Any of our business? Human Rights and the UK private sector - Human Rights Joint Committee Contents


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 Credit Guarantees;
  • Revisiting the Companies Act 2006; and
  • A change in approach to investment.

Clearer standards in guidance and support

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".[275]

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".[276] The Government added that "it is good practice for companies to use the Human Rights Act as a framework in their business policies and practices".[277] 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.[278]

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.[279] 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 guidance.[280] This 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.[281]

215. Some witnesses suggested that guidance from sources other than the Government might be more appropriate.[282] 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.[283]

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 for business;

(c) a human rights based approach to business; and

(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.

Public procurement

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".[284]

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.[285] 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".[286] 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.[287]

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 breaches. …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.[288]

223. The Government is currently considering how to enhance the approach to procurement and equality in the Equality Bill being considered by Parliament.[289] 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.[290] 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.[291]

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.[292]

225. The Government has since published its UK Government Sustainable Procurement Action Plan.[293] 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.[294] 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.[295] 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.[296]

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.[297] 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".[298] 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.[299] 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.

Public investments

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.[300] 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 sensitivity.[301] 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.[302]

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.[303] 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.[304]

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 be available.

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.[305]

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 practice.[306] NGO 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.[307]

235. The Corner House thought that although the policies of the ECGD looked good on paper, in practice its approach was inadequate.[308] The 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 limited; and

(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.[309]

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.[310]

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 effect".[311] 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.[312] 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 raising.[313]

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 … evidence of changing its behaviour.[314]

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.[315]

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.[316]

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.[317]

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.[318]

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.[319] 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).[320] 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).[321]

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.[322] 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 standard.[323] Academics 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.[324]

251. A number of our witnesses argued that the reforms in the Companies Act 2006 did not go far enough.[325] 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".[326]

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 reporting.[327] Others 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 on CSR.[328]

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.[329] 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 acting again.[330]

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 due diligence.

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.[331] 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.[332] 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.[333]

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 said:

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.[334]

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.[335] RAID also called for increased regulation of the AIM, principally through enhanced disclosure requirements for listing.[336] 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.[337]

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.[338]

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".[339]

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 practice.[340] Other voluntary principles for investors are promulgated and supported by the OECD.[341] 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 behaviour.[342]

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 rights

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.[343] 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 groups…through illicit trade in natural resources". [344]

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.[345] 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 abuses:

    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 human rights.[346]

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.[347]

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".[348] 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.[349]

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 of home-states.

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.[350]

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".[351] 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.[352]

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.[353] 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.[354]

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.[355] 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. [356]

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

276   Ev 85 Back

277   Ev 85 Back

278   Q377 Back

279   Q287 Back

280   Q299 Back

281   Ev 89 Back

282   Q376 Back

283   See for example, Ev 296, Ev 359, Ev 363 Back

284   Ev 85 Back

285   Ev 104, pages 6 - 7 Back

286   Ev 304 Back

287   Ev 156 Back

288   Q413 Back

289   Clause 149 Back

290   Twenty-sixth Report of 2008-09, Legislative Scrutiny: Equality Bill, HL Paper 169/HC 318, paras 278 - 280 Back

291   Q 436 Back

292   Ninth Report of Session 2006-07, paras 33 - 58. Back

293   HM Government, Sustainable Procurement Action Plan, March 2007 Back

294   Ibid, Foreword. Back

295   See Budget 2008.See also Office of Government Commerce, Sustainable Procurement and Operations on the Government Estate, December 2008. Back

296   Sixth Report of 2008-09, Greening Government, HC 503, para 13. Back

297   Q148.See also QQ 150 - 155 Back

298   Ruggie Report 2009, para 104.See also Q1. Back

299   QQ 148 - 155. Back

300   Ev 110 Back

301   Ev 274, para 16 - 17 Back

302   Leigh Day & Co, Press Release, Unprecedented legal battle over RBS ethical investments, 20 October 2009.  Back

303   Ev 96 Back

304   Q43.See also Q64 (Peter Frankental). Back

305   House of Commons Environmental Audit Committee, Eleventh Report of 2007-08, Export Credit Guarantees and Sustainable Development, HC 929, paras 19-20  Back

306   QQ 158-159 Back

307   Ev 205, para 4.2 Back

308   Ev 307 Back

309   Ev 307 Back

310   Q341 Back

311   Q341. See also Ev 205, para 4.2. Back

312   Q415 Back

313   Q416 Back

314   Q430 Back

315   Ev 287 Back

316   House of Commons Environmental Audit Committee, Eleventh Report of 2007-08, Export Credit Guarantees and Sustainable Development, HC 929, para 7 Back

317   Ibid, Conclusions and Recommendations. Back

318   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

319   Ruggie Report 2009, para 25 Back

320   s172 Companies Act 2006 Back

321   s417 Companies Act 2006 Back

322   Twenty-eighth Report of Session 2005-06, Legislative Scrutiny: Fourteenth Progress Report, HL Paper 247/HC 1626, paras 1.1 - 1.19 Back

323   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

324   Ev 237 - 238. Back

325   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.  Back

326   Ev 193 Back

327   Ev 110 Back

328   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

329   QQ 145-146 Back

330   Q443 Back

331   Ev 119 Back

332   See for example, Ruggie Report 2009, para 4. Back

333   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

334   Ev 222, para 7 Back

335   Ev 110. See also Ev 179; Ev 182; Ev 193 Back

336   Ev 274 Back

337   Ev 123 Back

338   Ev 321 Back

339   Ev 222, para 15 Back

340   For more information, see  Back

341   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 companies. Back

342   Corporate Responsibility Report 2009, page 7, 11. Back

343   Q336 Back

344   Ev 260 Back

345   Ev 323 Back

346   Ev 325 Back

347   Q453 Back

348   Sixth Report of Session 2005-06, Conflict and Development: Peacebuilding and Post-conflict reconstruction, HC 923-I, para 117. Back

349   Second Report of Session 2007-08, Development and Trade: Cross-departmental Working, HC 68, para 58. Back

350   Ev 274, para 14 Back

351   Ev 214 Back

352   Ev 231, para 16 Back

353   House of Commons Foreign Affairs Committee, Seventh Report of Session 2008-09, Human Rights Annual Report 2008, HC 557. Back

354   Cm 7723, Government Response to the Seventh Report of the Foreign Affairs Committee, paras 56 - 60 Back

355   See Al-Skeini v Secretary of State for Defence [2008] 1 AC 153; Al-Jedda v Secretary of State for Defence [2008] 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

356   Ev 103-104. Back

previous page contents next page

House of Lords home page Parliament home page House of Commons home page search page enquiries index

© Parliamentary copyright 2009
Prepared 16 December 2009