The UNGPs as standard of conduct for responsible commodity business

The recent developments around human rights due diligence measures in the run up to the referendum on the Swiss Responsible Business Initiative and the recently announced German Human Rights Due Diligence law throw a strong spotlight on global supply chains. While the exact provisions of the Swiss counterproposal and the German law are still to be unveiled in detail to the public, the analytical grid of both regulatory efforts circles strongly around the UN Guiding Principles on Business and Human Rights (UNGPs).

The UNGPs represent a framework for the human rights responsibilities of businesses and were endorsed by the UN Human Rights Council in 2011 – with the support from global business after a thorough stakeholder engagement process. The UNGPs make clear that human rights due diligence is essential to meet today’s requirements of responsible business conduct. In addition, the OECD Guidelines for Multinational Enterprises (and OECD’s  guidance on Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, and Cobalt and Copper from the DRC) as well as the Swiss Commodity Sector Guidance on Implementing the UNGPs, jointly developed by the civil society, the private sector, and public authorities, provide guidelines for the implementation of due diligence throughout the commodity trading industry.

The UNGPs set out to provide a roadmap for business to respect human rights, while the State remains the primary duty bearer to protect Human Rights under International Law. Against that backdrop, the UNGPs strongly emphasize the necessity of all businesses to manage human rights risks stemming from or being connected to their business activities. The adequacy of measures taken by business will naturally vary depending on the size of the business and its operating model, yet a couple of overarching strategic recommendations are given by the UNGPs: 

  • Strong policy commitment to respect human rights, approved at board or executive level
  • Human Rights Due Diligence processes to identify, address and mitigate potential and adverse impacts on human rights embedded at the appropriate organizational level 
  • Grievance mechanism to hear and address complaints, cooperating with legitimate judicial or non-judicial mechanisms 
  • Managing human rights as an on-going process, that assesses impacts, integrates and takes action on arising human rights issues, tracks the performance and effectiveness of measures taken against human rights risks and communicates these to the public, as well as continuously re-assesses the measures taken

In the commodity sector, in particular as it pertains to commodity trading, some of these human rights impacts might appear relatively abstract as traders operate far away from the issues associated with upstream activities along the fragmented character of most commodity value chains. 

Figure 1: Figure: Simplified Commodity Trading Supply Chain (FDFA / SECO 2018). Remark by the author: The expression “risk offload” does not mean risks are completely unloaded. In particular in physical trading, “risk offload” rather means risk management or risk minimization, e.g. basis risks (those that cannot be hedged via futures), credit risks, political risks and operational risks cannot be reduced to 0.

Downstream actors might struggle to get through to the upstream actors and hence might not be able to obtain the information necessary to assess human rights risks associated with their business appropriately. On the flipside, downstream actors might find it difficult to make their concerns on adverse human rights impacts on the ground heard further along the value chain and might not be able to identify leverage to change behaviour from buyers.

The systemic nature of fragmented supply chains makes it difficult to identify how human rights impacts of business can best be addressed when a multiplicity of actors is involved. This is precisely why the UNGPs also address the State duty to protect human rights through a smart mix of measures. The “Smart Mix” is a combination of mandatory and voluntary measures at the national and international levels to incentivize responsible business conduct on human rights – and eventually require business through a regulatory frame to uphold their human rights commitments. 

The State has a strong role to play in supporting businesses through dedicated guidance and also facilitating roles in multilateral settings. For example, the UNGP7 identifies companies doing business in conflict-affected areas as one situation in which States should pro-actively provide guidance to companies, which is reflected in a recent report from the UN Working Group on Business and Human Rights (A/75/212). Further, states should encourage, and where appropriate require, business enterprises to substantially communicate how they address their human rights impacts. In that regard, the current regulatory efforts in Switzerland and Germany, as well as the existing laws on Conflict Minerals in the EUAustralian and UK Modern Slavery regulation, FranceUS Dodd Frank Act and Dutch Child Labour Law set important signals in that very direction. 

Nevertheless, breaking down the requirements of the UNGPs to the responsibilities of the multiplicity of actors involved in commodity trading, from the source of the commodity, further in the chain to the traders and buyers, requires further attention and more granularity in recommendations. Against the backdrop of recent legislative developments across Europe, our research project is set out to explore those nuances by assessing actors’ roles, responsibilities and potential ways forward.

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