Time for Commodity Traders to Act on their Human Rights and Environmental Impacts

• Post by: Rose Kimotho
• February 9, 2022
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The reality of today’s globalised world is one where many businesses are interconnected through vast and complex global value chains. Commodity trading firms (CTFs) are an important part of these value chains, buying raw commodities from primary producers, adding value through, for example, blending and crushing, and supplying to manufacturers. Business activities across many chains can be involved in adverse human rights and environmental impacts affecting communities and workers, which should be addressed.  The activities of commodity value chains and CTFs are frequently connected to adverse human rights impacts. For example, by sourcing from producers with poor human rights and environmental standards, CTFs contribute to adverse impacts. Similarly, threats to human and environmental rights can arise from poor and unsafe working conditions and environmental pollution, that can occur in the course of transporting commodities. Moreover, with the trend towards vertical integration and their participation in the financialisation of trading activities, CTFs have increased control of value chains. For example, where CTFs provide financing and other inputs to producers, they should make sure that they are fostering responsible business conduct among those that they choose to support. 

Until recently the pressure for business to adopt responsible conduct has focused more on selected stages of the value chain (e.g., operational level oil and mineral extraction, farm level agricultural practices, factory level garment and footwear production) or specific commodities (e.g., tin, tantalum, tungsten and gold). Such an approach could be mistaken to suggest that firms on both ends of the value chain should take the greatest share of responsibility for impacts giving others like CTFs a “free pass”. This should not be the case: just like the costs of human rights harm and environmental damage often transcend localities, so should the involvement of all participants of the value chain in advancing solutions. Leaving out some segments could create blind spots, increase its vulnerability or undermine efforts to make the whole value chain more responsible.

No single business or segment of the value chain can have every adverse impact attributed to them or have infinite responsibilities in prevention or mitigation efforts. But some businesses such as CTFs have extensive geographical, economic, political, and contractual relationships that they could leverage upon, or the opportunity to foster leverage where it does not yet exist, for better outcomes for people and the environment. Cooperation and input of all businesses along the value chain could foster an approach whereby adverse impacts are viewed as a common problem whose responsibility for resolution lies within the whole chain and thus requires action from all participants not just those closest to the site of the problem, or those that are public facing or those with deeper pockets. While there are real financial costs for dealing with adverse impacts, problem solving requires much more than money, a real understanding of the impacts, and access to and leverage with those whose change of conduct will likely yield positive change. For example, consistently requiring information on commodity origin and chain of custody could improve the human rights due diligence (HRDD) process. Emanating from the United Nations Guiding Principles on Business and Human Rights (UNGPs), HRDD is a process by which companies proactively assess the potential and actual human rights impacts of their operations and business relationships, and act on them appropriately.

Under the UNGPs, it is the responsibility of business to address adverse impacts that its activities cause or contribute to, and to which they are directly linked through “operations, products, or services by its business relationship” (Principle 17) with another entity. In such scenarios, a business should use its leverage to prevent or mitigate such negative impacts. Consequently, all individual companies within such value chains share the responsibility of addressing adverse impacts. Put in another way, a failure to address adverse impacts in the value chain is a failure by each individual member of the chain to meet their responsibility to respect human rights. CTFs play important roles in this regard, yet a 2017 mapping of the Swiss commodity trading sector by the Institute for Human Rights and Business (IHRB) found that only 14% of the companies surveyed were participating in grievance mechanisms at the time.

CTFs position within global value chains allows them to use their leverage for positive change. Being in touch with primary producers, they can bring information on trends towards responsible conduct and render support to producers in taking them up. With manufacturers, commodity traders can share information on conditions of production and motivate them to work toward practicable solutions that are geared towards addressing real problems on the ground. The more that CTFs are conducting HRDD of their operations and business relationships, the better the risks along the value chain can be understood and mitigated.

Moreover, the concept of HRDD has since been incorporated into multiple voluntary standards. Most notable are, the Organisation for Economic Cooperation and Development Guidelines for Multinational Enterprises, 2011 (OECD Guidelines), OECD Due Diligence Guidance for Responsible Business Conduct which is a general guidance for the implementation of the OECD Guidelines, as well as sector specific supply chain guidance, all of which are relevant for CTFs. Additionally, HRDD is moving from voluntary to a binding legal standard as state enact laws mandating HRDD as a legal standard of care. Examples here include, the French Duty Vigilance Law of 2017, the Dutch Child Labour Due Diligence Law of 2019, Germany’s Act on Corporate DueDiligence in Supply Chains (Supply Chain Due Diligence Act) of 2021 and similar proposals have been put forward in other jurisdictions. The above developments represent a significant shift from voluntary to mandatory human rights responsibilities with businesses being legally required to integrate HRDD in their operations and value chains.

Every business is called upon to respect human rights. Time has come for CTFs to leverage efforts to address business-related adverse human rights and environmental impacts. The fact that they are not yet in the limelight does not exclude them from responsibility that is expected of them by stakeholders and increasingly by law.