1. Human rights risks and the legal consequences of the
guiding principles on business and human rights
Yousuf Aftab and Rita Villanueva
Enodo Rights, USA
ABSTRACT
The focus of this paper will be the legal risks inherent in mining companies’ evolving human rights
responsibilities. The Guiding Principles on Business and Human Rights (the Principles) bring
objectivity and precision to the human rights dimension of corporate social responsibility (CSR).
Their implications are profound. At a conceptual level, the Principles ensure that respect for human
rights is independent of community perception. Businesses are expected to address their human
rights impacts by following a specific analytic approach that draws on fundamental legal concepts
such as causation, proportionality and the substantive definitions of rights themselves (under
national and international law). In practical terms, addressing human rights must be more than,
and distinct from, community engagement; it is a separate pillar of CSR warranting its own
analysis.
The crystallization of corporate human rights responsibilities in the Principles creates significant
risks. While the Principles are not law, they can have substantial indirect legal effects. First,
investor access to protection under bilateral investment treaties (BITs) requires the investment to
meet norms of international public order; these norms are evolving and will soon capture
compliance with the Principles. Second, protected investments under BITs should contribute to host
country development; there is a strong argument that “development” should be understood to
include respect for human rights under the Principles. Third, the International Finance Corporation
(IFC) Performance Standards are built into project finance agreements around the world. The IFC
has emphasized that the Performance Standards substantially align with the Principles; failure to
respect the Principles is thus arguably a breach of the Performance Standards themselves. Fourth,
national courts in mining companies’ home jurisdictions are relying on the Principles to define
liability for human rights violations committed abroad.
The objective measures in the Principles therefore have the potential for significant legal
consequences under public and private law. While companies could previously address the human
rights dimension of CSR largely through community engagement, that paradigm has now been
fundamentally altered to mandate a more structured approach.
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2. INTRODUCTION
Mining companies have long recognized the importance of human rights in their sustainable
development and corporate social responsibility (CSR) policies. Leaders in this field have
incorporated elements of human rights in their sustainability reports since the late 1990s (Jenkins &
Yakovleva, 2006). But the integration of human rights in social impact analyses and reports was
unstructured and indirect. Companies have considered human rights in the context of community
and stakeholder engagement, in large part because the overarching concern was to limit
reputational risks and maintain a “social license to operate” (Walker & Howard, 2002). That
paradigm has now shifted. The emerging business and human rights framework has profound
implications for the manner in which mining companies must address human rights risks and the
nature and scope of those risks.
In June 2011, the UN Human Rights Council unanimously endorsed the Guiding Principles on
Business and Human Rights (the Principles). The Principles provide a comprehensive system to
define the scope of business responsibility for human rights based on three legal pillars: the legal
definition of human rights, principles of causation, and the principle of proportionality. This system
provides a framework for businesses practically and objectively to understand their human rights
risks and respond to them efficiently.
As the touchstone of business responsibility for human rights, the Principles create substantial legal
risks. While they are not law, the Principles’ objective definition of corporate rights responsibilities
can have serious indirect legal effects through international investment treaties, financing
agreements, and civil actions before national courts. In particular, failure to respect the Principles
can jeopardize the entire value of a project by giving governments cover to interfere or expropriate.
For companies relying on project finance, failure to respect human rights can jeopardize existing
and future financing.
This paper provides an overview of the Principles and their emerging legal implications. The focus
is on legal risks, but the analytical approach applies equally to reputational risks, as the Principles
increasingly inform stakeholder expectations. Due to limits of scope and the recent adoption of the
Principles, this paper will not analyse each of the legal risk dimensions in depth. Rather, our
objective is twofold: (i) to outline the practical implications of the Principles for mining companies
seeking to address the human rights dimension of CSR; and (ii) to illustrate the contours of legal
risks mining companies face should they fail to consider their human rights impacts systematically,
in accordance with the Principles.
We proceed in three stages. First, we explain the analytical framework that the Principles use to
define human rights risks. Second, we explore how companies should address human rights risks
under the Principles. Third, we highlight some of the more significant legal risks facing mining
companies as a result of the Principles.
DEFINING HUMAN RIGHTS RISKS UNDER THE PRINCIPLES
The Principles are significant for providing the analytical framework to understand the scope of
business responsibility for human rights. Broadly, human rights are inalienable individual
entitlements. They have two dimensions: (i) the substance of the entitlement; and (ii) the
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3. institution(s) against which the entitlement can be claimed (United Nations, 2012). This second
dimension is both essential and complex. Historically, human rights existed only against the state.
Thus, for instance, the International Covenant on Civil and Political Rights (ICCPR)—part of the
International Bill of Rights—is explicitly state focused in defining individual rights. State
responsibility for rights is based on deemed control over a particular territory and the reach of their
legal jurisdiction (ICCPR, Art. 2(1)).
Businesses are fundamentally different institutions than states. They are private, profit-seeking
bodies with neither territorial control nor legal jurisdiction. A state-centric human rights regime
cannot logically apply to businesses without a clear analytical framework linking business
operations to the substance of the rights. The Principles resolve this issue. They create a coherent
system to define business responsibility for human rights, and corporate human rights risks, using
three legal concepts: (1) scope—businesses are expected to respect all human rights, not just labor
rights; (2) causation—the range of rights any individual business should address is limited by
causal links to business operations; and (3) proportionality—the range of actions any individual
business should take is proportional to the nature of the business and the impact on the human
rights. Collectively, these concepts ensure that the Principles are broad, rigorous and flexible.
Scope
The Principles require businesses to respect all rights in the Universal Declaration of Human Rights
(Universal Declaration) and supporting covenants (Principles, Art. II.A.12). These include, for
instance, the right to equality (Universal Declaration, Art. 7), the right to freedom of expression
(Universal Declaration, Art. 19), and the right not to be arbitrarily deprived of property (Universal
Declaration, Art. 17). Because of the extent of their community footprint, mining companies can
directly and indirectly affect such rights in communities where they operate—and not just in the
workplace. The effect of Principles is thus to expand the scope of business responsibility far beyond
the traditional focus on labor (and, more recently, security) rights.
While this scope is broad, it does not mean that mining companies must act as governments. The
Principles distinguish the roles of government and business based on the different bases that define
their responsibility for human rights. Mining companies’ responsibility for human rights is
narrowed and made practical by (i) the specific definitions of rights in international doctrine and
jurisprudence and (ii) principles of causation.
Human rights are terms of art with specific and practical meanings. Such definitions are at times
narrower and at times broader than they appear from the text of the right alone. Examining the
precise definitions is essential for mining companies to understand the different ways in which they
might affect rights and to ensure that they recognize the specific rights for which they can
conceivably be responsible. Thus, for instance, while a commitment to ensure “liberty and security
of the person” as required by ICCPR Art. 9 seems inordinately broad, examining international
doctrine shows that “liberty” concerns non-consensual physical confinement, as opposed to
“general freedom of action”; as with many rights, such liberty is never absolute (United Nations,
2013). By contrast, the right to equality between men and women is not simply a matter of neutral
policy, but equality in effect. Thus, mining companies may infringe the right to equality by not
taking positive steps to empower women in the workplace in contexts where there are deep-rooted
socio-cultural inequalities (United Nations, 2000).
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4. Causation
The Principles limit the scope of human rights risks by defining corporate obligations according to
principles of causation. While a state’s human rights responsibilities are absolute and defined by its
territory and jurisdiction, any individual mining company’s responsibility to respect human rights
extends to adverse impacts to which it causes or contributes, or which are directly linked to its
operations (Principles, Art. II.A.13). In practical terms, this means that no mining company has to
take concrete steps to respect every internationally recognized human right: there are certain rights,
such as the right to marry (Universal Declaration, Art. 16) or the right to a nationality (Universal
Declaration, Art. 15), where the causal relationship with a mining company’s operations simply
cannot exist. Understanding causal terms using private law principles is therefore essential to
defining the limited scope of any company’s precise human rights risks.
Proportionality
The Principles rely on proportionality to define companies’ expected response once the relevant
adverse human rights impacts are identified. There is no one-size-fits-all approach to addressing
human rights risks. The scale and complexity of measures that a mining company should adopt
will depend on the resources available to it, the specific operating context, and the severity of the its
human rights impacts (Principles, Art. II.A.14). Proportionality gives mining companies flexibility
to craft practical and efficient responses to the specific human rights risks they face. As a concept,
proportionality has a long legal history; guidance on designing proportional responses can be
found in national and international public law jurisprudence.
ADDRESSING HUMAN RIGHTS RISKS EFFICIENTLY UNDER THE PRINCIPLES
The Principles provide a significant opportunity for mining companies seeking to address human
rights risks. In addition to defining the risks objectively, the Principles provide a roadmap for
companies to respond to them efficiently (Principles, Arts. II.B.17 and II.B.18). In broad terms, they
emphasize investment in analysis over investment in infrastructure. The Principles are precise and
rigorous in defining the due diligence expected of companies to identify human rights risks, but
they are flexible regarding what any particular mining company ought to do to respond to the risks
once identified (Principles, Art. II.B.19(b)).
The concepts of scope and causation are central to understanding the transformative effect of the
Principles. They provide two overarching lessons regarding effective human rights due diligence.
First, companies must assess their effects on all human rights throughout their operations: the
analysis cannot be limited to a specific subset of human rights or to the effects only on particular
communities. Second, companies must analyze their impacts using objective definitions of human
rights and the precise causal relationship between their operations and such impacts. Because the
human rights themselves and the link between business operations and those rights are objectively
defined, stakeholder engagement, while essential, is only one part of an effective analytical
approach.
The effect of the Principles is to reformulate mining companies’ approach to human rights as hard
science—built on objective and analytically precise criteria—rather than simply discursive
community engagement. This is an approach that is gaining traction, particularly as companies
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5. such as Barrick place responsibility for human rights in the hands of experienced lawyers, but it is
still in its early stages. A precise and analytical approach to addressing human rights risks under
the Principles should consist of four broad stages, approached systematically.
Mapping the operations of the business, to identify where the greatest risks of adverse human
rights impacts lie.
• This process can proceed in stages based on where the company believes it will have the
greatest impact on human rights. At the outset of the analysis, mining companies should
identify (i) the types of operations at a mine site at the different stages of the project cycle;
(ii) the company operations ancillary to extraction (e.g. goods and services procured,
hiring); and (iii) post-extraction distribution operations. This is a desk review process that
will allow for systematic addressing of human rights risks.
Identifying the specific definitions of the rights that may be affected.
• The specific legal definitions of rights, under national and international law, are essential to
a precise understanding of the link between the business’s operations and the risk of
adverse human rights impacts. These definitions should inform the development of
practical indicators to assess the company’s rights impacts. The indicators will define the
information-gathering process, whether as a detailed checklist or a more qualitative
assessment (which is preferable for risk mitigation and prioritization).
Assessing the specific causal relationship between the business’s operations and the potential
adverse human rights impacts.
• The site- or operation-specific due diligence will turn on identifying the causal link between
the mining company operations and any rights impact. To be done effectively, the due
diligence will first use a desk analysis based on the rights indicators plotted against the
company operations. The links between operations and impact will be distinguished based
on whether the potential impact may be (i) caused or contributed to or (ii) directly linked to
the operations. Only once this preliminary analysis has been conducted should stakeholder
engagement be used to gather information, within the existing analytical framework,
regarding particular impacts on rights. The specific causal relationship will define the scope
of risks and shape the appropriate responses to the identified risks.
Designing a response based on the nature of the specific risks and the context of the business to
address adverse human rights impacts practically and efficiently.
• Mining companies have flexibility regarding the appropriate response, based on their
resources and particular effects. The key element required by the Principles is that
companies prioritize their responsive measures based on the most severe rights impacts. To
conduct this process effectively, the prior due diligence needs to be approached
systematically, with an appreciation of the rights impacts based on their specific
definitions. A comprehensive approach should include an effective remediation mechanism
to address stakeholder human rights concerns.
EMERGING LEGAL IMPLICATIONS OF THE PRINCIPLES
The Principles crystallize corporate human rights responsibilities in a comprehensive framework
with objective expectations. This framework is relevant both because it brings more scientific rigor
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6. to CSR and because it simultaneously paves the way to more concrete risks. While the Principles
are not law, this framework will be the source of significant indirect legal effects. In the immediate
future, these consequences will influence bilateral investment treaties (BITs), project finance
agreements, and civil liability in mining companies’ home jurisdictions.
Bilateral investment treaties
BITs protect foreign investors against expropriation risk and other interference with the investment.
They ensure that investors have access to international tribunals to seek compensation from states
in the event that their investment is mistreated (under certain specified grounds). To access those
remedies, however, investors must first establish that the treaty protects their investment by
proving certain jurisdictional criteria. It is at this threshold level of jurisdiction that the Principles
pose their most significant legal risks. They do so in two ways.
Human rights and the “in accordance with law” requirement
First, international tribunals have held that an investment must be made “in accordance with law”
to receive treaty protection. The requirement captures national law and principles of international
law and public order (Moloo & Khatchaturian, 2011). While the precise scope of this requirement is
still developing, a number of international tribunals have denied investors BIT protection for
infringing principles of international law and public order, such as the duty of good faith and the
prohibition on fraud (see, e.g., Inceysa Vallisoletana, S.L. v. Republic of El Salvador, International
Centre for the Settlement of Investment Disputes (ICSID), 2006; Plama Consortium Ltd. v. Republic
of Bulgaria, ICSID, 2008). More recently, an international tribunal has held that “an investment will
not be protected … if its creation itself constitutes a misuse of the system of international
investment protection under the ICSID Convention.” (Gustav F W Hamester GmbH & Co KG v.
Republic of Ghana, ICSID, 2010)
These precedents lay the groundwork to deny BIT protection to investors, including mining
companies, who do not respect business and human rights. As Moloo and Khatchaturian note,
there is no reason to treat violations of internationally recognized human rights any differently than
violations of other aspects of international public policy (2011). The Principles are significant in this
context because they provide a comprehensive analytical structure to judge business respect for
human rights; in so doing, they provide the analytical framework for state arguments to deny
investors treaty protection.
The “in accordance with law” argument is very commonly used in BIT cases, including those
concerning expropriation of mining and other extractive-sector assets (see, e.g., Vannessa Ventures
Ltd. v. Bolivarian Republic of Venezuela, ICSID, 2013; Perenco Ecuador Ltd. v. Republic of Ecuador,
et al., ICSID, 2011). The human rights variant of this argument has not yet been made because, until
recently, there was no structure to assess it. The Principles change that calculation. In future cases,
mining companies’ failure to respect the Principles will furnish states with arguments to interfere
with such assets with impunity.
Human rights and the “development” requirement
Second, international tribunals have held that, to access BIT protection, an investment must
contribute to the host state’s “development” to access BIT protection (Dolzer & Schreuer, 2008). As
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7. with “in accordance with law”, the scope of the requirement is evolving. There remains some
debate about the precise elements of development captured by the requirement. Tribunals have
held, however, that development is not synonymous with economic growth alone (LESI &
ASTALDI v. Algeria, ICSID, 2006). As Garcia-Bolivar has noted, “an investment might enhance the
GDP and yet be detrimental to the economic development of a country as when, for example,
human rights standards are violated.” (2012) Until recently, there was no structured or precise
approach to analyzing an investor’s respect for human rights. The Principles have changed that.
The “development” criterion gives states another avenue to argue that a BIT does not protect a
particular investment if the business does not respect human rights. Complying with the Principles
is therefore essential for investors to ensure access to BIT protection.
Emerging BIT terms
The two treaty risks above are based on existing international jurisprudence. Further risks lie in the
fact that BITs are increasingly addressing CSR, and thus respect for human rights, in their express
terms. Canada’s free trade agreements with Peru and Colombia have investment chapters that
encourage governments to promote CSR and remind businesses of the importance of adopting CSR
measures, including human rights; the Canada-Benin BIT includes similar language. The United
Nations Conference on Trade and Development’s (UNCTAD) Investment Policy Framework for
Sustainable Development identifies commitment to CSR as a Core Principle in designing
investment agreements (UNCTAD, 2012). Express references to CSR in such treaties will provide
cover for states to regulate and interfere with investments unless companies voluntarily take steps
to address their social impacts. This risk is more acute with human rights, because the Principles
provide a widely endorsed, objective standard to judge corporate behavior.
Project finance agreements
Beyond the treaty risks, human rights have significant potential effects on existing commercial
contracts, particularly those referring to the International Financial Corporation (IFC) Performance
Standards (Performance Standards). Financial institutions that have signed on to the Equator
Principles (EP)—a credit risk management framework that provides due diligence guidance for
social and environmental risk in project finance transactions—require borrowers to comply with the
Performance Standards in their due diligence process. The world’s leading banks are EP members.
The Preamble to EPIII, the most recent iteration, commits members to human rights due diligence
in accordance with the Principles (Equator Principles, 2013). Principle 2 of EPIII emphasizes that
human rights due diligence is a distinct and integral part of the social risk due diligence (Ibid.).
These references to human rights due diligence are given added force by the IFC’s own guidance
materials, which emphasize that Performance Standard 1, concerning Assessment and Management
of Environmental and Social Risks and Impacts, “reflects the ‘respect’ and ‘remedy’ aspects of [the
Principles]” (IFC, 2012).
Failing to comply with the Principles, therefore, risks contractual breaches with serious
consequences for continued project financing. Both because the requirements are new and because
the dealings are generally confidential—with disputes often resolved privately—it is unclear how
frequently such clauses are used. But attorneys of financing institutions are increasingly aware of
CSR-related contract clauses. And, particularly in difficult financial circumstances, such contract
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8. clauses provide another basis for lending institutions to curtail or terminate financing when
necessary.
National jurisprudence
Another emerging basis of legal risk for companies under the Principles is in national courts in
mining companies’ home jurisdictions. Recently, the Ontario Superior Court of Justice allowed
Guatemalan plaintiffs to bring a lawsuit to trial against Hudbay Minerals for human rights
violations allegedly committed by its Guatemalan subsidiaries (Choc v. Hudbay Minerals Inc.,
2013). The case is in its early stages, and there are a number of complex legal issues at play.
Notably, however, in holding that the case can proceed to trial, the court referred extensively to the
submissions of Amnesty International that the Principles and other leading international standards
endorsed by the Canadian government should inform Canadian companies’ duty with respect to
human rights internationally. As the only comprehensive international framework for
understanding business responsibility for human rights, the Principles will thus be relevant to
determining the scope of Hudbay’s responsibility for adverse human rights impacts under
Canadian law. That is, they will help define both the people to whom Canadian companies may
owe a duty and the specific obligations of that duty. Given that Canadian courts have traditionally
been more resistant to extending their reach to international actions than peer countries, this
decision may signal an emerging trend in national jurisprudence across the world. To prepare for
such litigation risks, mining companies will need to take a systematic and well-informed approach
to human rights due diligence to defend against any claims of negligent or intentional wrongdoing.
CONCLUSION
The Principles fundamentally transform mining companies’ expected approach to human rights
risks. By creating a coherent and comprehensive framework to place some responsibility for human
rights on business, the Principles lay the foundation for an analytically precise and rigorous
approach to understanding and addressing human rights risks. In so doing, the Principles create
risks and opportunities for mining companies. The risks—increasingly both legal and
reputational—flow from the Principles’ objectivity. For companies relying on BIT protection or
project finance agreements, the legal risks are substantial and evolving: the Principles’ impact will
extend as they are adopted, explicitly or implicitly, in national and international instruments in the
coming years.
The Principles also provide the roadmap for mining companies to address human rights risks in a
business-like way—with rigorous analysis for cost-effective solutions. Mining companies can seize
the opportunity the Principles present by investing in systematic due diligence to identify their
risks precisely and respond efficiently:
• The process should be driven by practical and fact-specific legal definitions of
internationally recognized human rights.
• The analysis should draw on private law principles to define the causal link between
business operations and adverse human rights impacts to identify the limits of human
rights risks.
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9. • The systematic due diligence should inform proportional responses based on the nature of
the impact, the resources of the company, and the operating context.
The Principles’ risks and opportunities turn on analysis: businesses insure against human rights
risks efficiently by understanding human rights responsibilities precisely. Carefully designed due
diligence is thus the best way for mining companies to anticipate emerging human rights risks and
address them effectively.
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