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


Memorandum submitted by Holly Hill Trust

  The following submissions relate to experiences and circumstances of the impacts of UK businesses outside of the UK. My personal experiences relate primarily to the mining and extractives industries.

  1.

  As other submissions to the Committee will no doubt confirm, many human rights abuses are committed by, or flow from, UK extractives multinationals working overseas. As many of these occur in States where governance is weak and enforcement of local law is poor, many have gone by with little sanction or criticism except by a few small NGOs or church groups, and the local communities blighted by these activities.

  UK companies operate overseas in ways they would never dream of doing in the UK. There is after all gold in Snowdonia, yet no attempt is made by UK companies to forcibly clear hill farmers from the area with para-military groups and dogs, threaten and oppress any local opposition to the project, and operate an open cast mine in a protected area, heavily polluting local rivers and lakes.

  Impacts linked to the extractive industries need to be addressed as a priority. Many of the easy mineral deposits around the world have been mined already, so now increasingly projects are being considered where people live, in areas of political and social volatility, or in protected areas (whether national parks, other nature reserves, and/or watersheds important for nearby farms and towns). Such projects will be more difficult to manage responsibly and require much higher standards of practice than those exercised in the past in order to avoid social conflicts and human rights abuses, and severe environmental destruction.

  The fact that the Norgwegian state government pension fund felt it necessary to publicly divest its £500 million holdings in Rio Tinto due to human rights abuses and massive environmental destruction in West Papua, and that it felt its attempts to engage in meaningful dialogue with management to improve this had been a waste of time should be an indication of the scale of the problem.

  There is a significant problem, and the UK government must have a role in trying to solve it.

PERSONAL EXPERIENCES OF THE NEGATIVE HUMAN RIGHTS IMPACTS OF UK BUSINESS

  My main experiences of the human rights impacts of UK business are of the negative impacts of mining companies operating in Ecuador, where I have been working for several years for a small UK charity sponsoring wildlife conservation and rural sustainable development projects.

  I have been told of threats, intimidation, and violence against local residents who opposed a mining project. They opposed peacefully, yet were demonised as terrorists. Many were threatened with violence and some physically attacked. Spurious legal cases were filed against them using false witnesses, which subsequently fell apart. However, the cases needed to be defended.

  Local residents were not consulted properly, nor presented with the true picture including relevant information from the Environmental Impact Assessment (EIA).

  People should be entitled to express their views without threats, and to live in a clean environment without pollution of their water and lands.

  Many serious negative human rights impacts also flow from the activities of UK businesses as a result of contractual relationships and their subsidiaries. This issue is discussed in further detail below under point 3.

  2.

  As far as I am aware the activities outlined in this submission (impacts of UK companies outside of UK territory) do not engage "hard" human rights obligations of the UK government as the law currently stands.

BEYOND OBLIGATIONS

  Notwithstanding the above, it is clear that the UK (and indeed all States with strong governance and legal systems) should develop mechanisms to help prevent human rights abuses abroad caused by companies based within their territory. There is a need to reduce the governance gaps created by globalisation. The UK, if dedicated to the process of ensuring that human rights proliferate and are ensured worldwide, should seek to go beyond its strict obligations to find opportunities to provide mechanisms that protect human rights worldwide.

  As the UN Special Representative identifies,[28] there is growing encouragement at international level for home States to step forward and take regulatory action to prevent abuse by their companies overseas.[29]

  3.

  As already noted, there is a broad gap at the international level, when businesses operate in countries with weak governance or corruption.

CONTRACTUAL ARRANGEMENTS, JOINT VENTURES & SUBSIDIARY ACTIVITY

  There is also a more specific but no less significant gap in the legal framework for human rights protection, stemming from the legal doctrine of separate legal personality, and restrictive conceptions of responsibility in commercial arrangements.

  Typically major UK mining companies don't carry out human rights abuses themselves, but rely on small exploration companies and para-military subcontractors to do the dirty work for them. In the Ecuador case outlined above, Rio Tinto was working with a small Canadian exploration company called Ascendant Copper (now trading as Copper Mesa).

  Rio Tinto's head office in the UK was repeatedly warned of problems with the way their partner in Ecuador was operating, but persisted in dealing with Ascendant Copper regardless. Rio Tinto provided Ascendant Copper with its historical drilling data, and had an option agreement to buy into the project as it was developed. Essentially this arrangement allowed Rio Tinto to stand on the sidelines disclaiming responsibility for the negative human rights impacts, but with a foot in the door ready to buy into the project once the dirty work had been done.

  Rio Tinto and other UK mining companies which operate in these ways are playing key facilitating roles in projects with significant human rights impacts, and are standing to profit considerably from these negative impacts. In this context it is important to note that the UN Special Representative's report of April 2008, which provides the framework to the Committee's call for evidence,[30] recognised the legal and non-legal concepts of complicity, sphere of influence and due diligence as key elements of the corporate responsibility to respect human rights. These are key issues which must be examined.

  There is also the issue of contractual relationships with military or para-military organisations (or "militarised commerce"). Rio Tinto has been implicated in several cases of human rights abuses flowing from military contractors working for its joint venture partners. When questioned, Rio Tinto blames its local partners or subcontractors, claiming that the project is just an investment, while providing finance and sometimes management data or expertise for it. But where your local partner is a military dictator, how would you expect him to behave? Or where you choose a military or paramilitary organisation to manage your "community projects", is it surprising that social conflicts and human rights abuses arise? There are numerous examples beyond Ecuador where such problems arise (Colombia, Philippines, Burma, West Papua, Nigeria and more).

  UK companies should be forced to disclose in their accounts when projects they are invested in or manage involve militarised commerce. They should not be allowed to present such projects as normal commerce. They should be obliged to disclose which military or paramilitary forces are employed, how much these contractors are paid, and if there have been reports of killings.

  The legal framework for UK business fails to account for these corporate roles in abuses, and these types of relationship, and has very few ways of driving UK companies to engage more fully with their responsibilities. This needs to change if we are to reduce the incidence of these conflicts and UK business' role in them.

POTENTIAL WAYS FORWARD: CORPORATE TRANSPARENCY

  Transparency obligations can be an effective driver of higher standards of corporate practice with respect to human rights. An effective regulatory system that ensures balanced and thorough transparency on social impacts could help to fill the "accountability gap", and better align company performance with societal expectations.

  The Holly Hill Charitable Trust and the Staples Trust (one of the Sainsbury Family Charitable Trusts) have sponsored work by ClientEarth (an organisation of public interest lawyers) to examine the regulatory framework for social and environmental reporting by UK companies, and how key aspects of Companies Act 2006 could be better implemented. I recommend you read a copy of their report and talk to them about how it fits within the broader question of business and human rights.

  In addition to the disclosures suggested in ClientEarth's report, examples of straightforward but key disclosures that should be required of UK mining companies, that could drive higher standards of human rights practice include:

    — Contractual or other arrangements with military groups (including when done through a local partner).

    — Royalty or other payments made to overseas governments.

    — All Environmental Impact Assessments carried out relating to their projects.

    — Full minutes of their AGMs to be made publicly available on the company website in a timely manner.

POTENTIAL WAYS FORWARD: PERFORMANCE BONDS AND INSURANCE

  In the context of mining, a lot could be achieved if companies were forced to provide performance bonds and insurance to ensure that projects are managed in a responsible way, and to compensate or restore any damage done.

  4.

  5.

  6.

CORPORATE TRANSPARENCY AS A DRIVER OF CORPORATE CULTURE

  An improved corporate transparency framework, with appropriate regulatory scrutiny, has great potential to encourage a culture of respect for human rights in UK business, whether domestically or overseas. Furthermore, as ClientEarth's forthcoming publication identifies, greater transparency can be good for both the protection of human rights and for businesses' interests.

  However, proper transparency requires external scrutiny and regulation. The senior management of UK mining companies like Rio Tinto are very smooth at presenting themselves as responsible companies, and expert at telling half truths and making omissions to mislead investors and others. In my personal opinion I believe that Rio Tinto knowingly, deliberately and repeatedly misleads its shareholders and others about the reality of its activities in developing countries. There appears to be a culture of double standards and impunity within UK companies like Rio Tinto, who rely on a culture of "greenwash". There is a need for regulatory intervention to ensure that transparency acts as an effective driver of corporate culture, and that company reports are "true and fair", and not just the financial statements.

THE ROLE OF THE INVESTMENT COMMUNITY

  There is a role for the investment and fund management community to play in driving a corporate culture of respect for human rights.

  The UK fund management sector, including pension fund managers, have unfortunately not been effective in improving current management practices. Human rights and environmental impacts can significantly damage the long-term value of a company, and so there is considerable scope for better aligning investment interests with human rights protection.

  The UK government could have a role in raising awareness and encouraging proactive engagement by the investment community with UK business.

THE CURRENT ECONOMIC CLIMATE

  The UK's change in economic fortunes should serve as a reminder that business and finance do not operate in a vacuum—that their activities are tied intrinsically to the welfare of all. It should also be a point for reflection that unregulated generation of short-term value will not necessarily lead to the greater public good. We have seen clearly the impact that shorttermism can have on UK shareholders as well as stakeholders and communities around the world.

  Returning to the potential role of transparency obligations, in this context unreported human rights issues can constitute intangible risks that investors should be aware of. In this sense a more effective regulatory regime for social and environmental transparency has a role to play in constructing a robust financial system which can also help to provide investor confidence and greater financial stability.

DEREGULATED FINANCE AND HUMAN RIGHTS

  Gordon Brown changed the listing requirements for AIM companies—since the change in listing requirement, you can float a start-up company on AIM. While this resulted in a boom on AIM, one of the unintended consequences has been that the majority of the value of the AIM market now consists of small exploration companies operating in the developing world, against which there are numerous human rights complaints.

  UK-based asset managers also have a key role in human rights problems. RAB Capital was Ascendant Copper's largest independent investor when it listed on Toronto Stock Exchange TSX. RAB is an important investor in small aggressive exploration companies in developing countries. Hedge funds are able to invest in and benefit from projects involving social conflict and human rights abuses, without providing transparency or accountability.

  There is insubstantial examination of the role that UK investment has in financing human rights abuses. The London Stock Markets (both the main market and AIM) provide a lot of the global finance for extractives activities in developing countries, which flows to many human rights abuses.

  In the context of the current economic situation, there is an opportunity to re-assess the value and impact of the UK's deregulated financial system, in the context of the human rights abuses it may facilitate. Self regulation or so-called "principles based" regulation is not working.

  7.

  People who have been badly treated by UK companies in other countries should be able to make legal claims against the company and/or its directors in the UK under UK law. In practice and principle this is very difficult at the moment.

  The rare cases which reach British courts have ended up with out of court settlements with confidentiality agreements so the UK company concerned avoids further bad publicity and most UK residents including investors may never hear the real story. This is not an acceptable situation.

  In brief, it is clear that the existing framework does not provide adequate or effective access to remedies for individuals overseas whose human rights are breached, or allegedly breached by UK companies. There is a host of reasons that this is the case, a proper examination of which would go way beyond the allowed limit of this short submission.

  In brief overview, factors which obstruct access to remedies in the multinational context: the doctrines of separate legal personality and limited liability in the context of subsidiaries; underdeveloped liability for complicity and inaction within sphere of influence in the context of joint ventures and contractual arrangements; broad domestic legal frameworks that were not designed with the modern globalised context in mind; high cost barriers; lack of awareness of and information on available remedies for affected persons.

  It may be of interest that recently the community in Ecuador affected by the Canadian exploration company working with Rio Tinto have issued legal claims in Canada against the Toronto Stock Exchange for over $1 billion, and against the exploration company and two of its directors for combined claims of $90 million for human rights abuses.

  8.

  Inevitably, to create a robust framework that provides appropriate and accessible remedies to potential claimants in a rapidly changing world, reform attention will be required at each of these levels. However, in my view, initiatives flowing from public or judicial authority will be of particular importance.

Holly Hill Trust

May 2009





28   Ruggie J, "Report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises: Protect, Respect and Remedy: a Framework for Business and Human Rights" (A/HRC/8/5, 7 April 2008), p. 7. Back

29   E.g. the Committee on the Elimination of Racial Discrimination (CERD/C/CAN/CO/18) Back

30   Ruggie J, op cit. Back


 
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