Companies often equate general due diligence with the Mergers & Acquisitions (M&A) processes. Until recently, and probably only still in larger companies, M&A teams and departments have not paid much attention to human rights.
This might be because there is also a lack of understanding on how to view activities through a human rights lens. Although some companies have begun work on human rights issues, such as health and safety, human resources and community engagement, they often do not see them as ‘human rights’ issues.
Nonetheless, this is set to change given… the majority endorsement by the UN counsel to the UN Guiding principles on Business and Human rights and the growing reporting requirements on human rights.
When should human rights concerns be identified in due diligence processes:
– before the deal : are there legacy issues related to human rights that can be covered? What costs will be required to bring this company into compliance? Does it affect the bidding price?
– following the deal: it becomes a question of integration – how do companies bring acquired companies into compliance with human rights standards?
What about human rights issues in the case of Public Private Partnerships (PPP) and Joint Ventures(JV)? Such arrangements have been proliferating globally, especially in emerging markets, and are particularly vulnerable to falling short of compliance in human rights terms. Where companies with a human rights policy only have a minority stake in the PPP or JV they are not likely to undertake any human rights due diligence.
What should impact assessments look at?
Some companies, as part of their due diligence processes may carry out human rights impact assessments, but these are often not shared. There is also a lack of common understanding of what the ‘impact assessment’ process implies in the human rights context. Some companies use the term ‘impact assessment’ from a predictive perspective. That is,the likely impact a project will have. Others are interested in resultant impact- the actual effect that a project will have. In actual fact, both types of impacts are important and should include secondary considerations that might be outside the immediate focus of the project. For example, the human rights impact of not going ahead with a specific project also needs to be factored into the opportunity cost.
What does due diligence integration require?:
Above all, due diligence integration requires training, but this is not enough. It also requires the necessary experience at the relevant levels of authority in the business. There is the risk that individuals who have built knowledge and expertise are often shifted to other departments, -or even leave the company. Companies should recognize the need to incentivize positive behavior in this sphere and systematically integrate human rights considerations into relevant management processes.
Effective due diligence also means integrating human rights into contractual relationships. Contractual relationships are key to understanding the risk and opportunities and enable a company to better manage these risks. This includes looking at the purchasing practices of a company and its suppliers, as well as its major customers and collaborations within both the public and private sectors.
For more info on the state of play of human rights due diligence see: http://www.ihrb.org/pdf/The_State_of_Play_of_Human_Rights_Due_Diligence.pdf
Next week we will blog on human rights reporting.
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