canary in the coal mine, signalling that all is not well.

The root cause of the business and human rights predicament today lies in the governance gaps created by globalization – between the scope and impact of economic forces and actors, and the capacity of societies to manage their adverse consequences. These governance gaps provide the permissive environment for wrongful acts by companies of all kinds without adequate sanctioning or reparation. How to narrow and ultimately bridge the gaps in relation to human rights is our fundamental challenge. The business and human rights debate currently lacks an authoritative focal point. Claims and counter-claims proliferate, initiatives abound, and yet no effort reaches significant scale. Amid this confusing mix, laggards – states as well as companies – continue to fly below the radar.

There is no single, silver-bullet solution to the institutional misalignments in the business and human rights domain. Instead, all social actors – states, businesses, and civil society – must learn to do many things differently. But those things must cohere and become cumulative, making it critically important to get the foundation right. Every stakeholder group, despite their other differences, has expressed the urgent need for a common conceptual and policy framework, a foundation on which thinking and action can build. Accordingly, in 2008, I proposed, and the United Nations (UN) Human Rights Council unanimously welcomed, the ‘protect, respect and remedy’ framework. It rests on differentiated but complementary responsibilities; the state duty to protect against human rights abuses by third parties, including business; the corporate responsibility to respect human rights; and the need for more effective access to remedies. Each principle is an essential component of the framework: the state duty to protect because it lies at the very core of the international human rights regime;2 the corporate responsibility to respect because it is the basic expectation society has of business; and access to remedy, because even the most concerted efforts cannot prevent all abuse, while access to judicial redress is often problematic, and non-judicial means are limited in number, scope, and effectiveness. The three principles form a complementary whole in that each supports the others in achieving sustainable progress.

2. Protect, Respect and Remedy

The framing of policy challenges can have profound consequences for assigning responsibilities to relevant actors and determining whether the combination is capable of meeting the overall policy objectives. The business and human rights agenda remains hampered because it has not yet been framed in a way that fully reflects the complexities and dynamics of globalization and provides governments and other social actors with effective guidance.

2.1 The Challenge

How should we frame today’s challenges in order to capture their essential attributes? As noted at the outset, our focus should be on ways to reduce or compensate for the governance gaps created by globalization, because they permit corporate-related human rights harm to occur even where none may be intended. Take the case of transnational corporations. Their legal rights have been expanded significantly over the past generation. This has encouraged investment and trade flows, but it has also created instances of imbalances between firms and states that may be detrimental to human rights. The nearly 3,000 bilateral investment treaties currently in effect are a case in point. While providing legitimate protection to foreign investors, these treaties also permit those investors to take host states to binding international arbitration, including for alleged damages resulting from implementation of legislation to improve domestic social and environmental standards – even when the legislation applies uniformly to all businesses, foreign and domestic. A European mining company operating in South Africa recently challenged that country’s black economic empowerment laws on these grounds.3

At the same time, the legal framework regulating transnational corporations operates much as it did long before the recent wave of globalization. A parent company and its subsidiaries continue to be construed as distinct legal entities. Therefore, the parent company is generally not liable for wrongs committed by a subsidiary, even where it is the sole shareholder, unless the subsidiary is under such close operational control by the parent that it can be seen as its mere agent. Furthermore, despite the transformative changes in the global economic landscape generated by offshore sourcing, purchasing goods and services even from sole suppliers remains an unrelated party transaction, and the buyer bears no legal liability for the acts of suppliers even where the buyer may be in part responsible for those acts. Factors such as these make it exceedingly difficult to hold the extended enterprise accountable for human rights harm. Each legally distinct corporate entity is subject to the laws of the countries in which it is based and operates. Yet, states, particularly some developing countries, may lack the institutional capacity to enforce national laws and regulations against transnational firms doing business in their territory even when the will is there, or they may feel constrained from doing so by having to compete internationally for investment. Home states of transnational firms may be reluctant to regulate against overseas harm by these firms because the permissible scope of national regulation with extraterritorial effect remains poorly understood, or out of concern that those firms might lose investment opportunities or relocate their headquarters.

This dynamic is hardly limited to transnational corporations. To attract investments and promote exports, governments may exempt national firms from certain legal and regulatory requirements or fail to adopt such standards in the first place. And what is the result? A survey of allegations of the worst cases of corporate-related human rights harm conducted in 2006 indicated that they occurred, predictably, where governance challenges were greatest: disproportionately in low-income countries; in countries that often had just emerged from or still were in conflict; and in countries where the rule of law was weak and levels of corruption high.4 A significant fraction of the allegations involved companies being complicit in the acts of governments or armed factions.5 A study conducted for my UN mandate by the Office of the UN High Commissioner for Human Rights (OHCHR) confirms these findings but also shows that adverse business impacts on human rights are not limited to these contexts.6

2.2 The Framework

In so far as governance gaps are at the root of the business and human rights predicament, effective responses must aim to reduce those gaps. But individual actions, whether by states or firms, may be too constrained by the competitive dynamics just described. Therefore, more coherent and concerted approaches are required. The framework of ‘protect, respect, and remedy’ can assist all social actors – governments, companies, and civil society – to reduce the adverse human rights consequences of these misalignments.7

Take first the state duty to protect. It has both legal and policy dimensions. It is now well established that international law provides that states have a duty to protect against human rights abuses by non-state actors, including by business, affecting persons within their territory or jurisdiction.8 The specific language employed in the main UN human rights treaties varies, but all include two sets of obligations. First, the treaties commit states parties to refrain from violating the enumerated rights of persons within their territory and/or jurisdiction. Second, the treaties require states to ‘ensure’ (or some functionally equivalent verb) the enjoyment or realization of those rights by rights holders.9 In turn, ensuring that rights holders enjoy their rights requires protection by states against other social actors, including businesses, which impede or negate those rights. Guidance from international human rights bodies suggests that the state duty to protect applies to all recognized rights that private parties are capable of impairing, and to all types of business enterprises.10

The state duty to protect is a standard of conduct, not result. That is, states are not held responsible for corporate-related human rights abuse per se but may be considered in breach of their obligations where they fail to take appropriate steps to prevent it and to investigate, punish and redress it when it occurs.11 Within these parameters, states have discretion as to how to fulfil the duty. The main human rights treaties generally contemplate legislative, administrative and judicial measures. The UN treaty bodies have recommended to states such measures as adopting antidiscrimination legislation governing employment practices; consulting with communities before approving mining and logging projects; monitoring and addressing the human rights impacts of such projects; and encouraging businesses to develop codes of conduct that include human rights.

The extraterritorial dimension of the duty to protect remains unsettled in international law. Current guidance from international human rights bodies suggests that states are not required to regulate the extraterritorial activities of businesses incorporated in their jurisdiction, but nor are they generally prohibited from doing so provided there is a recognized jurisdictional basis and that an overall reasonableness test is met. Within those parameters, some UN treaty bodies are encouraging home states to take steps to prevent abuse abroad by corporations within their jurisdiction.12

But there are also strong policy reasons for home states to encourage their companies to respect rights abroad, especially if a state itself is involved in the business venture – whether as owner, investor, insurer, procurer, or simply promoter. Such encouragement gets home states out of the untenable position of being associated with possible overseas corporate abuse. And it can provide much-needed support to host states that lack the capacity to implement fully an effective regulatory environment on their own. Moreover, there is an expanding web of potential corporate liability for international crimes, reflecting international standards but imposed through national courts.13 As discussed in the next section, in some jurisdictions innovations in regulation and adjudication are moving toward greater recognition of the complex organizational forms characteristic of modern business enterprises.

It is often stressed that governments are the appropriate entities to make the difficult balancing decisions required to reconcile different societal needs. However, there are questions about whether governments have got the balance right. Many governments take a narrow approach to managing the business and human rights agenda.14 It is often segregated within its own conceptual and (typically weak) institutional box – kept apart from, or heavily discounted in, other policy domains that shape business practices, including commercial policy, investment policy, securities regulation, and corporate governance. This inadequate domestic policy coherence is replicated internationally. Governments should not assume they are helping business by failing to provide adequate guidance for, or regulation of, the human rights impact of corporate activities. On the contrary, the less governments do the more they increase reputational and other risks to business. We elaborate further on these issues below.

The corporate responsibility to respect human rights is the second principle. It is recognized in such soft-law instruments as the Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy,15 and the Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises.16 It is invoked by the largest global business organizations in their submission to the mandate, which states that companies ‘are expected to obey the law, even if it is not enforced, and to respect the principles of relevant international instruments where national law is absent’.17 It is one of the commitments companies undertake in joining the UN Global Compact.18 And indeed companies worldwide increasingly claim to respect human rights.19

To respect rights essentially means to act with due diligence to avoid infringing on the rights of others. Because companies can affect virtually all internationally recognized rights, they should consider the responsibility to respect in relation to all such rights, although some may require greater attention in particular contexts. There are situations in which companies may have additional responsibilities – for example, where they perform certain public functions, or because they have undertaken additional commitments voluntarily. But the responsibility to respect is the baseline expectation for all companies in all situations.

Yet, how do companies know they respect human rights? Do they have systems in place enabling them to support the claim with any degree of confidence? Most do not. What is required is due diligence – a process whereby companies not only ensure compliance with national laws but also manage the risk of human rights harm with a view to avoiding it.20 The scope of human rights-related due diligence is determined by the context in which a company is operating, its activities, and the relationships associated with those activities.

Access to remedy is the third principle. Even where institutions operate optimally, disputes over the human rights impact of companies are likely to occur. Currently, access to formal judicial systems is often most difficult where the need is greatest. And non-judicial mechanisms are seriously underdeveloped – from the company level up through national and international levels. Section 5 below identifies criteria of effectiveness for grievance mechanisms and suggests ways to strengthen the current system.

3. The State Duty to Protect

The general nature of the duty to protect is well understood by human rights experts within governments and beyond. What seems less well internalized is the diverse array of policy domains through which states may fulfil this duty with respect to business activities, including how to foster a corporate culture respectful of human rights at home and abroad. This should be viewed as an urgent policy priority for governments – necessitated by the escalating exposure of people and communities to corporate-related abuses, and the growing exposure of companies to social risks they clearly cannot manage adequately on their own. The following discussion is not intended to insist on specific legislative or other policy actions, but to illustrate important issues and innovative approaches the author believes deserve serious consideration. Adjudication is addressed in Section 5 below.

3.1 Corporate Culture

Governments are uniquely placed to foster corporate cultures in which respecting rights is an integral part of doing business. This would reinforce steps companies themselves are asked to take to demonstrate their respect for rights, as described in Section 4 below. Two approaches are illustrated here.

First, governments can support and strengthen market pressures on companies to respect rights. Sustainability reporting can enable stakeholders to compare rights-related performance. Several states, sub-national authorities, and stock exchanges are calling for such disclosure.21 Sweden requires independently ensured sustainability reports, using Global Reporting Initiative guidelines for its state-owned enterprises, and China recently issued an advisory opinion on this subject.22 Some jurisdictions have gone further by redefining fiduciary duties. The recently revised United Kingdom (UK) Companies Act requires directors to ‘have regard’ to such matters as ‘the impact of the company’s operations on the community and the environment’,23 and regulators are increasingly rejecting company attempts to prevent shareholder proposals regarding human rights issues being considered at annual general meetings.24

Second, some states are beginning to use ‘corporate culture’ in deciding corporate criminal accountability.25 They examine a company’s policies, rules and practices to determine criminal liability and punishment, rather than basing accountability on the individual acts of employees or officers. These principles may be invoked at the liability stage, or during sentencing and in exercising prosecutorial discretion.26 Both incentivize companies to have appropriate compliance systems.

In principle, inducing a rights-respecting corporate culture should be easier to achieve in state-owned enterprises (SOEs). Senior management in SOEs is typically appointed by and reports to state entities. Indeed, the state itself may be held responsible under international law for the internationally wrongful acts of its SOEs if they can be considered state organs or are acting on behalf, or under the orders, of the state. Beyond any legal obligations, human rights harm caused by SOEs reflects directly on the state’s reputation, providing it with an incentive in the national interest to exercise greater oversight. Much the same is true of sovereign wealth funds and the human rights impacts of their investments.

3.2 Policy Alignment

The adverse effects of domestic policy incoherence include ‘vertical’ incoherence, in which governments take on human rights commitments without regard to implementation; and ‘horizontal’ incoherence, in which departments – such as trade, investment promotion, development, foreign affairs – work at cross-purposes with the state’s human rights obligations and the agencies charged with implementing them. Two instances of this latter pattern are considered below: the first from host states, and the second from home states.

The imbalance is particularly problematic for developing countries. Our examination of nearly 90 contracts indicates that those signed with non-OECD countries constrain the host state’s regulatory powers significantly more than those signed with OECD countries – and that country risk ratings alone do not seem to account for the variance.27 Yet, it is precisely in developing countries that regulatory development may be most needed. When investment cases go to international arbitration they are generally treated as commercial disputes in which public interest considerations, including human rights, play little or no role. Additionally, arbitration processes are often conducted in strict confidentiality so that the public in the country facing a claim may not even know of its existence. Where human rights and other public interests are concerned, transparency should be a governing principle, without prejudice to legitimate commercial confidentiality. States, companies, the institutions supporting investments, and those designing arbitration procedures should work towards developing better means to balance investor interests and the needs of host states to discharge their human rights obligations.28

Now consider an example from the home state side. It concerns export credit agencies (ECAs), which finance or guarantee exports and investments in regions and sectors that may be too risky for the private sector alone. ECAs may be state agencies or privatized, but all are mandated by the state and perform a public function. Despite this state nexus, however, relatively few ECAs explicitly consider human rights at any stage of their involvement; indeed, in informal discussions, a number indicate they might require specific authority from their government overseers to do so.