Global Business and Human Rights: An Introduction for Japanese Businesses

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Global Business and Human Rights: An Introduction for Japanese Businesses

In March 2022, Japan’s Ministry of Economy, Trade and Industry (METI) established a study group, “Study Group on Guidelines for Respecting Human Rights in Supply Chains,” to produce Japan’s first comprehensive guidelines on human rights due diligence, the draft of which has been already released. These guidelines are the Japanese government’s latest effort in applying the United Nations’ Sustainable Development Goals (SDGs) to the country’s business practices. While many people are aware of the environmental issues surrounding “sustainable development,” SDGs also incorporate numerous human rights provisions aimed at preventing unfair labor practices and other forms of exploitation.

As Japan and other jurisdictions begin to implement regulatory policies aimed at protecting human rights, businesses should be aware of the increased regulatory requirements they may face in the future. This article will introduce the relationship between SDGs and human rights, as well as their applicability to global business practices.

1.　What are ‘Sustainable Development Goals?’

‘Sustainable Development Goals’ refer to the 17 goals adopted by the United Nations in 2015 “as a call to action to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity.” While the word ‘sustainability’ is usually associated with environmental responsibility, environmental goals make up a minority of the SDGs. In addition to tackling environmental challenge like climate change, the SDGs also seek to reduce poverty and inequality, increase access to education and healthcare, and protect fundamental human rights, especially for women.

Many of these goals directly impact how companies conduct business. For example, Goal 8: Decent Work and Economic Growth seeks to provide full and productive employment and decent work for all women and men while also taking measures to protect workers’ safety and eradicate unjust labor practices such as modern slavery. Goal 16: Peace, Justice and Strong Institutions calls for an end to corrupt business practices such as bribery that prevent the development of accountable government institutions.

2.　What is Human Rights Due Diligence?

‘Human Rights Due Diligence’ is a term introduced by the United Nations’ 2011 Guiding Principles on Business and Human Rights, which states that businesses have a responsibility to respect human rights throughout their activities and business relationships. Similar to how businesses undergoing mergers and acquisitions conduct due diligence to identify potential economic risks or liabilities, ‘human due diligence’ seeks to identify and mitigate the potential adverse impacts on human rights a business’s actions may have. Regarding Human Rights Due Diligence, the Guiding Principles offers the following guidance:

In order to identify, prevent, mitigate and account for how they address their adverse human rights impacts, business enterprises should carry out human rights due diligence. The process should include assessing actual and potential human rights impacts, integrating and acting upon the findings, tracking responses, and communicating how impacts are addressed. Human rights due diligence:

(a) Should cover adverse human rights impacts that the business enterprise may cause or contribute to through its own activities, or which may be directly linked to its operations, products or services by its business relationships;

(b) Will vary in complexity with the size of the business enterprise, the risk of severe human rights impacts, and the nature and context of its operations;

(c) Should be ongoing, recognizing that the human rights risks may change over time as the business enterprise’s operations and operating context evolve.

According to the United Nations’ Working Group on Business and Human Rights, respect for human rights must be a cornerstone when envisioning the role of private businesses in achieving the SDGs. Therefore, adherence to the Guiding Principles on Business and Human Rights, including robust human rights due diligence, plays a key role in promoting sustainable development.

3.　What are some of the issues companies should be aware of regarding Human Rights Due Diligence?

For multinational companies, concerns involving human rights abuses often appear in the supply chain. Companies should ensure that their suppliers do not utilize or benefit from forced labor, child labor or unsafe or exploitative working conditions. Companies should also exercise extreme caution when sourcing materials from conflict areas to ensure that their purchases do not contribute to continued violence or instability. Recent events, such as the Russian invasion of Ukraine and concerns surrounding China’s treatment of its Uyghur population, have only further raised awareness regarding the importance of responsible sourcing practices.

Another key element of human rights due diligence is preventing corrupt practices, such as bribery, which often lead to systemic human rights abuses. Companies should thus also incorporate human rights concerns into their existing anti-corruption diligence.

4.　Which jurisdictions are implementing human rights due diligence requirements?

In its 2020 National Action Plan on Business and Human Rights, the Japanese government stated that it expects Japanese enterprises, regardless of their size or sector, to introduce the process of human rights diligence based on the UNGPs and other related international standards. Building upon the National Action Plan, the government is expected to release its draft guidelines for human rights due diligence this summer. While these guidelines are non-binding, the government has indicated that it may introduce legislation to make human rights due diligence principles mandatory.

Japan is following the lead of many of its G7 counterparts, with whom it collectively issued a statement in 2021 pledging to take efforts towards eradicating the use of forced labor in global supply chains. In 2021, the European Union adopted rules mandating that all large companies and certain small and medium enterprises submit detailed reports on sustainability issues including human rights. Non-European companies with at least one subsidiary or branch in the EU and a net turnover of €150 million in the EU will also be required to submit reports. Individual EU countries, such as France, Germany, and the Netherlands, have also introduced laws mandating that businesses implement human rights due diligence procedures across their supply chains.

Outside of the EU, Australia, the United Kingdom, and the US state of California have all implemented laws requiring companies to document their efforts to combat modern slavery within their supply chains. Furthermore, the US Uyghur Forced Labor Prevention Act came into effect in 2022, establishing a presumption that any good originating in China’s Xinjiang Uyghur Autonomous Region was produced with the use of forced labor and thus may not be imported into the United States. This presumption also applies to goods produced or shipped through other countries that include inputs made in Xinjiang.

5.　What Steps Can Japanese Companies Take to Implement Human Rights Due Diligence?

According to a 2021 METI survey of companies listed on the Tokyo Stock Exchange, 69% of respondents stated that they had formulated a human rights policy, but only 52% of respondents were conducting human rights due diligence.

While the government has released its draft human rights due diligence guidelines, which is under the public comment, Japanese companies can already begin formulating their own human rights due diligence policies. Under the Guiding Principles on Business and Human Rights, human rights due diligence can be divided into four steps:

　1. Identifying and assessing any actual or potential adverse human rights impacts linked to a company’s business activities.

　2. Integrating the findings of the business’s impact assessments and taking appropriate actions.

　3. Tracking the effectiveness of the business’s efforts to optimally implement human rights policies.

　4. Regularly and sufficiently communicating potential human rights concerns and formally reporting on how the business seeks to address them.

The Japan Federation of Bar Associations has produced its own Guidance on Human Rights Due Diligence, in which it suggests that companies include corporate social responsibility clauses into contracts with their suppliers. Essential to these clauses are terms granting the purchaser the right to inspect or audit the supplier for compliance with human rights requirements and, the right to terminate the supply contract in the event that a human rights violation is not remedied within a reasonable period of time. Furthermore, purchasers should ensure that suppliers themselves are conducting their own reasonable human rights due diligence over upstream suppliers to ensure compliance over the entirety of the supply chain.