8 SPECIFIC AREAS FOR IMPROVEMENT?
211. Witnesses made a number of recommendations for
changes to law and practice to enhance the approach of the UK
Government to business and human rights. Most of these suggestions
focus on how the Government can take a more proactive approach.
We consider the main recommendations below:
- Clearer guidance and support for business on
human rights issues;
- A strategy on human rights in public procurement
and public investment;
- Reforms to the Government's approach to Export
- Revisiting the Companies Act 2006; and
- A change in approach to investment.
Clearer standards in guidance
212. In his 2009 report, the UN Special Representative
recommended that businesses need guidance to "demystify"
human rights. He explained that since human rights instruments
and the language they use are addressed to states, their "meaning
for business has not always been understood clearly by human rights
experts, let alone the engineers, security managers, and supply
chain officers in companies who have to deal with the corporate
responsibility to respect on the ground".
213. The Government said that "individual Government
departments and National Human Rights Institutions should take
steps to ensure and promote human rights in business where appropriate".
The Government added that "it is good practice for companies
to use the Human Rights Act as a framework in their business policies
We asked Ministers to explain what this meant in practice and
whether there were any examples of good practice that could be
disseminated. The Minister for Regulation, Ian Lucas told us
that the HRA 1998 "sets out fundamental principles"
which the Government "hoped" would be developed by business.
The Government considered it a "reference document"
and a "benchmark" from which business should move forward.
He did not give any examples of how the Government considered
that the HRA 1998 should inform companies' business practice.
214. The Government has produced a number of information
booklets on the operation of the HRA 1998. Existing guidance
on its scope and implications generally focus on the actions of
core public authorities. The SHRC recommended that more guidance
was necessary in respect of the core obligations under the HRA
1998 and that further work was needed on a human rights based
approach for business. The EHRC said that one of the conclusions
of its recent inquiry on human rights in the UK was that guidance
was needed for companies in respect of their operations within
the UK, particularly in respect of the operation of the HRA.
The Commission did not see any direct evidence of a demand from
business for any broader kind of guidance - focusing specifically
on human rights issues - but said that this was because UK business
did not yet see many of their activities at home as related to
human rights. In this climate, it would be a "stretch"
to imagine any demand from businesses for specific human rights
confirms the preliminary findings of the Government's Private
Sector and Human Rights project, which concluded that businesses
most associate human rights concerns with their overseas operations.
215. Some witnesses suggested that guidance from
sources other than the Government might be more appropriate.
The CBI doubted whether there was any need or appetite for guidance
from central Government. It highlighted that, in respect of corporate
responsibility, there already existed a significant amount of
industry-based guidance, including that produced by the CBI.
216. Other witnesses reiterated their concern that
existing Government publications relied too heavily on references
to other voluntary mechanisms without any clear assessment of
the effectiveness of those mechanisms or guidance on what the
Government expects of participating businesses.
217. We recommend that the Government should ensure
that adequate guidance is available on:
(a) the scope of the HRA 1998, including guidance
for private bodies performing public functions on how to meet
their duty to act in a Convention compatible way;
(b) the wider implications of human rights law
(c) a human rights based approach to business;
(d) standards which businesses should apply when
doing business at home and abroad.
218. We recommend that as part of its Private
Sector and Human Rights project, the Government considers how
additional guidance should be provided on each of these issues.
Ensuring that adequate guidance is available in language which
is practical and relevant to business should form part of the
Government's strategy on business and human rights.
219. The Government should be clear about the
human rights standards it expects UK businesses to meet. It
should not merely recommend a list of voluntary schemes, but positively
advocate for certain standards to be applied. If participation
in voluntary or sector specific initiatives is recommended or
endorsed, the Government should explain why, and what businesses
need to do to participate effectively. Given the need for this
direction from Government, we do not consider that this task can
be delegated entirely to the Equality and Human Rights Commission
or other National Human Rights Institutions.
220. There was a broad consensus that the Government
and other public authorities could use their purchasing power
to reinforce the responsibility on business to respect human rights.
The Government told us that departments and other public sector
bodies can "takes steps to exclude firms with a poor human
rights record from tendering and where relevant ensure that appropriate
human rights issues are covered in the contract".
221. Some witnesses gave examples of how public bodies,
including states can use public procurement practices to encourage
good business practices and enhance protection of human rights
both at home and overseas. These included US state and city
"anti-sweatshops" legislation which requires all corporations
which supply products to any public bodies not to have acquired
those products produced either domestically or internationally
where poor labour standards have been applied.
Business organisations also recommended a fresh look at public
procurement. Business in the Community called on the Government
to "utilise its purchasing power to improve human rights
through all public procurement both in the UK and abroad".
The SHRC called for new guidance on public sector procurement
and human rights:
An example of progressive change could be the
promotion by the Office of Government Commerce (in England and
Wales) and The Scottish Procurement Directorate (in Scotland)
of guidelines which would encourage the public sector to purchase
by reference to human rights standards
.At present there
is no appropriate guidance to assist the public sector realise
the potential for human rights compliant public procurement.
222. Michael Wills MP, Human Rights Minister, confirmed
that there is nothing in the EU Public Procurement Directive which
prohibits public authorities incorporating human rights principles
into their purchasing practices:
[The] Procurement Directive enables contractors
to exclude suppliers if they have been found guilty of human rights
it is perfectly open for public sector procurers
to stipulate compliance for basic human rights principles as well,
particularly where we are talking provision of care services or
things which directly engage human rights provisions as well.
So it is not that we do not think that these things are important,
but there are opportunities to bring this into play and we need
to make sure that they are done across the public sector.
223. The Government is currently considering how
to enhance the approach to procurement and equality in the Equality
Bill being considered by Parliament.
This Bill contains a new power for central Government to impose
specific equality duties on public authorities in relation to
public procurement functions. We have expressed our support for
this initiative and have called on the Government to ensure that
duties imposed on public authorities are clear and comprehensive.
When we asked whether the Government planned to expand this approach
to wider human rights issues, Michael Wills MP said that the Government
would not consider this "immediately" but there was
a "case to be explored" for a broader approach.
224. We last considered the potential for protecting
human rights through Government guidance on procurement in our
report on the Meaning of Public Authority under the Human Rights
Act. We concluded that guidance was no substitute for the
direct application of the HRA 1998 to private bodies performing
public functions. Our predecessor Committee recommended that
guidance on contracting could be valuable where it was not clear
whether the HRA 1998 applied. We concluded that existing guidance
was confusing and inaccessible and unlikely to be effective.
We regretted that more mainstream guidance on procurement contained
no references to human rights and the protection of the rights
of service users.
225. The Government has since published its UK Government
Sustainable Procurement Action Plan.
This plan implements the Government's commitment to "lead
by example" by spending tax-payers' money sustainably. The
UK Government and the broader public sector buys £150 billion
of goods and services each year and the plan sets out the Government's
vision and goal to be among the EU leaders on sustainable procurement.
However, the plan is principally focused on "green"
rights and does not deal with human rights impacts more generally.
The Plan is supplemented by more detailed guidance and support
towards implementation from central Government. The 2008 Budget
announced a specialist sustainable procurement centre would be
established within the Office for Government Commerce.
The House of Commons Environmental Audit Committee recently
regretted a lack of progress under the plan and called for more
"decisive, radical action" on the part of the Government.
226. While we reiterate that contract compliance
is no substitute for the direct application of the HRA 1998 to
all private bodies performing public functions, there is much
wider scope for public procurement to reinforce the responsibility
of businesses to respect human rights. The Government has immense
power as a purchaser and should take responsibility for human
rights impacts in its supply chain. The Government's strategy
should include clear and detailed measures to ensure that the
UK takes a lead as an ethical consumer. This should include
working with the Scottish Government and the devolved assemblies
in Wales and Northern Ireland to ensure a consistent approach.
227. Gary Campkin of the CBI expressed a number of
concerns about debarring firms from public contracts. He said
it was difficult to see what standards would be applied to assess
whether businesses were acting incompatibly with human rights
and whether there would be an ongoing assessment process to ensure
that debarment was proportionate.
A number of models exist to ensure that human rights standards
can be integrated into the tendering process without creating
uncertainty and unfairness. The UN Special Representative suggested
that Governments could explore how to give more weight to negative
Final statements of NCPs: "a negative finding logically might
affect the company's access to government procurement and guarantees".
Mr Campkin accepted that clear tendering requirements based
on a prohibition on child labour in a public authority supply
chain would be acceptable, where a general requirement to respect
human rights would not be.
The Sustainable Procurement Action Plan provides a model for
Government initiative on social issues in procurement. The proposals
in the Equality Bill illustrate the next steps which central Government
can take to strengthen the role played by public procurement.
Vague assertions that public authorities can take steps in
their procurement processes to incorporate human rights standards
are unlikely to lead to real change. Guidance from central Government
will be required to encourage a more proactive approach. This
guidance is essential, if public authorities are to have confidence
that their responsibility to secure best value fits comfortably
with wider social goals under EU public procurement requirements.
We recommend that the Government issues guidance on different
models, including in particular, use of the OECD Guidelines and
negative Final statements by the UK NCP. The UK Government Sustainable
Procurement Action Plan provides a valuable precedent, but the
Government should not look at ethical procurement only through
green tinted glasses. A broader approach is required.
228. Some submissions made a wider point about ethical
behaviour in public investments. The Holly Hill Trust give an
example of the Norwegian state Pension Fund which has publicly
withdrawn money from a number of companies and projects associated
with human rights abuses.
RAID told the Committee that investments by the Commonwealth
Development Corporation (CDC Group Plc) (the British publicly
owned international development fund, described as a "UK
Government owned fund of funds") should apply greater due
diligence to its investment procedures. Currently it does not
perform scrutiny for human rights risks nor does it publish its
development impact assessments or reports because of commercial
The most high-profile example of public investment has come with
the recent Government investment in banks adversely affected by
the current economic downturn, including Lloyds, Royal Bank of
Scotland and Northern Rock. The High-Court is currently considering
a claim for judicial review of the Treasury's approach to investments
by those banks and its screening process for human rights impacts.
229. We asked the Government about whether human
rights considerations should play a greater role in public investment.
The Treasury response confirmed that the Government's primary
concern was to protect the value of the taxpayers' shareholding.
This could include pursuing "responsible policies with regards
to human rights where that is considered necessary to enhance
the value of the company". The Minister for Regulation told
us that the UK Government takes human rights issues into consideration
when investing public money, but with less "proselysation"
than the Norwegian Government. The Government later wrote to
clarify that most public pensions did not accrue sums for investment.
However, it explained that local government pension funds are
controlled by local authorities in England and Wales. These funds
must be invested "prudently" and local authorities are
required to publish their policies relating to ethical investment.
We regret that the Minister chose to describe the proactive
public approach to human rights in investment taken by the Norwegian
Government as "proselysation". We accept that individuals
responsible for investing taxpayers' money have a number of important
and difficult responsibilities to meet. However, as in issues
of public procurement, we consider that there is clear merit in
encouraging public authorities to adopt an ethical or socially
responsible approach. We recommend that when considering its
approach to public procurement, the Government strategy should
also address its position as an investor.
Export Credit Guarantees
230. Professor Ruggie told us that for home states
to create a "logical" link between findings of their
NCP and export credit was a "no brainer". He questioned
how the day after an adverse NCP finding, a company could be granted
export credit. He argued that at a minimum, there should be a
probation period before companies can secure export credit after
a negative final statement.
231. Export credit guarantees are the responsibility
of the Export Credit Guarantee Department (ECGD), which assists
UK exporters by providing financial guarantees and insurance for
export contracts in markets where commercial cover would not normally
232. A review of the operation of the ECGD in 2000
led to the establishment of a set of Business Principles and,
to support their implementation, a Business Principles Unit within
the ECGD. The Business Principles state that the ECGD will:
] promote a responsible approach to business
and will ensure our activities take into account the Government's
international policies, including those on sustainable development,
environment, human rights, good governance and trade.
233. The primary mechanism for incorporating the
Business Principles into the ECGD's procedures is the Case Impact
Analysis Process (CIAP), which guides the ECGD's decisions on
applications. The assessment process is carried out by the Business
Principles Unit (BPU), on the basis of information provided by
the exporter through impact questionnaires. The BPU reports any
concerns to the ECGD's Risk Committee, which then decides whether
it would be appropriate to support the application. The NAO has
stressed that the effectiveness of the CIAP depends upon the experience
and resources of the BPU.
234. Gary Campkin for the CBI, told us that the CBI
was comfortable with the ECGD taking into account the OECD Guidelines
and that it understood they already were considered under existing
witnesses were generally disappointed by the approach of the ECGD
to its existing standards, in the Business Principles. Amnesty
International told us:
[The ECGD] does not operate projects itself,
it has facilitated corporate activities that have resulted in
human rights abuses abroad through the provision of financial
guarantees. Currently the ECGD's consideration of human rights
is not sufficient to ensure against such breaches.
235. The Corner House thought that although the policies
of the ECGD looked good on paper, in practice its approach was
Corner House identified five issues which it considered undermined
the current operation of the ECGD:
(a) that human rights policies are considered secondary
to the economic benefits of any application for support;
(b) those policies and procedures are discretionary,
rather than part of the statutory duties of the ECGD;
(c) those policies have limited extraterritorial
effect, being limited to meeting the human rights requirements
of the host country for the applicant project;
(d) the degree of due diligence performed by ECGD
in respect of the human rights impacts of any application is too
(e) there is no mechanism through which individuals
adversely affected by ECGD supported projects may raise a grievance
against the UK.
236. The Corner House recommended amendment of the
Export and Investments Guarantees Act 1991 to ensure that the
ECGD is also subject to a duty to uphold the international human
rights obligations of the UK. It argued that any support offered
by the ECGD should be conditional on applicant companies' undertaking
to comply with the human rights conventions to which the UK is
a party. At a minimum, Corner House considered that the ECGD
should be required to screen all applications for human rights
impacts and that an independent Human Rights Impact Assessment
should be compulsory for "High Impact" projects. It
recommended that an Ombudsman should be created to deal with grievances
against ECGD supported projects.
237. Gavin Hayman, of Global Witness, agreed that
there had been no indication that the ECGD had become more effective
at monitoring or implementing its existing standards, particularly
on anti-bribery measures. He added:
If it did its job properly and enforced those
standards then it would have a clear signalling effect to business
and that would be something positive about this. I guess it would
also provide some sort of affirmative defence for business to
say I have attempted to do the best I possibly can, I have done
my due diligence, and thus encouraging best practice.
238. He agreed that since not all projects sought
ECGD support, and many could find alternative funding, taking
a stronger line on Government support could have a limited effect.
However, such action would have "a small positive signalling
When asked about whether it would be appropriate for the ECGD
to undertake or require human rights assessments of the projects
which it supports, Ian Lucas MP, Minister for Regulation, told
us that the ECGD was a commercial department and this governed
the way it approached applications:
The whole focus of the work of the Department
will have to change if a capacity was created to, for example,
investigate the human rights position in another part of the world
relating to the credit guarantees. What we need to do is ensure
that embedded in the work of the Department is an understanding
of the importance of human rights and the way in which the work
of the Department is conducted.
We want UK businesses to conduct business with respect for human
rights and that is the overarching framework that we want to see
but it is not specifically the role of the ECGD to link in or
use as a basis of their decision making the issues which you are
239. He considered that it would be too onerous a
burden to require either the ECGD or the applicant company to
provide or conduct a human rights impact assessment in respect
of a relevant applicant project. When asked whether a company
which had been subject to a negative statement by the UK NCP could
receive ECG support, he explained that this decision would be
taken on a case by case basis:
I do not think that you could operate a blanket
system of absolute refusal whenever such a decision has been made
in the past because it may be that a company has good
of changing its behaviour.
240. Professor Cees van Dam argued that there are
a number of examples of European countries where state support
is dependant on human rights due diligence and scrutiny. For
example, in The Netherlands, if a company wishes to be represented
on an overseas trade mission, it must show that it does not use
child labour in its supply chain.
241. The House of Commons Environmental Audit Committee
recently conducted a detailed inquiry into the operation of the
Business Principles of the ECGD, focusing specifically on its
approach to sustainable development. It considered many of the
arguments raised during our inquiry and stressed that:
While the ECGD must balance the duty to raise
its standards of sustainable development against its duty to support
the competitiveness of UK industry, it has a unique capacity to
influence and raise standards internationally.
242. The Environmental Audit Committee rejected calls
for an amendment to the statutory purpose of the ECGD, highlighting
that many of the concerns raised by NGOs and others could be alleviated
by increased disclosure and transparency and a revised approach
to the assessment process operated by the ECGD. These included
recommendations that no project should be approved before the
Business Principles Unit had had an opportunity to report, increased
transparency as part of the assessment process to allow interested
parties to make recommendations, and a requirement that the ECGD
be required to justify openly any decision to support a project
which it considers breaches its own Business Principles.
243. The Government has since rejected most of these
recommendations citing practical or administrative difficulties
for the ECGD or exporters and the impact on the competitiveness
of UK exporters.
244. The Minister told us that the Government
wants to create a framework where UK businesses conduct their
business with respect for human rights. We find this difficult
to square with his assertion that it would be too onerous to require
UK companies seeking the support of the Export Credit Guarantee
Department to perform due diligence of the human rights impacts
of its application. We endorse the many constructive recommendations
made by the House of Commons Environmental Audit Committee in
its 2008 Report, The Export Credits Guarantee Department and
Sustainable Development. The implementation of its proposals
on increased transparency and disclosure in the CIAP process would
improve the capacity of the ECGD system to incorporate human rights
principles into its decision making and to pursue its statutory
purpose more consistently with the Government's wider goals and
obligations on sustainable development and human rights.
245. We regret that the Government has rejected
most of these proposals, except for a commitment to raise the
issue of transparency during the review of the OECD Common Approaches
to the Environment and Officially Supported Export Credits in
2010. This response appears to confirm concerns that the ECGD
Business Principles, while 'good on paper', do not play a key
role in the ECGD decision making process. It indicates that the
UK Government is unwilling to show leadership on human rights
issues, where to do so might impact negatively on UK business.
246. At a minimum, we recommend that the Government
expands its position on the 2010 reviews of both the OECD Common
Approaches on the Environment and Officially Supported Export
Credits and the OECD Guidelines to ensure that the work of the
Special Representative is considered. We recommend that the Government
should promote a common position which takes forward Professor
Ruggie's recommendation that there should be a logical link between
export credit and other forms of support and compliance with the
OECD Guidelines. If no common position can be agreed, we recommend
that the Government acts unilaterally to ensure that there are
clear consequences following a negative final statement of the
UK NCP against a UK company, including for any future applications
by it for export credit.
247. The ECGD decision-making process has been
the subject of criticism by parliamentarians and others for many
years. While the introduction of the Business Principles in 2000
has improved the framework for decision making on the human rights
impacts of business, it is not clear whether this has had any
impact on the decisions of the ECGD. Without increased transparency
and openness in the assessment of applications, this impression
is likely to endure. If the Government does not agree that the
assessment process should follow more open and accountable procedures,
we recommend that the Business Principles should be incorporated
into the ECGD's statutory framework.
Company law and reporting standards
248. In his April 2009 Report, Professor Ruggie highlighted
recent reform of UK companies law as a positive development.
The Companies Act 2006 states that the director of a company
is under a general duty to 'act in the way he considers, in good
faith, would be most likely to promote the success of the company
for the benefit of its members as a whole'. In the pursuit of
this general duty, a director must have regard to the 'impact
of the company's operations on the community and the environment'
(the directors' duties).
All publicly listed companies, except those that are considered
small or medium-sized companies, must include a business review
in their annual directors' report. The reviews must incorporate
information about 'environmental matters, the company's employees
and social and community issues'. This should include information
'about any policies of the company in relation to those matters
and the effectiveness of those policies'. However, the review
need only include this information to the 'extent necessary for
an understanding of the development, performance or position of
the company's business' (the business review).
249. During debates on these proposals, numerous
amendments were recommended to broaden the application of these
responsibilities. For example, we recommended that the Bill
should expressly include human rights responsibilities; that the
Government should consider extending some of its requirements
to medium sized enterprises and non-quoted companies; and that
the business review should require the company to conduct a human
rights impact assessment of its activities.
The Government is committed to reviewing these proposals in 2010.
We understand that the Government has not yet introduced guidance
on either the new directors' duties or the business review.
250. We met socially responsible investors in the
US, who told us that transparent and consistent reporting on human
rights issues was invaluable in the absence of a clear legal or
policy framework for business. Increased transparency enhances
the ability of individual investors to assess company conduct
and take an informed decision on investment. They pointed out
that a number of guides and tools had been prepared on socially
responsible reporting and told us that governments could build
on these guides by requiring mandatory reporting against a single
at Columbia University agreed that human rights impact assessments
were a key part of the Special Representative's framework, which
could serve to improve business conduct across the board.
251. A number of our witnesses argued that the reforms
in the Companies Act 2006 did not go far enough.
For example, Harrison Grant solicitors told us that the major
drawback to the new directors duties' was that it was unclear
how they could be enforced and there was a "practical issue
as to how breaches are monitored, and what remedies can be put
in place where a breach occurs".
252. Some witnesses recommended strengthening reporting
standards for UK companies, to include specific and more detailed
reporting requirements on environmental and social impacts (including
human rights impacts), and providing for greater consistency in
said that social reports in the Business Review should be independently
audited, like financial information, to check that businesses
are presenting a "true and fair" picture of their achievements
253. Gary Campkin, for the CBI, said that human rights
impacts were regarded as within the scope of the business review
process. He considered that UK companies already understood what
was required by the business review and that there was no need
for greater clarity.
Ian Lucas MP, Minister for Regulation, told us that the 2006
reforms were "quite a step forward" for the UK and the
Government should wait in order to review their impact before
254. Although the Companies Act 2006 represented
a positive step forward for reporting on human rights impacts
in the UK, we reiterate our earlier view that it could have gone
much further to promote respect for human rights by UK companies.
We welcome the recognition by the CBI that the business review
process involves UK companies reporting on the human rights impacts
of their operations. However, we share the concerns of a number
of witnesses to our inquiry that these reforms have a number of
limitations. Inconsistent reporting of human rights impacts in
the business review will undermine its value. There is a case
for clearer guidance on what reporting standards should apply
and what issues should be considered material for the purposes
of the review. We recommend that the Government should draw up
and publish such guidance by the end of 2010 so that it can be
informed by the forthcoming review of the Companies Act 2006.
We again recommend that the Government considers amending the
Act to require companies to undertake an annual human rights impact
assessment as part of the business review, in the light of the
recommendation of Professor Ruggie that all responsible companies
should conduct such an assessment as part of their human rights
Investment, listing rules and
socially responsible investors
255. A number of our witnesses and some of the organisations
we met during our visit to the US told us that the UK private
investment community has a role to play in encouraging respect
for human rights in UK companies.
The role of consumers and investors as drivers for change is
considered important by the Special Representative, the UK Government
and a number of individual businesses and business organisations.
In the course of the Ministry of Justice Private Sector and Human
Rights Project scoping survey, the impact on investors was one
of the key drivers identified by the most engaged companies for
any action on human rights issues.
256. Institutional investors, including pension funds
and fund managers, have the power to influence activities in countries
where human rights abuses are widespread but Bonita Meyersfeld
Despite rapid development in so-called 'responsible
investment' practices and the adoption of global, regional and
sector-specific voluntary principles, responsible investment still
remains on the fringe of mainstream institutional investment practices.
257. She gave the example of the UK and EC Codes
of Practice introduced for companies investing in South Africa
during apartheid, which required annual reporting on conduct and
employment practices there. A number of the academics and investment
organisations we met in the US referred to the role which institutional
investors could play in changing business culture. They argued
that by taking a short-term view of profitability, financial advisers
and investors could underestimate the long-term risks to shareholdings
posed by irresponsible behaviour and associated allegations of
human rights abuse. Major international companies had incurred
significant losses as a result of well publicised allegations
of human rights abuse, reflected in campaigns by NGOs and others.
These risks would not be taken into consideration in traditional
assessments of quarterly financial risks and results.
258. Some witnesses argued that there could be a
link between domestic rules for listing mechanisms and human rights
in the countries where those listed companies operate. Reference
was made to the operation of the AIM (Alternative Investment Market)
in the UK, which the Holly Hill Trust said lists a number of
companies that are alleged to have been involved in human rights
abuses in developing countries.
RAID also called for increased regulation of the AIM, principally
through enhanced disclosure requirements for listing.
The Colombia Solidarity Campaign argued that UK listed companies
should comply with the requirements of the UN Declaration on the
Rights of Indigenous Peoples (which the UK has signed), in respect
of all of their activities, including in countries that have not
signed the declaration.
259. The CBI told us that it did not see how listing
rules could "easily and practically" be adapted to regulate
human rights conduct by companies listed on the London Stock Exchange.
260. The Government last considered the implications
of human rights for investment decisions during the passage of
the Pensions Act 2008, when the Government confirmed that there
was no reason in law to prevent pensions trustees considering
"social, ethical and environmental considerations, including
sustainability, in addition to their usual criteria of financial
returns, security and diversification".
261. The UN Principles on Responsible Investment,
a voluntary set of principles promoted by the UN Global Compact,
have been developed by institutional investors to promote best
practice in responsible investment by facilitating the integration
of environmental and social issues into mainstream investment
voluntary principles for investors are promulgated and supported
by the OECD.
The Government Corporate Responsibility Report 2009 says very
little about the role of socially responsible investment other
than to recognise it as a key driver for responsible corporate
262. Government strategy on business and human
rights, including its policy on corporate responsibility, must
engage with the important role played by institutional and other
investors. While we welcome the recent statement by the Government
that pensions fund trustees are legally able to take social, ethical
and environmental considerations into account when making investment
decisions, we recommend that the Government reviews existing measures
and initiatives to support socially responsible investment in
the UK and existing measures for the regulation of investment
and associated guidance.
Conflict, business and human
263. In his April 2009 report, Professor Ruggie singled
out the operation of businesses in conflict zones as an area where
international action is particularly needed. Global Witness argued
that the UK needs to take positive steps to regulate UK businesses
when they operate in countries in conflict. rather than to rely
on existing voluntary initiatives. In particular, firms needed
clearer guidance about when and how to operate in conflict zones.
Global Witness particularly highlighted the issue of trade in
the Democratic Republic of Congo (DRC) as illustrating their concerns.
They told us that research during 2008 and 2009 showed that trade
in natural resources was perpetuating instability and that UK
companies were involved. They argued that the Government had
been slow to act, or had failed to act, in a number of cases.
They particularly highlighted the case of Afrimex, which has
recently been the subject of a negative Final Statement of the
UK NCP. They were especially concerned about the approach of the
Government in such cases, where the activities of the companies
concerned had previously been identified by the UN Group of Experts
for the Democratic Republic of Congo. They note that the UN Security
Council has specifically provided for the availability of UN Sanctions
against "individuals and entities supporting illegal armed
through illicit trade in natural resources".
264. We received a late submission from Amalgamated
Metal Corporation Plc (AMC) and its subsidiary, the Thailand Smelting
and Refining Company (Thaisarco). Both of these companies were
named in submissions to the inquiry, alleging that their trade
with the DRC gave rise to human rights concerns.
They wrote to rebut these allegations and to argue that states
should create a clearer legal framework for businesses operating
in conditions of conflict. They argued that guidance was also
necessary in order to ensure that businesses could continue to
operate in countries with high risks, and to support the economic
development of those countries without exacerbating existing conflict
or being criticised for association with alleged human rights
The continuing absence of an agreed due diligence
process will drive the minerals trade underground or into less
discerning hands, with no improvement to human rights. AMC believes
that the most responsible approach is for the UK and other Governments
to engage with all members of the supply chain to develop due
diligence standards, that will improve progressively over time.
That will provide security for business trading in the DRC, and
that business will bring improvements to the quality of life and
265. Lord Malloch-Brown told us that the Government
had taken a particularly firm approach to trading in resources
from the Congo:
Part of British Government strategy for dealing
with the DRC is to crack down on companies that are party to [trade
in minerals] and are fuelling the insurgencies there. So far
from this in our eyes being dilatory we are working on it very
aggressively because it is for us embarrassing that there is a
British company involved or a British registered company.
266. The House of Commons International Development
Committee has conducted a series of detailed inquiries on the
operation of UK companies in the DRC and the Government's response.
It concluded that there had been a "serious deficiency"
in the way that the Government approaches the activities of UK
companies abroad, and particularly in areas of conflict. They
said that the way that the Government had approached these cases
did not "send out a strong message to UK companies about
the significance it attaches to OECD Guidelines".
The Committee called on the Government to draw up practical measures
for the implementation of the OECD Guidelines and the OECD Risk
Awareness Tool for Multinational Enterprises in Weak Governance
Zones. The Government has responded positively to some of the
Committee's recommendations, including an initiative to establish
a web-portal for the Risk Awareness Tool.
267. The UN Special Representative has convened a
working group on business and human rights in conflict zones.
The UK Government is participating in this working group, which
aims to clarify further the risks associated with business in
war zones or high-risk areas of conflict and the appropriate responses
268. We agree with the UN Special Representative
that a particularly firm approach is necessary towards the responsibility
of businesses who operate in war zones or areas of conflict.
We welcome the Government's participation in Professor Ruggie's
working group on business and human rights in conflict zones.
We recommend that the Government encourage Professor Ruggie to
take a robust approach to his work on business in conflict zones.
Further regulation and guidance in this context - whether internationally
agreed or otherwise - would be good for both business and the
international reputation of the UK. In the meantime, we support
the conclusion of the House of Commons International Development
Committee, that the operation of UK companies in the DRC illustrates
the lack of seriousness with which the UK Government has previously
treated the OECD Guidelines. We reiterate our earlier recommendation
that the Government should publish a clear policy on following
up negative final statements of the UK NCP. We consider that
this is particularly important in cases involving operations in
conflict zones. We urge the Government to take a strong and proactive
approach to UK companies who fail to meet the minimum standards
in the OECD Guidelines. Where an appropriate and relevant sanctions
regime is in place and a negative final statement by the UK NCP
indicates that a UK company is in breach, the Government should
report the findings of the UK NCP to the relevant authorities,
for example, to the relevant UN Sanctions Committee, or publicly
explain why it has failed to make such a report.
Private Military Security
269. The FCO is currently conducting a consultation
on standards of conduct of Private Military Security Companies
(PMSCs). This consultation comes five years after the Government
published a Green Paper exploring a number of options for the
regulation of PMSCs. Consultation on the Green Paper produced
a large number of responses in favour of some form of regulation.
A further consultation in 2005 persuaded the Government that
self-regulation of the industry together with international cooperation
to improve standards would be most likely to achieve the desired
outcome. The latest consultation produced proposals for self-regulation
on the basis of a code of conduct agreed with and monitored by
the Government. The code of conduct would be administered by
a trade association and the Government would monitor its implementation.
The Government would use its purchasing power to reinforce the
obligations in the code.
270. The conduct of PMSCs has been scrutinised closely
by the press and parliamentarians in recent years, particularly
in respect of their operations in Iraq and Afghanistan. In these
circumstances, PMSCs are operating in areas of conflict, often
to protect other private sector employees or Government officials.
Their tasks will often involve activities which engage the right
to life and physical integrity and may engage the right to liberty
and the right to be free from torture, inhuman or degrading treatment.
RAID expressed their concern that the consultation process has
been unduly short and that the Government's proposals are too
weak and have been unduly influenced by the PMSC industry.
271. James Cockayne, a researcher at the International
Peace Institute, who specialises in this area, told us that "the
private military and security industry has a uniquely rights-jeopardising
potential amongst major UK business sectors, because the use of
force is at the heart of the expertise and services it provides".
He argued that the Government consultation on this industry is
detached from its support for the Ruggie framework and that it
is questionable whether the proposal for regulation by a private
military security trade association will meet the UK's duty to
protect human rights. He cautioned that although the Government's
approach might work in practice, the cost savings associated with
the choice of industry-based regulation over Government regulation
were a cause for concern.
272. The House of Commons Foreign Affairs Committee
has recently reported on the Government's proposals. It concluded
that the self-regulatory approach proposed is "regrettable
and disappointing". It considered that loss of Government
contracts would not be a sufficient sanction to control the behaviour
of PMSCs and called on the Government to pursue a legislative
solution either at an EU or international level.
The Government response rejected this view. It considered that
any regulatory regime would be unenforceable, as many breaches
would be likely to occur overseas, making the chances of prosecution
remote. Attempts to subject overseas subsidiaries to a domestic
regulatory regime would fall foul of "serious legal and diplomatic
problems". Maintaining a register of approved companies
would be open to legal challenge and could be seen as a stamp
of approval for the conduct of companies which the UK could not
effectively regulate. The Government confirmed that in addition
to the role played by its procurement policy, the UK would "advocate
the creation of an international graduated code of sanctions",
overseen by an international secretariat.
273. In a supplementary submission to our inquiry,
the Government confirmed that it was considering how its preferred
proposals fitted in with the 'protect, respect, remedy' framework.
The Government told us that it did not consider that there was
a general duty to protect against human rights abuse overseas
by third parties. However, the Government has not told us whether
there are circumstances when it accepts that the human rights
obligations of the UK will be engaged. The legal situation is
particularly complicated where PMSCs are contracted by the UK
Government to perform tasks which would otherwise be performed
by the UK armed forces. While the extent of UK jurisdiction under
the ECHR is currently subject to litigation, it is clear that
in some military contexts, the Government is bound to comply with
the Convention and the HRA 1998 applies, for example, where individuals
are detained on premises under the effective control of the UK.
In those situations, it is arguable that if PMSCs perform similar
public functions, they will be directly subject to the requirement
that they act compatibly with relevant Convention rights, including
the right to life. In these circumstances, we consider that the
UK Government has a particular responsibility to ensure that individuals
and the relevant companies understand the extent of the domestic
legal responsibilities applicable to PMSCs. The potential application
of the HRA 1998 must inform the Government's approach to the regulation
of PMSCs working under contract for the UK Government. In the
circumstances that the HRA 1998 will apply to some of their functions,
the deterrent effect of Government procurement measures in the
Government's current proposals may be insignificant.
274. The Government intends to publish the outcome
of its consultation shortly and will introduce legislation in
the forthcoming session, if necessary. 
275. We welcome the Government's commitment to
an international solution and an agreed set of standards for the
operation of private military security companies. However we
share the concerns of the House of Commons Foreign Affairs Committee,
that the Government's approach to consultation on this issue has
been "regrettable and disappointing". We are concerned
that this exercise provides another example of the Government
citing administrative difficulties and business interests as justification
for taking the path of least resistance. The Government should
endeavour to secure international or EU agreement on a regulatory
scheme for this sector to dispel the disappointment at its unacceptably
weak approach thus far.
275 Ruggie Report 2009, para 57 Back
Ev 85 Back
Ev 85 Back
Ev 89 Back
See for example, Ev 296, Ev 359, Ev 363 Back
Ev 85 Back
Ev 104, pages 6 - 7 Back
Ev 304 Back
Ev 156 Back
Clause 149 Back
Twenty-sixth Report of 2008-09, Legislative Scrutiny: Equality
Bill, HL Paper 169/HC 318, paras 278 - 280 Back
Q 436 Back
Ninth Report of Session 2006-07, paras 33 - 58. Back
HM Government, Sustainable Procurement Action Plan, March 2007 Back
Ibid, Foreword. Back
See Budget 2008.See also Office of Government Commerce, Sustainable
Procurement and Operations on the Government Estate, December
Sixth Report of 2008-09, Greening Government, HC 503, para 13. Back
Q148.See also QQ 150 - 155 Back
Ruggie Report 2009, para 104.See also Q1. Back
QQ 148 - 155. Back
Ev 110 Back
Ev 274, para 16 - 17 Back
Leigh Day & Co, Press Release, Unprecedented legal battle
over RBS ethical investments, 20 October 2009. Back
Ev 96 Back
Q43.See also Q64 (Peter Frankental). Back
House of Commons Environmental Audit Committee, Eleventh Report
of 2007-08, Export Credit Guarantees and Sustainable Development,
HC 929, paras 19-20 Back
QQ 158-159 Back
Ev 205, para 4.2 Back
Ev 307 Back
Ev 307 Back
Q341. See also Ev 205, para 4.2. Back
Ev 287 Back
House of Commons Environmental Audit Committee, Eleventh Report
of 2007-08, Export Credit Guarantees and Sustainable Development,
HC 929, para 7 Back
Ibid, Conclusions and Recommendations. Back
In its response, the Government explains that the main route through
which the UK promotes its principles on sustainable development
is multilaterally among its international partners, including
through the OECD Common Approaches on the Environment and Officially
Supported Export Credits.Third Special Report of 2008-09, Government
Response: Export Credits Guarantees Department and Sustainable
Development, HC 283. Back
Ruggie Report 2009, para 25 Back
s172 Companies Act 2006 Back
s417 Companies Act 2006 Back
Twenty-eighth Report of Session 2005-06, Legislative Scrutiny:
Fourteenth Progress Report, HL Paper 247/HC 1626, paras 1.1 -
See for example, the standards set by the UN Global Compact or
the OECD Guidelines.In addition, numerous other schemes exist
which purport to provide standards against which company behaviour
may be assessed.For example, Social Accountability 8000 (SA 8000)
sets certain standards for companies to comply with, requires
audit and reporting of compliance.See Ev 129. For further information,
see www.sa-intl.org. Back
Ev 237 - 238. Back
Ev 110.Holly Hill Trust argues that detailed reporting on all
projects which involve investment in militarised commerce should
be compulsory and makes further recommendations for the improvement
of the Companies Act 2006, based on a recent report of NGO, Client
Earth.Client Earth submitted evidence to the inquiry, see Ev 330.
Ev 193 Back
Ev 110 Back
Ev 110; Ev 107; Ev 119.These recommendations are based on the
report of Client Earth, Environmental and Social Transparency
under the Companies Act: Digging Deeper, March 2009.See Ev 330. Back
QQ 145-146 Back
Ev 119 Back
See for example, Ruggie Report 2009, para 4. Back
Twenty Fifty, The Private Sector and Human Rights in the UK, October
2009, page 30.In Cohort 3, which are described as the most engaged
companies responding to the survey, around 75% of respondents
identified that investor expectations had a positive or very positive
influence affecting their companies human rights agenda. Back
Ev 222, para 7 Back
Ev 110. See also Ev 179; Ev 182; Ev 193 Back
Ev 274 Back
Ev 123 Back
Ev 321 Back
Ev 222, para 15 Back
For more information, see www.unpri.org
See most recently, the OECD Global Forum on International Investment
for a Stronger, Cleaner, Fairer Economy, 7 - 8 December 2009.However,
the OECD principally focuses on foreign direct investment by multinational
Corporate Responsibility Report 2009, page 7, 11. Back
Ev 260 Back
Ev 323 Back
Ev 325 Back
Sixth Report of Session 2005-06, Conflict and Development: Peacebuilding
and Post-conflict reconstruction, HC 923-I, para 117. Back
Second Report of Session 2007-08, Development and Trade: Cross-departmental
Working, HC 68, para 58. Back
Ev 274, para 14 Back
Ev 214 Back
Ev 231, para 16 Back
House of Commons Foreign Affairs Committee, Seventh Report of
Session 2008-09, Human Rights Annual Report 2008, HC 557. Back
Cm 7723, Government Response to the Seventh Report of the Foreign
Affairs Committee, paras 56 - 60 Back
See Al-Skeini v Secretary of State for Defence  1 AC 153;
Al-Jedda v Secretary of State for Defence  1 AC 332; Al-Saadoon
v Secretary of State for Defence (2009) UKHRR 683.Each of these
cases are now pending before the European Court of Human Rights. Back
Ev 103-104. Back