10. DUE DELIGENCE AND MANAGEMENT SYSTEMS

PROM Sovada, NAIM Sakona, RADU Mares

Introduction

Due diligence is a familiar notion to business executives as they commonly perform due diligence checks when they buy another business (mergers and acquisitions) in order to understand the exact assets and liabilities involved. Lawyers also are familiar with due diligence as a defense in court cases that enables them to show their client acted with reasonable care. The UNGPs were developed strategically to build on this familiarity: when they emphasize the idea of human rights due diligence (HRDD) as the concrete way in which a company respects human rights, the UNGPs speak the language of business. This emphasis makes corporate responsibilities appear more reasonable and feasible, and impresses upon companies that they should manage human rights in the same systematic and proactive way as any other risks. At the same time, the UNGPs emphasize that these are risks to human rights, and not risks to business reputation and operations; so the management response should be adjusted for this purpose. The UNGPs further simplify the idea of due diligence by showing the concrete steps a company should take (chapters 7-14) in order to call itself a responsible company. The approach of the UNGPs is consistent with other approaches such as those employed by the World Bank (chapter 25) and the OECD (chapter 28), as they all draw on the ‘plan-do-check-act’ classic approach in risk management. Advocacy groups also use the due diligence approach in the UNGPs in order to assess and demand improvements in corporate performance. Furthermore, legislators can make due diligence a legal requirement, as was done in France (chapter 4) and as the UN negotiations on a treaty on corporate accountability are trying to do now (chapter 1). Several bodies in the UN system – such as treaty bodies and special rapporteurs – use the human rights due diligence in the UNGPs to draw attention to the responsibilities of the private sector on many human rights issues (chapter 29). With these advances regarding due diligence, a company that merely adopts a code of conduct, and does not back it up with a proper risk management system, is likely to suffer a blow to its reputation and be seen as stuck in the 1990s, when adopting a code of conduct was the main and insufficient corporate response to criticism (chapter 8). However, even today corporations rarely release detailed information about their due diligence systems (chapter 13).

In Cambodia, the conduct of some form of due diligence, primarily socio-environmental impact assessments, is legally mandatory for some businesses in certain sectors. In addition to that, some international financing institutions such as the Asian Development Bank, the Word Bank Group and other multilateral and bilateral donors to Cambodia, also started to impose some diligence requirements for the projects financed by them. International brands also perform checks on their potential suppliers/partners in Cambodia as part of their sustainable business policies. In Cambodia as elsewhere in the business world, companies generally conduct due diligence on their potential business partners before entering into business relationship in order to evaluate regulatory compliance, financial health and risks that might affect the businesses. Though this due diligence requirement is not mandatory, companies do it anyway to protect their interest. Although new to Cambodia, this same idea will be applied increasingly to improve human rights protections.

Main Aspects

• Free trade agreements (FTAs)
• Risks (to rightsholders and to the company)
• Circle of HRDD and continuous improvement
• Severe impacts, prioritization and enhanced HRDD
• Integrated assessment (of human rights impacts)
• Conflict between national law and international standards
• Embedding HRDD (in corporate structures, processes and management systems)
• Business functions (procurement, production, legal, human resources, sales)
• Environmental and Social Management Systems
• Company Culture
• Communication, collaboration and persuasion (within the company)
• Supply chain management
• Selection of suppliers (and pre-audits)
• Contracts with suppliers (human rights clauses)
• Social audits (factors affecting social auditors’ ability to identify problems)
• Negligence (relation to HRDD)
• Regulatory strategies (to promote HRDD)
• Stakeholder engagement (participation) as a tool for HRDD
• Corporate reporting (transparency) as part of HRDD

Background

Shift, Human Rights Due Diligence in High Risk Circumstances^[1]

Human rights due diligence consists of the processes that a business uses to become aware of and manage its actual and potential impacts on individuals’ human rights. (…) This focus on affected stakeholders (those who would suffer the impacts) differentiates human rights due diligence from more traditional risk and materiality analyses. In traditional analyses, the risk to the business is paramount. In human rights due diligence, the risk to stakeholders is paramount.

Diagnostic Questions to Identify Risk Factors

A. Key questions to ask about the operating context

• To what extent are human rights protected in domestic law and to what extent are those laws enforced?
• Do domestic laws conflict with international human rights standards?
• Are there systematic social practices that impact on human rights?
• To what extent do local populations have access to justice?
• Is there active conflict, or are there pre or post conflict dynamics?
• Is corruption systemic at one or more levels?
• Is extreme poverty present amongst affected stakeholder groups?
• Are any types of civil society organizations weak, absent or under sustained threat?
• Are there significant legacy impacts (impacts that predate the company’s involvement) that could affect stakeholders’ actions or attitudes?
• Are operations likely to be seen as linked to particular political or other institutional interests?
• Are there third parties whose actions may create risks related to the business (e.g., local power brokers threatening suppliers or trade unions, media that stoke ethnic conflict, etc.)?

E. Key questions to ask about management systems

• Does the business have the necessary policies and processes in place to prevent and address identified risks?
• Does the business have the staff capacity to implement those policies and processes effectively?
• Has the business allocated the necessary budget?
• Has the business allowed sufficient time for adequate due diligence?
• Has the business appropriately understood external perspectives?
• Has the business appropriately informed and engaged potentially affected stakeholders?

Instruments

UN, Guiding Principles on Business and Human Rights^[2]

Human rights due diligence

17. In order to identify, prevent, mitigate and account for how they address their adverse human rights impacts, business enterprises should carry out human rights due diligence. The process should include assessing actual and potential human rights impacts, integrating and acting upon the findings, tracking responses, and communicating how impacts are addressed. Human rights due diligence:

(a) Should cover adverse human rights impacts that the business enterprise may cause or contribute to through its own activities, or which may be directly linked to its operations, products or services by its business relationships;

(b) Will vary in complexity with the size of the business enterprise, the risk of severe human rights impacts, and the nature and context of its operations;

(c) Should be ongoing, recognizing that the human rights risks may change over time as the business enterprise’s operations and operating context evolve.

Commentary

Human rights due diligence can be included within broader enterprise risk-management systems, provided that it goes beyond simply identifying and managing material risks to the company itself, to include risks to rights-holders.

Human rights due diligence should be initiated as early as possible in the development of a new activity or relationship, given that human rights risks can be increased or mitigated already at the stage of structuring contracts or other agreements, and may be inherited through mergers or acquisitions.

Where business enterprises have large numbers of entities in their value chains it may be unreasonably difficult to conduct due diligence for adverse human rights impacts across them all. If so, business enterprises should identify general areas where the risk of adverse human rights impacts is most significant, whether due to certain suppliers’ or clients’ operating context, the particular operations, products or services involved, or other relevant considerations, and prioritize these for human rights due diligence. (…)

Small and medium-sized enterprises may have less capacity as well as more informal processes and management structures than larger companies, so their respective policies and processes will take on different forms. But some small and medium-sized enterprises can have severe human rights impacts, which will require corresponding measures regardless of their size. Severity of impacts will be judged by their scale, scope and irremediable character. The means through which a business enterprise meets its responsibility to respect human rights may also vary depending on whether, and the extent to which, it conducts business through a corporate group or individually. (…)

24. Where it is necessary to prioritize actions to address actual and potential adverse human rights impacts, business enterprises should first seek to prevent and mitigate those that are most severe or where delayed response would make them irremediable.

19. In order to prevent and mitigate adverse human rights impacts, business enterprises should integrate the findings from their impact assessments across relevant internal functions and processes, and take appropriate action.

(a) Effective integration requires that:

(i) Responsibility for addressing such impacts is assigned to the appropriate level and function within the business enterprise;

(ii) Internal decision-making, budget allocations and oversight processes enable effective responses to such impacts. (…)

Commentary

The horizontal integration across the business enterprise of specific findings from assessing human rights impacts can only be effective if its human rights policy commitment has been embedded into all relevant business functions. This is required to ensure that the assessment findings are properly understood, given due weight, and acted upon. (…)

UN High Commissioner of Human Rights, An Interpretive Guide^[3]

Q 27. What should the scope of human rights due diligence be?

As the Guiding Principles state, human rights due diligence “should cover adverse human rights impacts that the business enterprise may cause or contribute to through its own activities, or which may be directly linked to its operations, products or services by its business relationships”. See Guiding Principle 13 for more on these three possible forms of involvement in adverse human rights impact. (…)

 “Business relationships”, as defined in the Guiding Principles, refer to the relationships an enterprise has with “business partners, entities in its value chain, and any other non-State or State entity directly linked to its business operations, products or services”. When looking at business relationships, the focus is not on the risks the related party poses to human rights in general, but on the risks that it may harm human rights in connection with the enterprise’s own operations, products or services.

Q 83. How should an enterprise deal with conflicting requirements?

In some operating contexts, domestic laws, regulations or customs may require (as against merely allowing for) enterprises to act in ways that are in conflict with their responsibility to respect internationally recognized human rights. Such requirements could for example be in relation to women’s rights, labour rights or the right to privacy. This type of situation presents enterprises with a dilemma when having both to comply with all applicable laws and also to meet the responsibility to respect human rights in all contexts.

An enterprise’s human rights due diligence process should reveal where it may be faced with this kind of dilemma and what measures could prevent or mitigate the risk. If there is a direct conflict of requirements, the challenge is to find ways of honouring the principles of internationally recognized rights. As with other issues, there is no blueprint for how to respond.(…)

Understanding the exact nature, scope and implications of the conflicting requirements is an important first step in identifying ways of addressing the dilemma. It may be that local requirements are more ambiguous than first thought or that the conflict is in some other way overstated. Recognizing this may provide opportunities for mitigating the conflict. It may be possible to seek clarification from the Government or local authorities about the scope of the conflicting requirement and even to challenge it. This may both help reduce risks to people and to the company, as well as signal to stakeholders the commitment of the enterprise to respect human rights. It may also be possible that others within the industry or country have approaches that mitigate the harm to human rights which can be replicated. For example, some enterprises operating in countries where freedom of association is restricted have established parallel processes to engage with workers. (…)

It is particularly likely that where enterprises face challenges of this type, their conduct will be under closer scrutiny from stakeholders. Enterprises should be able to account for their efforts to maintain respect for human rights in these situations and it will often be advisable to report on them, provided that doing so does not increase risks to human rights.

In the rare situations where local law or other requirements put an enterprise at risk of being involved in gross abuses of human rights such as international crimes, it should carefully consider whether and how it can continue to operate with integrity in such circumstances, while also being aware of the human rights impact that could result from terminating its activities.

Q 86. Where can an enterprise seek help in assessing and addressing challenges that arise in difficult contexts?

When planning or doing business in contexts that pose particular challenges to the ability of an enterprise to respect human rights, such as conflict-affected areas, many enterprises will find it difficult to assess the risks adequately. If that is the case, they should seek advice from credible external sources, including civil society organizations working in or reporting from the area. Where appropriate, they can also seek advice from Governments, including that of their home State. National human rights institutions can be another valuable source of advice. Working with business partners, industry bodies or multi-stakeholder initiatives can also help enterprises in devising approaches that are more finely tuned to the human rights risks posed by complex circumstances.

Q 88. What would count as “severe” impact?

The commentary to Guiding Principle 14 states that the severity of human rights impacts “will be judged by their scale, scope and irremediable character”. This means that both the gravity of the impact and the number of individuals that are or will be affected (for instance, from the delayed effects of environmental harm) will be relevant considerations. “Irremediability” is the third relevant factor, used here to mean any limits on the ability to restore those affected to a situation at least the same as, or equivalent to, their situation before the impact. For these purposes, financial compensation is relevant only to the extent that it can provide for such restoration.

Q 87. Why does this [to prioritize actions based on severity of human rights impacts] matter?

There is no hierarchy in international human rights law. Rather, human rights are treated as indivisible, interdependent and interrelated. However, it may not always be possible for an enterprise to address all adverse human rights impact immediately. Many enterprises operate in different contexts and have complex supply chains and a multitude of partners. They may be at risk of involvement in a range of adverse human rights impacts, and there may be legitimate resource and logistical constraints on the ability of the enterprise to address them all immediately.

Human rights due diligence and remediation processes aim to help enterprises minimize human rights impact linked to their operations, products and services. If these impacts cannot reasonably be addressed all at once, the focus must be on those that would cause the greatest harm to people. That means prioritizing those impacts that are, or would be, most severe in their scope or scale or where a delayed response would render them irremediable. As soon as the most severe impacts are addressed, the enterprise should turn to those with the next greatest severity and so on until it has addressed all its actual and potential impacts on human rights (bearing in mind that this is likely to be an ongoing exercise that adjusts to changing circumstances).

International Finance Corporation, Performance Standards^[4]

Overview

1. (…) The Performance Standards are directed towards clients, providing guidance on how to identify risks and impacts, and are designed to help avoid, mitigate, and manage risks and impacts as a way of doing business in a sustainable way, including stakeholder engagement and disclosure obligations of the client in relation to project-level activities.

3. Performance Standard 1 establishes the importance of (i) integrated assessment to identify the environmental and social impacts, risks, and opportunities of projects; (ii) effective community engagement through disclosure of project-related information and consultation with local communities on matters that directly affect them; and (iii) the client’s management of environmental and social performance throughout the life of the project. Performance Standards 2 through 8 establish objectives and requirements to avoid, minimize, and where residual impacts remain, to compensate/offset for risks and impacts to workers, Affected Communities, and the environment.

Performance Standard 1

1. (…) An effective Environmental and Social Management System (ESMS) is a dynamic and continuous process initiated and supported by management, and involves engagement between the client, its workers, local communities directly affected by the project (the Affected Communities) and, where appropriate, other stakeholders.1 Drawing on the elements of the established business management process of “plan, do, check, and act,” the ESMS entails a methodological approach to managing environmental and social risks and impacts in a structured way on an ongoing basis.

5. The client, in coordination with other responsible government agencies and third parties as appropriate, will conduct a process of environmental and social assessment, and establish and maintain an ESMS appropriate to the nature and scale of the project and commensurate with the level of its environmental and social risks and impacts. The ESMS will incorporate the following elements: (i) policy; (ii) identification of risks and impacts; (iii) management programs; (iv) organizational capacity and competency; (v) emergency preparedness and response; (vi) stakeholder engagement; and (vii) monitoring and review.

OECD, Due Diligence Guidance for Responsible Business Conduct^[5]

Characteristics of Due Diligence

Due diligence involves multiple processes and objectives.

(…) Due diligence should be an integral part of enterprise decision-making and risk management. In this respect it can build off (although it is broader than) traditional transactional or “know your counterparty” (KYC) due diligence processes. Embedding RBC [responsible business conduct] into policies and management systems helps enterprises prevent adverse impacts on RBC issues and also supports effective due diligence by clarifying an enterprise’s strategy, building staff capacity, ensuring availability of resources, and communicating a clear tone from the top.

Due diligence is dynamic.

The due diligence process is not static, but ongoing, responsive and changing. It includes feedback loops so that the enterprise can learn from what worked and what did not work. Enterprises should aim to progressively improve their systems and processes to avoid and address adverse impacts. Through the due diligence process, an enterprise should be able to adequately respond to potential changes in its risk profile as circumstances evolve (e.g. changes in a country’s regulatory framework, emerging risks in the sector, the development of new products or new business relationships).

Due diligence does not shift responsibilities.

Each enterprise in a business relationship has its own responsibility to identify and address adverse impacts. The due diligence recommendations of the OECD Guidelines for MNEs are not intended to shift responsibilities from governments to enterprises, or from enterprises causing or contributing to adverse impacts to the enterprises that are directly linked to adverse impacts through their business relationships. Instead, they recommend that each enterprise addresses its own responsibility with respect to adverse impacts. In cases where impacts are directly linked to an enterprise’s operations, products or services, the enterprise should seek, to the extent possible, to use its leverage to effect change, individually or in collaboration with others.

Box 2. Collaboration in Carrying Out Due Diligence

Enterprises can collaborate at an industry or multi-industry level as well as with relevant stakeholders throughout the due diligence process, although they always remain responsible for ensuring that their due diligence is carried out effectively. For example, collaboration may be pursued in order to pool knowledge, increase leverage and scale up effective measures. Cost sharing and savings is often a benefit to sector collaboration and can be particularly useful for SMEs. (…)

While in many cases, enterprises can collaborate on due diligence without breaching competition law, enterprises, and the collaborative initiatives in which they are involved, are encouraged to take proactive steps to understand competition law issues in their jurisdiction and avoid activities which can be seen as breach of competition law. (…)

Each jurisdiction will have different rules with respect to competition law issues; however, there are some guiding questions enterprises may consider when assessing concerns under competition law with regard to their RBC initiatives. For example:

• Does the collaboration or initiative involve an agreement between competitors?
• Can the collaboration or initiative be viewed as a per se violation of competition law? (i.e. does it involve price fixing, bid rigging (collusive tenders), output restrictions, and market division (or sharing)?
• Does the collaboration or initiative have an anti-competitive effect (i.e. impacts on consumer markets such as higher prices or limiting availability of goods/services), regardless of the fact that it does not seek to restrict competition?
• On balance, do the pro-competitive effects of the collaboration or initiative outweigh the anti-competitive effects?
• Are there public interest benefits produced by the collaborative or initiative that can be included in or override a balancing test?

Table 3. Examples of Indicators of Scale, Scope and Irremediable Character [of human rights impacts]

Rio Tinto, Why Human Rights Matter^[6]

AngloAmerican, Socio-Economic Assessment Toolbox^[7]

Developing a Social Management Plan

A Social Management Plan (SMP) is a framework that details an operation’s planned approach to managing social performance. It should identify the key activities and resources required to proactively manage an operation’s social issues and impacts, as well as deliver socioeconomic benefits. SMPs are a requirement for all Anglo American managed operations. Unlike a SEAT report, an SMP is primarily an internal document and is updated annually. It is not intended for external publication, although it may be shared, in part or in full, with key stakeholders. (…)

Section 7: Resources and Accountabilities

This section of the SMP should present the overall human and financial resources required to deliver the SMP for the year ahead. It should summarise, in full-time equivalents, the number of staff required to deliver the SMP alongside the required budget to implement any actions.

Additionally, it should set out the reporting lines and accountabilities within the operation and Business Unit. In developing the resource plan for the SMP, the individuals and organisations responsible for implementing the management actions should be identified. Responsible individuals may be situated in a wide range of business functions, depending on the issue or impact being managed. For instance, an action relating to local procurement may need to be addressed by Supply Chain with input from other functions (e.g. social performance, finance, safety and sustainable development, etc.).

Fair Labor Association, Principles of Fair Labor and Responsible Production^[8]

1. Workplace Standards:  Company Affiliate establishes and commits to clear standards.
2. Responsibility and Head Office Training:  Company Affiliate identifies and trains specific staff responsible for implementing workplace standards, and provides training to all head office staff.
3. Production Staff Training:  Company Affiliate trains all management staff and employees at owned production sites on workplace standards and tracks effectiveness of training.
4. Functioning Grievance Mechanisms:  Company Affiliate ensures workers have access to functioning grievance mechanisms, which include muliple reporting channels of which at least one is confidential.
5. Monitoring:  Company Affiliate conducts workplace standards compliance monitoring.
6. Collection and Management of Compliance Information:  Company Affiliate collects, manages, and analyzes workplace standards compliance information.
7. Timely and Preventative Remediation:  Company Affiliate remediates in a timely and preventative manner.
8. Responsible Production Practices: Company Affiliate aligns sales and planning practices with commitment to workplace standards.
9. Consultation with Civil Society:  Company Affiliate identifies, researches, and engages with relevant labor non-governmental organizations, trade unions, and other civil society institutions.
10. Verification Requirements:Company Affiliate meets FLA verification and program requirements.

Global Compact, Human Rights Due Diligence Info Portal^[9]

5 Steps towards managing the human rights impacts of your business

Step 3 – Identify existing processes and steps

Objectives of this step

• Map the management processes your company has in place to address potential impacts and identify gaps and further information needs
• Reach out to others in your business to refine your initial mapping (…)

Approach & possible activities

You can start with making a list of key business functions that most likely need to be involved when addressing the human rights impacts identified previously and what processes to look into:

This can help you when engaging your colleagues:

• Look out for meeting formats/structures already in place such as CSR meetings or workshops you could build on to engage your colleagues. If possible, try to organise a cross-functional workshop, a discussion round or provide feedback opportunities via mail or telephone. If feasible, meet with your colleagues in person
• To prepare your meetings, it might help to collect some arguments why addressing human rights issues is important to your business. (…)
• When introducing the topic use vocabulary which is familiar to your colleagues. This means, you don’t necessarily have to talk about ‘human rights’ with each of them. Fairness, respect, corporate values, integrity, health and safety, product security or being a responsible businessman could be entry points for different counterparts within your business. Short introductory videos on business & human rights or providing visuals of relevant affected groups/ examples of human rights impacts relevant to your sector can also help you make the topic more tangible for your colleagues
• Convey the message to your colleagues that their input and expertise is needed for moving forward and ultimately for remaining a well performing and responsible business. No one wants to have negative impacts on other people through their job. If you make colleagues aware of existing risks and practical opportunities for improvement, they will most likely be responsive
• Remember to keep your colleagues involved in the identification of next steps and to communicate progress towards them – respecting human rights will only work if everybody in the business watches out for potential impacts in daily business practice. (…)

Map existing management processes and identify gaps

Withyour colleagues’ help refine your list of potential impacts and gain an overview about the management processes your company has in place to address them. Are they aware of the potential impacts you have identified? Would they add others to your list? Do they know of past incidents or near misses pointing to potential impacts? How do they prevent negative impacts from occurring in the context of their daily work? What checks and processes does your company have? Is there an indication about how well they perform and where there might be gaps? (…) Human rights due diligence is not about being perfect from the beginning, or not making mistakes, but having thorough checks in place and aiming for continuous improvement.

The Human Rights Capacity Diagnostic can help you to assess your management capacity related to major elements of the corporate responsibility to respect human rights. (…) The HRCD is a self-assessment instrument with 23 questions centred on the major elements of the corporate responsibility to respect human rights as outlined in the UN Guiding Principles. The corporate responsibility to respect is a global standard of expected conduct for all businesses regardless of size or where they operate. Fulfilling this basic social expectation requires embedding respect for human rights within the business through adequate policies and structures, due diligence and remediation processes. The HRC Diagnostic can be used to shed light on whether that embedding is underway, and what steps to take to further strengthen it.

Corporate Human Rights Benchmark^[10]

In order to offer a truly rigorous and credible proxy measure of corporate human rights performance, the Benchmark seeks to assess companies’ human rights performance at several levels. These include

• the governance and policy level (Measurement Theme A),
• the systems and process level (Measurement Themes B and C),
• the performance level, including specific practices (Measurement Theme D) and responses to allegations (Measurement Theme E), as well as
• a final level focusing on a company’s overall transparency (Measurement Theme F).

A. Governance and Policy Commitments

This Measurement Theme focuses on a company’s human rights related policy commitments and how they are governed. It includes two related sub-themes:

• Policy Commitments: These indicators aim to assess the extent to which a company acknowledges its responsibility to respect human rights, and how it formally incorporates this into publicly available statements of policy.
• Board Level Accountability: These indicators seek to assess how the company’s policy commitments are managed as part of the Board’s role and responsibility.

These sub-themes are broken down into the following indicators and weightings:

A.1 Policy commitments (5%)

A.1.1 Commitment to respect human rights

A.1.2 Commitment to respect the human rights of workers

A.1.3 Commitment to respect human rights particularly relevant to the industry

A.1.3.a Land and natural resources – Agricultural products industry

A.1.3.b People’s rights – Agricultural products industry

A.1.3 Apparel industry

A.1.3 Extractives industry

A.1.4 Commitment to engage with stakeholders

A.1.5 Commitment to remedy

A.1.6 Commitment to respect the rights of human rights defenders

A.2 Board level accountability (5%)

A.2.1 Commitment from the top

A.2.2 Board discussions

A.2.3 Incentives and performance management

B. Embedding Respect and Human Rights Due Diligence

This Measurement Theme assesses the extent of a company’s systems and processes established to implement the company’s policy commitments in practice. It includes two related sub-themes:

• Embedding: These indicators seek to assess how the company’s human rights policy commitments are embedded in company culture and across its management systems and day-to-day activities, including within the management systems covering their business relationships.
• Human rights due diligence: These indicators focus on the specific systems the company has in place to ensure that due diligence processes are implemented to assess the real-time risks to human rights that the company poses, to integrate and act on these findings so as to prevent and mitigate the impacts, and to track and communicate those actions. These indicators are aligned to the human rights due diligence steps in the UN Guiding Principles on Business & Human Rights.

These sub-themes are broken down into the following indicators and weightings:

B.1 Embedding respect for human rights in company culture and management systems (10%)

B.1.1 Responsibility and resources for day-to-day human rights functions

B.1.2 Incentives and performance management

B.1.3 Integration with enterprise risk management

B.1.4 Communication/dissemination of policy commitment(s)

B.1.4.a Communication/dissemination of policy commitment(s) within Company’s own operations

B.1.4.b Communication/dissemination of policy commitment(s) to business relationships

B.1.5 Training on human rights

B.1.6 Monitoring and corrective actions

B.1.7 Engaging business relationships

B.1.8 Approach to engagement with potentially affected stakeholders

B.2 Human rights due diligence (15%)

B.2.1 Identifying: Processes and triggers for identifying human rights risks and impacts

B.2.2 Assessing: Assessment of risks and impacts identified (salient risks and key industry risks)

B.2.3 Integrating and Acting: Integrating assessment findings internally and taking appropriate action

B.2.4 Tracking: Monitoring and evaluating the effectiveness of actions to respond to human rights risks and impacts

B.2.5 Communicating: Accounting for how human rights impacts are addressed

HP, Supplier Social & Environmental Responsibility Agreement^[11]

This Agreement is intended to supplement any and all contracts and agreements between HP and Supplier for the supply of goods or services by Supplier to HP (“Supply Contracts”). (…)

1. Supplier Responsibility

1.1. Supplier confirms that it has read HP Supplier Code of Conduct (also known as the HP Electronic Industry Code of Conduct or HP EICC Code of Conduct) and HP’s General Specification for the Environment and agrees with its statement of requirements.

1.2. Supplier will be responsible for identifying any areas of its operations that do not conform to HP’s Supplier Code of Conduct and HP’s General Specification for the Environment and for implementing and monitoring improvement programs designed to achieve HP Supplier Code of Conduct and HP’s General Specification for the Environment.

1.3. Upon request by HP, Supplier will submit a report to HP describing actions taken and progress made by Supplier to meet the requirements of HP’s Supplier Code of Conduct and HP’s General Specification for the Environment.

1.4. Supplier will provide HP, or its nominated representative, on reasonable notice, access to Supplier’s relevant records insofar as they relate to Supply Contracts, in order to verify information provided in Supplier’s report.

2. HP Responsibility

2.1. HP agrees that the report and records referred to will only be used for the purposes of assessing the Supplier’s progress in accordance with HP’s Supplier Code of Conduct and HP’s General Specification for the Environment and will not be disclosed to any third party without Supplier’s prior written consent.

3. Scope of Agreement

3.1. This Agreement applies to all existing Supply Contracts. (…)

BIICL, The Components of Effective Supply Chain Management^[12]

Supplier on-boarding

Most companies indicate that their leverage is strongest at the point before entering into a relationship with a supplier, also known as “supplier on-boarding”. At the “pre-onboarding” stage, companies frequently use questionnaires, database searches and other forms of desktop research to gain more knowledge about the supplier’s actual or potential human rights impacts. Where a certain supplier or a country, region or sector poses particularly high human rights risks, this screening will be escalated into more thorough investigations.

As part of this initial process, the supplier is frequently expected to do most of the information-gathering. Interviewees noted that small suppliers frequently do not have a web presence, and do not have their past activities documented online. This requires the company to ask more questions of the supplier, including through self-assessment, and of others who have knowledge about their practices. In order to receive answers which reflect reality, questions frequently avoid the use of broader human rights language. Instead, specific questions are asked, such as whether recruitment agencies are used, or there is a request to see specific documents, such as a written child labour policy. One interviewee had recently started asking questions of a supplier after potential human rights impacts were highlighted during the initial screening process. They indicated that the supplier was “fairly defensive”, adding that one can “pretty quickly start to see from the responses that there are issues you should look into.”  

One interviewee highlighted the usefulness of integration of human rights into tender documents. They included a human rights annex in two recent calls for tenders. The companies which submitted tenders accordingly had to show how they were going to undertake HRDD [human rights due diligence] in their own operations and in their relationships with further business partners.

Interviewees indicated that they have refused to engage with suppliers based on human rights concerns which showed up during their pre-onboarding screening. One interviewee indicated that such refusal would be based on “situations where we likely cannot find mitigation for the human rights impacts, or the potential impacts are egregious, or the management capacity of the [supplier] or their [suppliers] to deal with the impacts are weak.” In other instances, a company may enter into a contract with the relevant supplier, but insist that various human rights standards be included in the contract and embedded into operations.

Short et al, Monitoring Global Supply Chains^[13]

Firms seeking to avoid reputational spillovers that can arise from dangerous, illegal, and unethical behavior at supply chain factories are increasingly relying on private social auditors to provide strategic information about suppliers’ conduct. But little is known about what influences auditors’ ability to identify and report problems. Our analysis of nearly 17,000 supplier audits reveals that auditors report fewer violations when individual auditors have audited the factory before, when audit teams are less experienced or less trained, when audit teams are all male, and when audits are paid for by the audited supplier. This first comprehensive and systematic analysis of supply chain monitoring identifies previously overlooked transaction costs and suggests strategies to develop governance structures to mitigate reputational risks by reducing information asymmetries in supply chains.

BSCI, Sustainability Intelligence Dashboard^[14]

The Business Social Compliance Initiative (BSCI) is a leading supply chain management system that supports companies to drive social compliance and improvements within the factories and farms in their global supply chains. (…)

            The amfori Sustainability Intelligence Dashboard is a new tool designed to assist companies in tackling the complexity of supply chain management and support their efforts to improve its sustainability performance.

Through this tool, amfori offers companies an online platform providing a single access point to all their supply chain performance information. Connecting amfori members’ supply chain information gathered in the amfori BSCI and amfori BEPI databases, the dashboard provides a 360 degree view of their producers’ performance through interactive data visualisation by country, sector, industry, audit results and much more.

Updated daily, information can be customised and transformed into rich charts and reports tailored to business needs, providing increased visibility and insights into supply chains and allowing for strategic decisions to be made after extensive analysis of wide-ranging KPIs and metrics.

UN Working Group, Report on Human Rights Due Diligence^[15]

25. (…) Often human rights due diligence is not understood properly, resulting in:

(a) Misconstruction of risk, namely, when companies operate with a mindset of risk to the business and not risk to rights holders, such as workers, communities and consumers. Related to that, there is a lack of understanding on how better human rights due diligence will also improve the overall risk management approach. Reluctance or even pushback from traditionally oriented legal counsel, both in-house and external, fearing disclosure is a key obstacle to uptake by companies;

(b) Failure to address the most significant risks to human rights first and focusing instead on risks that may be relatively easy to address or that are getting attention in a given context, such as modern slavery or diversity, rather than doing an objective assessment of the most significant and likely risks to people affected by the activities and business relationships of the enterprise;

(c) Too many human rights impact assessments done as exercises to tick the box, without meaningful engagement with stakeholders, including engagement with vulnerable or at-risk groups and critical voices such as human rights defenders;

(d) Most business enterprises still being mostly reactive, instead of proactively trying to identify potential human rights impacts before they arise, including through early-stage meaningful engagement with potentially affected stakeholders.

26. Performance seems to be particularly weak on the “taking action” and “tracking of responses” components of human rights due diligence set out in the Guiding Principles. Similarly, connections between human rights due diligence and the remediation of actual impacts are not being made in practice. The inadequate integration of a gender lens is a notable gap. 

27. A common observation is that beyond the small group of early adopters — mostly large corporations based mainly, but not exclusively, in some Western markets — there is a general lack of knowledge and understanding of the corporate responsibility to respect human rights, especially among smaller companies. In addition, the experience gained from national-level dialogues indicates that many business enterprises, in particular small and medium-sized enterprises, view due diligence expectations as a burden.

28. Translating corporate policies into local contexts, for example in subsidiaries, is a challenge across sectors. There is typically a disconnect between the corporate level and implementation on the ground as well as gaps in internal alignment between functions and incentive structures. An observation in this regard is that companies are prioritizing general training, so that they can “tick the box” on human rights training, without tailoring those trainings to specific functions.

29. An apparent gap in current supply chain management is that human rights due diligence tends to be limited to tier-one companies. Efforts to go beyond tier one tend to happen only when the issue has been brought to light by the media or non-governmental organizations (NGOs). Few companies appear to be asking tier one suppliers to demonstrate that they — and their suppliers in the tiers below — fulfil the responsibility to respect human rights by requiring assessments of the risks to and impacts on human rights. Practices in place before the creation of the Guiding Principles are still common, for example, situations in which companies typically ask suppliers to meet predefined performance criteria in relation to a limited set of human rights, mostly labour rights. However, there have been some positive developments in terms of:

(a) More meaningful collaborative approaches to joint leveraging efforts;

(b) Efforts to trace impacts beyond tier one, such as in mineral supply chains, 18 mostly through industry or multi-stakeholder platforms.

30. In the context of the sustainable development agenda, there is a risk that corporate engagement on the Sustainable Development Goals is being conflated with human rights due diligence. Overemphasis on business opportunities overshadows the understanding that the most significant contribution the majority of business enterprises can make to realizing the Goals is to respect human rights.

36. Other challenges for expanding the uptake of human rights due diligence by businesses may be categorized as market failure issues, such as:

(a) The “first-mover challenge”, in which business enterprises that are transparent about risks and challenges are criticized for not doing enough whereas less responsible competitors go below the radar of NGOs and journalists. In some cases, NGOs and journalists expect too much of companies that are “merely” linked to the human rights abuse as opposed to the enterprise or government agency that is causing the abuse;

(b) Lack of available expertise on the Guiding Principles among the majority of consultancy firms advising on “corporate social responsibility” and lack of integration of business and human rights into the core advisory services of corporate law firms;

(c) Insufficient incentive structures for addressing impacts on people as there is currently a lack of systematic mechanisms for investors, public agencies interacting with the private sector and regulators to reward good practices. While Governments and investors are increasingly putting a price on environmental impacts, they are lagging behind in implementing similar approaches for impacts on people;

(d) Lack of common understanding about which metrics and indicators to use to track and evaluate performance, both within companies and by other stakeholders, such as investors. The consequences may be that companies gather and publish information that gives “little insight into how their business actually affects the basic dignity and welfare of people. And markets are left rewarding often poor or inadequate behaviors, while leading practice can go unrecognized and undersupported”

Bonnitcha & McCorquodale, The Concept of ‘Due Diligence’^[16]

The concept of due diligence, understood as a standard of conduct required to discharge an obligation, can be traced to Roman law. Under Roman law, a person was liable for accidental harm caused to others if the harm resulted from the person’s failure to meet the standard of conduct expected of a diligens (or bonus) paterfamilias – a phrase that translates roughly as a prudent head of a household. This was an objective standard, which allowed a defendant’s conduct to be assessed against an external standard of expected conduct, rather than in light of the defendant’s own intentions and motivations. It was also fact specific, in that what could be expected of a prudent person was dependent on the circumstances of the case. Elaborating in the 6th century AD, Justinian argued that an individual may be liable for harm where ‘what should have been foreseen by a diligent man was not foreseen’.

The standard of diligens paterfamilias influenced the development of the tort of negligence in many legal systems. The tort of negligence has common elements across different legal systems – duty, breach, causation and harm – although they are often classified differently. In determining whether a defendant has been negligent, the central question is whether the defendant has met a standard of expected conduct. The diligens pater familias standard was directly incorporated into Roman-Dutch tort law as the relevant standard of conduct. It also became the basis for the development of the ‘reasonable man’ test in the English law of negligence and for similar standards in civil law legal systems. As such, due diligence, understood as a standard of conduct, and negligence are closely related: ‘[T]he opposite of negligence is diligence.’

de Schutter, Human Rights Due Diligence: The Role of States^[17]

Drawing on State practice and international standards, the Report finds the following:

First, the Report confirms that the origins of due diligence are neither a creation of the United Nations Human Rights Council nor a voluntary measure for corporate social responsibility. Due diligence originates from legal tools that States are already using to ensure that business behavior meets social expectations, including standards set in law.

The Report establishes that the regulatory due diligence procedures found in a variety of legal systems are consistent with processes described in the Guiding Principles and other international instruments.

The Report describes how the concept of due diligence requirements are found in areas of law that are either analogous to or directly relevant to human rights, such as labor rights, environmental protection, consumer protection and anti-corruption.

The Report also establishes that due diligence requirements can be used to ensure that business enterprises can be held accountable for violations of law, by, for example, overcoming obstacles to effective regulation posed by complex corporate structures or their transnational activities.

The options described in the Report indicate at least four main regulatory approaches through which States can ensure human rights due diligence activities by business. Usually these approaches co-exist within the same jurisdictions and legal systems.

The first approach imposes a due diligence requirement as a matter of regulatory compliance. States implement rules that require business enterprises to conduct due diligence, either as a direct legal obligation formulated in a rule, or indirectly by offering companies the opportunity to use due diligence as a defense against charges of criminal, civil or administrative violations. For example, the courts use business due diligence to assess business compliance with environmental, labor, consumer protection and anti-corruption laws. Similarly, regulatory agencies regularly require business due diligence as the basis upon which to grant approvals and licenses for many business activities.

The second regulatory approach provides incentives and benefits to companies, in return for their being able to demonstrate due diligence practice. For example, in order for companies to qualify for export credit, labeling schemes or other forms of State support, States often require due diligence on environmental and social risks.

A third approach is for States to encourage due diligence through transparency and disclosure mechanisms. States implement rules that require business enterprises to disclose the presence or absence of due diligence activities and any identified harms that their activities may create, such as the presence of child labor in a company’s supply chain. Market participants will then attempt to constrain any identified harms on the basis of a company’s disclosures. For example, securities laws, consumer protection laws and reporting requirements for corporate social responsibility operate on the logic that information serves the interests, and will prompt action by consumers, investors, regulators, and people who might be adversely affected by a business activity.

A fourth category involves a combination of one or more of these approaches. States regularly combine aspects of these approaches in order to construct an incentive structure that promotes respect by business for the standards set down in the rules and ensures that compliance can be assessed in an efficient and effective manner. (…)

Background (Cambodia)

Kong, Business and Human Rights in ASEAN^[18]

4. Is the State using corporate governance measures to require or encourage respect for human rights?

4.1. Is the State requiring or encouraging directors of business enterprises to exercise due diligence in ensuring that their business enterprises respect human rights?

There are no specific provisions in the Cambodian laws requiring or encouraging directors of business enterprises to exercise due diligence in ensuring that their business enterprises respect human rights, but the Law on Commercial Enterprises provides a provision of duty of care for directors and officers.

4.1.1. What are the general legal due diligence obligations that directors have to comply with?

Article 289 of Law on Commercial Enterprises states that every director and officer in exercising his duties shall i) act honestly and in good faith with a view to the best interest of the company; and ii) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

4.1.2. Do directors have specific legal obligations to consider their business enterprises’ human rights impacts in carrying out their duties?

There are no specific legal obligations that directors have to consider their business enterprises’ human rights impacts in carrying out their duties, but under the labour law, directors are civilly liable regarding violations. Therefore, it can be held that directors shall consider human rights impacts on labour relations resulting from their business enterprises.

CCHR, Business and Human Rights Handbook for Cambodia^[19]

3.4 Applying the Guidelines in the Cambodian context

MNEs are not just expected to follow the OECD Guidelines’ recommendations in their own operations; an important part of the OECD Guidelines system is the expectation that MNEs will exercise due diligence to identify, prevent and reduce any negative impacts that might arise as part of their supply chain or through activities to which they are linked by a business relationship. This is of particular relevance in the Cambodian context where, for example, Cambodian factories and plantations are sources of manufactured or raw products, such as garments or sugar, for foreign MNEs. Where MNEs do not carry out adequate due diligence, they may be failing to comply with their responsibilities under the Guidelines, which could form the basis of a campaign by CSOs, or a complaint to the relevant NCP.

The OECD, in consultation with business, trade unions and civil society, has produced sets of guidance for MNEs on how to implement the OECD Guidelines. For MNEs to carry out due diligence to ensure their supply chains do not cause any negative impacts, including to human rights they should:

1. Establish strong company management systems. For example, each MNE should have a clear company policy on the standards of responsible business conduct that they commit to upholding, such as human rights and environmental policies.
2. Identify, assess and prioritize risks of negative impacts in the supply chain. How this is carried out in practice will depend on the sector in which the MNE operates. A company that sources textile products from an independently owned factory in Cambodia will face different challenges in trying to identify risks than does a company that controls land in Cambodia and operates the plantation itself.
3. Design and implement a strategy to respond to identified risks. If an MNE discovers that its supply chain or business partners may be creating a risk(s) of negative human rights impacts (for example, forced eviction or abuses of labor rights), it should put in place appropriate measures to mitigate these harms – for example, by engaging with the local community, providing adequate compensation, or refusing to deal with a local supplier until its practices conform to labor standards.
4. Verify supply chain due diligence – for example, through a system of independent third party audit.
5. Publicly report on supply chain due diligence

What adequate due diligence requires will not be the same for every MNE and should be tailored to the particular industry and context in which they operate. As of today the OECD has produced guidance on a number of different areas of business operations, from the extractives industry to the financial sector, but those likely to be of most relevance in holding to account MNEs that operate in Cambodia are the OECD-FAO Guidance for Responsible Agricultural Supply Chains, which also includes a specific annex on engaging with indigenous peoples; and the draft Guidance on Responsible Supply Chains in the Garment and Footwear Sector. These can be a valuable resource for CSOs, by setting out in concrete terms the internationally recognized best practices by which MNEs are expected to abide.

Instruments (Cambodia)

Labor Law^[20]

Article 233. Visits to establishments and inspections of the enforcement of the legislative provisions and regulations regarding health, working conditions and safety shall be made by Labor Inspectors and Labor Controllers. Labor Medical Inspectors and experts in work safety shall collaborate to achieve these inspection missions. After inspection, if infractions are found, the Labor Inspector shall serve notice on the manager of the establishment by indicating all point that do not conform to the provisions of Chapter VIII of this labor law and the Prakas for its implementation.

Article 344. The Labor Inspection shall have the following missions:

1. to ensure enforcement of the present Labor Law and regulatory text that is provided for, as well as other laws and regulations that are not yet codified and that relate to the labor system;
2. to provide information and technical advice to employers and to workers on the effective ways of observing the legal provisions;
3. to bring to the attention of the competent authority any improprieties or abuses that are not specifically covered by the existing legal provisions;
4. to give advice on issues relating to the arrangement or restructuring of enterprises and organisms that have been authorized by the administrative authorities and covered by Article 1 of this law;
5. to monitor the enforcement of the legal provisions regarding the living conditions of workers and their families.

Sub-Decree on Environmental Impact Assessment Process^[21]

Article 1. The main objectives of this sub-decree are:

• To determine an Environmental Impact Assessment (EIA) upon every private and public project or activity, and it must be reviewed by the Ministry of Environment (MoE), prior to the submission for a decision from the Royal Government.
• To determine the type and size of the proposed project(s) and activities, including existing and ongoing activities in both private and public prior to undertaking the process of EIA.
• Encourage public participation in the implementation of EIA process and take into account of their conceptual input and suggestion for re-consideration prior to the implementation of any project.

Article 3. The MoE has responsibilities as following:

1. scrutinize and review the report of the Environmental Impact Assessment in collaboration with other concerned ministries;
2. follow up, monitor and take appropriate measures to ensure a Project Owner will follow the Environmental Management Plan (EMP) while project construction is taking place and accede to their EIA report’s approval.

Sub-Decree on Economic Land Concessions^[22]

Article 4. An economic land concession may be granted only on a land that meets all of the following five criteria:

1. The land has been registered and classified as state private land in accordance with the Sub decree on State Land Management and the Sub decree on Procedures for Establishing Cadastral Maps and Land Register or the Sub decree on Sporadic Registration.
2. Land use plan for the land has been adopted by the Provincial-Municipal State Land Management Committee and the land use is consistent with the plan.
3. Environmental and social impact assessments have been completed with respect to the land use and development plan for economic land concession projects.
4. Land that has solutions for resettlement issues, in accordance with the existing legal framework and procedures. The Contracting Authority shall ensure that there will not be involuntary resettlement by lawful land holders and that access to private land shall be respected.
5. Land for which there have been public consultations, with regard to economic land concession projects or proposals, with territorial authorities and residents of the locality.

Law on Environmental Protection and Natural Resource Management^[23]

Article 6. An environmental impact assessment shall be done on every project and activity, private or public, and shall be reviewed and evaluated by the Ministry of Environment before being submitted to the Royal Government for decision.

Article 7. All investment project applications and all projects proposed by the State shall have an initial Environmental Impact Assessment or an Environmental Impact Assessment as specified in Article 6 of this law. The Ministry of Environment shall review and provide recommendations on initial Environmental Impact Assessment or the Environmental Impact Assessment to the competent organization within the period determined in the Law on Investment of the Kingdom of Cambodia.

Article 9. The Ministry of Environment, in collaboration with concerned ministries, shall conduct research, assess the environmental impacts on natural resources, and provide the concerned ministries with recommendations to ensure that the natural resources as specified in article 8 are conserved, developed and managed (and) used in a rational and sustainable manner.

Electricité du Cambodge, Resettlement Due Diligence Report^[24]

A. Project Background

5. The Asian Development Bank (ADB) is working with Cambodia’s national electric utility, EDC, to develop a Grid Development Project. The Grid Reinforcement Project (the project) will support EDC, the state-owned power utility, in improving transmission network capacity and stability. The project will (i) expand and reinforce the electricity transmission infrastructure by constructing 115 kilovolt (kV) and 230 kV transmission lines and associated substations in Phnom Penh, Kampong Chhnang, Kampong Cham, and Takeo provinces; and (ii) introduce the first utility-scale battery energy storage system to enhance power reliability and grid stability accompanied by an increase in electricity generated from renewable energy sources. Project implementation consultants (PIC) will complement existing staff of EDC, thus ensuring a high degree of implementation efficiency of components financed under the project. (…)

B. Rationale for Due Diligence

10. A full feasibility study has been prepared for the Grid Reinforcement Project. Since preparation and submission of adequate social safeguards documents is a condition for ADB’s approval of subproject loan, each component/subproject has been carefully reviewed in terms of its involuntary resettlement and indigenous peoples impacts. In accordance with the ADB’s 2009 SPS, and the Bank’s OM Section F1/OP (October 2013) field validation and due diligence has confirmed that the above subprojects have no land acquisition and hence does not trigger the involuntary resettlement safeguard, and Indigenous People safeguards. However, in order to ensure that the project impacts are well managed, this Due Diligence Report (DDR) is prepared to serve as a social safeguard document of the above-listed subprojects.

11. In addition, the following projects, namely (i) 230 kV GS5 substation, (ii) 115 kV Olympic substation, and (iii) the underground cable from NCC to Toul Kork and Beung Kok, are considered associated facilities of TPP1, TTP3, and SPP3, respectively. As per ADB 2009 SPS and 2012 A Planning and Implementation Good Practice Sourcebook (para. 21), for a project that is not funded by ADB and may cause involuntary resettlement but is critical to the design or implementation of the ADB project, ADB will carry out due diligence on involuntary resettlement that results from such projects by obtaining information on how the adverse impacts will be identified and addressed. Therefore, due diligence has been conducted to ensure that the land acquisition activities of these projects are in compliance with the SPS 2009 requirements and Cambodian land laws and regulations. The due diligence review of these projects is discussed in Section G below. (…)

D. Methodology of Resettlement Due Diligence

52. The following methods were utilized for the purpose of this DDR, including:

1. desk study method: the consultant reviewed feasibility study report for subproject features and scale;
2. field trips were conducted to observe and assess the subproject impacts; and
3. public consultation with the stakeholders.

Fast Retailing, Assessment for Accreditation FLA Board of Directors Meeting^[25]

Fast Retailing Supply Chain & Fla Due Diligence Activities from 2016-2018

As of 2018, Fast Retailing sources from 617 factories in 28 countries; China, Vietnam, and Bangladesh are its countries with the highest production volume. Fast Retailing sources from China, Vietnam, Bangladesh. Japan, Cambodia, and Indonesia. From 2016 to 2018, Fast Retailing received 60 FLA Independent External Assessments (IEAs); 57 SCI Assessments and three SCI Verification (SCIV) Assessments. These assessments covered 16 sourcing countries. Remediation progress from these assessments is included throughout this report. Prior to accreditation, Fast Retailing received two audit field observations: the first in China in 2016 and the second in Vietnam in 2018. Fast Retailing also received a training field observation in China in 2016. The FLA conducted the HQ Assessment at Fast Retailing’s headquarters in Tokyo, Japan in February 2018.

Principle 3: Supplier training

Supplier Commitment

All Fast Retailing factories are required to sign Fast Retailing’s Code of Conduct for Production Partners, in which factories agree to be assessed by third party audits and undertake corrective actions. Fast Retailing allows audits by approved third-party service providers, including FLA assessments. In addition to the Code of Conduct of Production Partners, suppliers receive the Fast Retailing Supplier Guidebook. The Supplier Guidebook explains the Fast Retailing workplace standards, FLA affiliation, and the FLA assessment process. The FLA verified the use of the supplier agreements and Supplier Guidebook, maintained for each supplier through Fast Retailing’s online sustainability platform. The FLA has observed the Fast Retailing Supply Chain Labor Management Team regularly communicate with its suppliers regarding FLA standards and assessment methodology.

Pre-Sourcing Factory Assessments

Fast Retailing details their pre-sourcing and production processes through the Working Conditions Monitoring Program Manual. First, Fast Retailing brand production departments ask the Supply Chain Labor Management Team to assess a potential facility. A full audit to determine the facility’s grade is conducted by a third-party audit company; the Monitoring Program Manual includes a comprehensive workflow with decision trees dependent on pre-sourcing audit grades, and whether Fast Retailing should proceed with production. For example, the lowest audit grade (E) or (D) does not authorize the facility for production; a C-grade allows for the purchase order (PO) to be placed for pre-sourcing assessments.(…)

Assessing Factory Conditions

Fast Retailing’s monitoring program includes regular audits and follow-up audits for sewing facilities and their subcontractors and core mills; at minimum, facilities receive one annual audit. Depending on the grade of the audit, the Supply Chain Labor Management Team will schedule a follow-up audit as defined in Fast Retailing’s Monitoring Program Manual. Similar to the pre-sourcing audit process, for regular audits, the manual includes a comprehensive decision tree to determine the scheduling of the follow-up audit; with low grades (C and D) requiring follow-up audits to verify remediation progress. Facilities that receive an E-grade or fail to show remediation progress during the follow-up audit are subject to review by the Business Ethics Committee, described under Principle 3.

Fast Retailing, Monitoring and Evaluation of Production Partner Factories^[26]

Workplace Monitoring System

Fast Retailing conducts regular workplace audits, assigning partner factories a letter grade from A to E. The Fast Retailing audit tool and Monitoring Program Manual include processes to conduct worker interviews, consult with unions and worker representatives, review collective bargaining agreement terms, conduct management interviews, review documents, conduct visual inspections, and review occupational health and safety.(…)

We also analyze labor violation trends by country and individual brands, including how many facilities are passing or failing the Fast Retailing audit. We have developed specific country strategies for Bangladesh, Cambodia, China, Indonesia, Myanmar, and Vietnam. Countries priorities have been defined through stakeholder engagement and aligned with business strategies.

Due Diligence for New Production Partners

Monitoring Potential New Production Partners Prior to Commencing Business

We conduct a due diligence at any potential new partner prior to commencing business with them. This process ensures potential partners comply with our Code of Conduct for Production Partners. We only do business with those partners confirmed to meet standards for commencing new business relationships. Partner factories that receive a grade of D during the audit are asked to make corrections within three months and we start our business only once corrections are confirmed in a follow-up audit. Partner factories who had serious violations are not eligible to do business with Fast Retailing. During fiscal 2019, we initiated business relationships with 86.6 percent of potential partners.

Approval Process for New Factories

The Association of Banks in Cambodia, Cambodian Sustainable Finance Principles^[27]

Principle 1. We will assess and manage environmental risks relating to climate change, pollution and waste management and the protection of our critical natural resources.

1. Overview and rationale of the Principle

In implementing this Principle, a bank/MFI will incorporate into its decision-making processes an approach that systematically identifies, assesses and manages the environmental risks and potential impacts associated with its clients and transactions, and will determine whether relevant environmental standards have been adequately applied. Where avoidance of environmental impacts is not possible, a bank/MFI should seek to engage with its clients to minimise the identified risks and impacts.           

A bank/MFI will consider whether as a result of its Business Activities there are potential negative impacts to the environment, particularly relating to:

• climate change;
• pollution (including soil, water and air);
• waste management; and
• the protection of Cambodia’s critical natural resources (water, natural forests & habitats, biodiversity).

The above-listed environmental issues have been identified as currently the most pressing in the Cambodian context, in relation to which banks/MFIs could have a positive influence.

• Implementation guidelines

Banks/MFIs assess and manage environmental (and social) risk and issues through an Environmental and Social Management System (ESMS), customised according to their specific business activities, operations, client base, the types of products and services they provide.(…)

1.5. Demonstrating progress

In order to demonstrate progress in implementing this Principle, a bank/MFI should seek to develop and implement an environmental risk management system. This could include, but is not limited to, the following:

• Development of environmental risk reporting framework and criteria (relevant key performance indicators (KPIs) to monitor and report on progress against the bank/MFI’s environmental commitments);
• Ensuring that the necessary systems are in place to collect the relevant data;
• Developing E&S policies (general E&S Policy and specific E&S policies, as applicable), approved by top management, that adequately address environmental issues;
• Developing E&S Procedures that reflect environmental considerations, with clearly articulated roles & responsibilities, and include them (or summaries thereof) in the external reporting;
• Establishing E&S governance structures, aligned with the existing operating model for the management of other risk categories – particularly credit risk, transaction approval and new client acceptance;
• Implementing the E&S policies and procedures into the bank/MFI’s Business Activities and Business Operations, in particular including environmental considerations and criteria in due diligence and business decision-making processes for potential clients and transactions. This includes, among others, screening clients and transactions for E&S issues, performing E&S risk categorisation, carrying out E&S risk assessments of clients and transaction, taking E&S risk-mitigating measures such as requiring clients as part of the loan agreements to comply with E&S corrective action plans, developing a framework to monitor the environmental risk management performance of clients;(…)

BFC, Annual Report: An Industry and Compliance Review^[28]

Occupational Safety and Health

The cluster covering Occupational Safety and Health (OSH) requirements is the largest cluster with eight different compliance points covering a total number of 60 compliance questions. Consistent with last year’s findings, many areas related to OSH continue to be a challenge for garment factories and are often the result of a lack of proper policies, procedures and division of roles and responsibilities on OSH. This suggestion is supported by the analysis in this report that links factories’ performance on legal OSH matters to the quality of their OSH management systems. This analysis suggest that the better factories do on their OSH management systems, the lower their non-compliance on legal OSH issues. This is not an issue that is typical just for Cambodia, but a general situation in the global supply chain for garment production. Non-compliance levels in the OSH cluster remain high and in general have gone up slightly in most of the compliance points.

Management Systems and OSH Compliance

Better Work has in-depth experience in assessing occupational safety and health in hundreds of garment factories in different countries. This experience has taught us that factories struggle to sustainably improve their performance on occupational safety and health since often improvements made are ‘quick fixes’ that are not necessarily supported with proper management systems and training of those involved in ensuring safe and healthy workplaces. As a result, Better Work has started to look at the quality of management systems relating to OSH in factories. All Better Work programmes, including BFC, have introduced factories performance on management systems in 2015 as a way to link compliance with the quality of their systems. For factories to do well on occupational safety and health, they should have proper policies and procedures in place that are known and understood to all management and workers so that they can be applied every moment, every day. Although management systems are not legal requirements, there is a strong correlation between performance on OSH management systems and performance on legal OSH related issues. This confirms that proper OSH management systems uphold compliance. This section provides an analysis that underpins those findings. There are six OSH management system questions that BFC looks at during its assessment as an information question:

1. Does the employer adequately assign accountability to management for carrying out health and safety responsibilities?
2. Does the employer adequately communicate and implement OSH policies and procedures?
3. Does the employer adequately investigate, monitor and measure OSH issues to identify root causes and make necessary adjustments to prevent recurrence?
4. Is there an adequate emergency preparedness procedure?
5. Is there an adequate hazard/risk management and control procedure?
6. Is there an adequate accident investigation procedure?

Beban et al, From Force to Legitimation: Rethinking Land Grabs in Cambodia^[29]

We found a similar dynamic in the case of the Directive 01 land titling campaign, where in some cases the promise of titles on small areas of land inside ELCs had the effect of legitimating much larger areas of land acquired prior to and during the titling campaign (examined in case study 1 below). ELCs are also legitimated through narratives of responsible investment (examined in case study 2). Certification schemes that obligate practices of ‘due diligence’ — such as the Roundtable for Sustainable Palm Oil (RSPO) — have become a central legitimating narrative for agribusiness firms in Cambodia and around the world that are looking to access Western markets. Certification by Western governments allows firms to ‘discursively re-signify the crop as a “response-able” phenomenon in the face of food-, energy/climate- and development-related problems’. In many instances, these schemes do not question the overall logic of plantation expansion in the global South; they can constitute a ‘green grab’ if narratives of ‘due diligence’ cover violent processes of extraction, but they can also make concessionaires more wary of bad publicity that comes with land disputes (…)

Cases of Legitimation: Directive 01 and Corporate Due Diligence Legitimating Exclusion through Corporate Due Diligence

The promotion of corporate social responsibility within the private sector— externally imposed standards, voluntary commitments and certification schemes — is relatively new in the Cambodian natural resource extraction sector. Our second case examines the MRICOP investment group’s oilpalm ELC in Southern Cambodia, the first Cambodian ELC to receive the Roundtable on Sustainable Palm Oil (RSPO) certification. This case shows how corporate and state actors engage in legitimation of ELC policy through ‘greening’ investment. Concessionaires’ due diligence seems to be at odds with Cambodian tycoons’ heavy involvement in land acquisitions and their ability to exploit the state’s monopoly of violence to reinforce their claims. However, this form of corporate ‘due diligence’ fits well within established ideas of benevolent leadership as the state provides territory to the Oknha and the Oknha reinforces the power of the state through public works and development in ELC areas, including relocation of existing settlements, building of roads, construction of schools and health centres — all of which are the functions of the state but are fulfilled by a private entrepreneur within the ELC. This maintains the notion of the ‘benevolent leader’ in Cambodian society, and therefore further supports the power of informality. At the local level, though, this case also reveals a cautiously optimistic potential for people to negotiate terms of engagement with concessionaires.

Questions

1. In what respects is human right due diligence similar and different from regular corporate due diligence?
2. What are the purposes of human right due diligence?
3. Why should a business conduct human right due diligence on their business partners?
4. How is due diligence conducted? Please raise one example of human right due diligence exercise conducted by an international brand or an international financing institution on a Cambodian based entity or project.
5. What are the sanctions – legal and societal – for breaching such the responsibility to perform human right due diligence?

Further Readings

• Global Perspectives Project, Doing Business With Respect for Human Rights – A Guide (2016) www.businessrespecthumanrights.org/en/page/383/about.
• International Council on Mining and Metals, Human rights in the mining and metals industry – Integrating human rights due diligence into corporate risk management processes (2012) www.icmm.com/website/publications/pdfs/social-and-economic-development/3308.pdf.
• International Alert, Human Rights Due Diligence in Conflict-Affected Settings – Guidance for Extractives Industries (2018) www.alnap.org/system/files/content/resource/files/main/Economy_HumanRightsDueDiligenceGuidance_EN_2018.pdf.
• Global Compact Network Germany, Stakeholder engagement in human rights due diligence – A business guide (2014) www.globalcompact.de/wAssets/docs/Menschenrechte/Publikationen/stakeholder_engagement_in_humanrights_due_diligence.pdf.
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^[25] Fast Retailing Co., Ltd., Assessment for Accreditation FLA Board of Directors Meeting (2019) https://www.fairlabor.org/sites/default/files/documents/reports/fast_retailing_accreditation_report_public.pdf.

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