Risk Management

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Governance

EU legislators are being pressed to ensure that, as they progress plans for mandatory human rights and environmental due diligence, they highlight the importance of companies identifying and mitigating corruption.

Global Witness and Transparency International EU published a report in April 2021 which highlights that, despite commitments from every EU country to tackle bribery and corruption, only three of 27 countries (France, Germany and Italy) have enacted legislation that requires companies to prevent and detect corruption.  The report proposes that the EU’s proposed mandatory human rights due diligence legislation should make it clear that companies should address the negative risks and impacts of corruption as part of a broader human rights and environmental due diligence obligation.Continue Reading Business and Human Rights: The Corruption Dimension

Portraits of National Leaders

In a Report published in April 2021, The Circle, an NGO that champions equal rights and equal opportunities for women and girls, proposed an EU regulation specifically aimed at achieving a living wage for workers in the garment industry. As the fashion industry emerges from the COVID-19 pandemic – which has brought renewed attention to complex supply chains and the conditions of workers in garment factories – Jessica Simor QC, author of the Report, argues the need for a legal framework to protect garment workers from exploitation.

The proposal comes off the back of the EU’s commitment to introduce a mandatory human rights due diligence law, and other initiatives currently progressing at the EU-level, which indicate considerable political will to introduce measures that identify and remediate human rights harms in global supply chains.Continue Reading Business and Human Rights: Fashion Focus – A Proposal for New EU Legislation on a Living Wage

Governance

The European Coalition for Corporate Justice, European Center for Constitutional and Human Rights and Initiative Lieferkettengesetz reflect, in a Business and Human Rights Resource Centre Paper entitled “Towards EU Mandatory Due Diligence Legislation”, on insights from past efforts of companies to advance responsible business conduct and monitor their supply chain. Among other things, they caution against relying on “policing” suppliers through social audits and warn that private auditing and certification must not become a synonym for human rights and environmental due diligence. According to the Paper:

“Private auditing and certification must not become a surrogate for the human rights and environmental due diligence of companies. Auditing and certification failures are widespread, ranging from garment factory collapses and fires (Rana Plaza, Ali Enterprise, Tazreen) to dam collapses, resulting in thousands of avoidable deaths and injuries. We now know these mechanisms under-identify and under-document risks and impacts, and can serve as a ‘fig leaf’ disguising actual negative impacts. Currently this multi-billion euro compliance industry goes about unchecked and unregulated with various inherent conflicts of interest.”

In this Blog Post, we discuss the future of social auditing, including with respect to emerging human rights due diligence legislation, and practical steps that businesses can take today to position themselves for the future of human rights due diligence.


Continue Reading Business and Human Rights: Pitfalls Of Social Auditing

Malaysia - Kuala Lumpur

On April 28, 2021, the Securities Commission Malaysia (SCM) updated the Malaysian Code on Corporate Governance (MCCG) to strengthen the corporate governance culture of Malaysia’s listed companies. According to SCM, in this first update since 2017, the MCCG “focuses on the role of the board and senior management in addressing sustainability risks and opportunities of the company”, among other topics. The SCM notes:

“The MCCG 2021 also addresses the urgent need for companies to manage [ESG] risks and opportunities, with the introduction of new best practices that emphasise the need for collective action by boards and senior management. The global commitment and acceleration of efforts to transition towards a net zero economy has resulted in demand for greater action on the part of corporates. The SC[M]’s review of sustainability statements by large listed companies found that some have begun to address climate-related risks but more can and needs to be done.”

In this Blog Post, we provide additional background on the MCCG and highlight ESG-related aspects of the 2021 update, as well as recent, similar efforts to highlight the connection between ESG management and good corporate governance in other Asian jurisdictions.

Continue Reading Malaysian Securities Regulator Incorporates ESG in Updated Corporate Governance Code
Products

As businesses emerge from COVID with a significant amount of corporate debt, the landscape in the financial markets has also evolved: The focus on ESG issues has intensified. We have seen institutional investors demand more in these areas, in terms of both disclosures and concrete targets, from banks and funds.

Meanwhile, emerging regulations and reforms…

Products

On April 14, 2021, the Basel Committee on Banking Supervision (BCBS) issued two climate-related reports—one on climate-related risk drivers and their transmission channels and a companion report on measurement methodologies for financial risks. Among the reports’ findings:

  • Banks and the banking system are exposed to climate change through macro- and microeconomic transmission

…

Japan - Tokyo

On April 6, 2021, the Council of Experts Concerning the Follow-up of Japan’s Stewardship Code and Japan’s Corporate Governance Code (Council) published a consultation on proposed revisions to Japan’s Corporate Governance Code (Governance Code) and Guidelines for Investor and Company Engagement (Guidelines) intended to, among other things, increase attention to sustainability and ESG matters and promote diversity among Japan’s listed companies.

The Governance Code sets out the fundamental principles for effective corporate governance of listed companies in Japan, while the Guidelines provide agenda items for engagement that institutional investors and companies are expected to focus on. The proposed revisions to these two documents could significantly influence the state of ESG and diversity among Japan’s listed companies, with a key emphasis on sustainability-related disclosures.

In this Blog Post, we provide additional background on the Governance Code and the Guidelines, as well as details and analysis of the consultation proposals.Continue Reading Japan to Promote ESG Disclosures and Diversity for Listed Companies

Asset Management

The “Find It, Fix It, Prevent It” initiative, which extends to some 56 large investors including M & G, Fidelity International, Schroeder’s and Edentree, seeks to increase the effectiveness of corporate action against modern slavery.

Initially, the “Find It, Fix It, Prevent It” initiative was focused on the hospitality sector, with investors seeking to engage with the largest UK-listed hospitality firms to encourage companies to develop better policies, processes and procedures for tackling modern slavery–and better disclosure. This year, “Find It, Fix It, Prevent It” will look to broaden its engagement with companies to include the construction and materials sector, with plans to commence engagement with targeted companies from the third quarter: the initiative’s activities and future focus are set out in its first annual report. The CCLA estimates that “the construction industry is estimated to contain 18% of the world’s victims of forced labor”. The term “modern slavery” extends to slavery, servitude, human trafficking and forced or compulsory labor (read more on the key indicators of modern slavery here).Continue Reading Business and Human Rights: Investors Call Out “Modern Slavery” and Focus on Hospitality, Construction and Materials Sectors

This month, the American Bar Association (the “ABA“) published a Report on its suggested Model Contract Clauses to Protect Workers in International Supply Chains (the “MCCs“).

While the MCCs are not put forward as a binding standard, they do provide food for thought for companies who are seeking to align their supply chain contracts with the UN Guiding Principles on Business and Human Rights (the “UNGPs“), and the increasing tide of mandatory human rights due diligence legislation (see more on this impending legislation here).

Key takeaways:

  1. The aim of the MCCs is to align drafting in international supply chain contracts with existing human rights due diligence standards and obligations, with a view to providing “operational guidance for mapping, identifying and addressing human rights risks at every tier of the supply chain” and seeking to help companies “implement healthy corporate policies in their supply chains in a way that is both legally effective and operationally likely.”
  2. In aligning supply chain contracts with existing obligations and requiring reasonable due diligence by both contract parties, the MCCs seek to address what could be considered an imbalance in the typical negotiation of supply chain contracts where, traditionally, a buyer has tended to shift all responsibility for human rights issues to the supplier.
  3. The publication of the MCCs pose some interesting considerations for buyers negotiating supply chain contracts. For example, to what extent is it reasonable for the supply chain contract to reflect the stance that abuses of workers’ rights occurring in global supply chains is a shared responsibility of both buyers and suppliers? The cooperative approach submitted is very different to the traditional oppositional relationship between buyer and supplier, where buyers seek to ensure that any and all responsibility for adherence to prescribed human rights standards falls to suppliers by requiring representations and warranties from suppliers on a “strict liability” basis.

Continue Reading Human Rights Due Diligence in Supply Chain Contracts: A Shared Responsibility of Buyer and Supplier?

Thailand - Bangkok

Amidst the global surge in interest around ESG investing, asset owners with diversified, global portfolios must understand the specific ESG risks that may apply to investments in different regions and industries, as well as the variety of approaches to ESG risk mitigation across public and private markets.

Southeast Asia is a particularly attractive region for…