At Risk: Litigation, Reputation and Violation of CSR Norms

Jennifer L. Egsgard

• What is CSR?• Where to find CSR standards• Risks of ignoring CSR standards• Approaches to compliance

TODAY

• Evolving definition• No longer refers simply to philanthropic

efforts• CSR addresses how corporations manage

their economic, social and environmental impacts on various stakeholders

WHAT IS CSR?

“Corporate social responsibility encompasses not only what companies do with their profits, but also how they make

them.

It goes beyond philanthropy and compliance and addresses how companies manage their economic, social, and

environmental impacts, as well as their relationships in all key spheres of influence: the workplace, the marketplace,

the supply chain, the community, and the public policy realm.”

- Harvard’s John F. Kennedy School of Government

WHAT IS CSR?

• Standards may be expressed though:• International Conventions• National laws• Private contractual agreements• Voluntary principles

• In some cases, expectations are becoming increasingly standardized

WHAT STANDARDS APPLY?

• Set out general and industry-specific standards

• Often non-binding but important expression of expectations for behaviour

• UN Guiding Principles on Business and Human Rights

WHAT STANDARDS APPLY? INTERNATIONAL CONVENTIONS

• Core statement: – “Business enterprises have a responsibility to

respect all internationally recognized human rights.

– This means that they should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved”

UN GUIDING PRINCIPLES ON BUSINESS AND HUMAN RIGHTS

• All rights, at a minimum as set out in:– International Bill of Human Rights

• Includes: Universal Declaration of Human Rights; International Covenant on Economic, Social and Cultural Rights; the International Covenant on Civil and Political Rights; and its 2 optional protocols

– Principles concerning fundamental rights set out in the ILO Declaration on Fundamental Principles and Rights at Work

UN GUIDING PRINCIPLES: WHAT RIGHTS ARE COMPANIES REQUIRED TO

RESPECT?

• Avoid causing or contributing to adverse human rights impacts through company activities

• Must address impacts when they occur• Must seek to prevent or mitigate adverse

impacts directly linked to company operations

• Must provide access to remedy

UN GUIDING PRINCIPLES: HOW MUST COMPANIES RESPECT RIGHTS?

• Policy commitment to respect rights• Human rights due diligence process to

identify, prevent and mitigate adverse human rights impacts; and

• Processes to remediate adverse human rights impacts caused or contributed to by the company

UN GUIDING PRINCIPLES: STEPS REQUIRED TO RESPECT RIGHTS

• Informed revisions or content of:– IFC Sustainability Framework– ISO standard 26000– OECD Guidelines for Multinational Enterprises

• Government/industry group endorsement includes:– Government of Canada, Council of Europe,

US, UK, PDAC and Intl. Council on Mining and Metals

INTEGRATION AND ENDORSEMENT OF GUIDING PRINCIPLES

• Increase in legislation in multiple jurisdictions aimed at encouraging socially responsible behaviour in respect of:– Anti-corruption – Conflict minerals – Ethical supply chains– Human rights in certain areas i.e. Myanmar

• These laws also set out CSR standards

NATIONAL LEGISLATION

• Reputational damage• Loss of business opportunities• Litigation• Security risks• Exclusion from business and financing

opportunities• Pressure from concerned shareholders

RISKS OF IGNORING CSR STANDARDS

• Reputational damage can lead to:– Boycotts - decreased market share and

profitability– difficulty doing business with impacted groups

• Heightened public awareness of rights issues increases boycott risks today, including as a result of social media, NGO investigations, and increased understanding of corporate structures

RISKS OF IGNORING CSR STANDARDS:REPUTATIONAL DAMAGE

• Private self-regulatory efforts can disqualify companies from contracts in the absence of adequate CSR systems– Example: Wal-Mart seafood supplier

suspended as a result of poor working conditions

• Laws can also restrict business opportunities for companies without CSR systems i.e. California

RISKS OF IGNORING CSR STANDARDS:LOSS OF BUSINESS OPPORTUNITIES

• Harmful impacts from company operations can lead to conflict with populations near operations – protests, labour strikes

• Can lead to:– Physical harm to individuals and to company

operations– Legal risk– Large losses from disruption in operations

RISKS OF IGNORING CSR STANDARDS:SOCIAL UNREST/SECURITY RISK

• Increasing demands from institutional investors that businesses show compliance with CSR standards to obtain financing

• Example: International Finance Corporation’s Sustainability Framework has been updated to reflect Guiding Principles, compliance with which is a condition of IFC financing

RISKS OF IGNORING CSR STANDARDS:DISQUALIFICATION FROM FINANCING

• Transnational tort actions ongoing in Canada:– Choc v. Hudbay Minerals, 2013 ONSC 1414– Adolfo Garcia v. Tahoe Resources Inc.– Araya v. Nevsun Resources Inc.

RISKS OF IGNORING CSR STANDARDS:LITIGATION

• Yaiguaje v. Chevron Corporation, 2013 ONCA 758

RISKS OF IGNORING CSR STANDARDS:LITIGATION

• CSR strategies can no longer simply be philanthropic endeavors

• Must instead respond to emerging legal and other risks

RISK MANAGEMENT & COMPLIANCE STRATEGIES

• Guiding Principles provide that policy statements should: – Be approved by senior management– Be informed by relevant expertise– Set out human rights expectations

• Internal and external policies• Should dovetail with existing policies re.

CSR issues – i.e. corruption, privacy

RISK MANAGEMENT STRATEGIES: POLICY STATEMENTS

• Guiding Principles provide that due diligence should identify, prevent, mitigate and account for adverse human rights impacts

• Business advantages to due diligence• Solicitor/client privilege

DUE DILIGENCE

- Help clients understand definition and scope of affected rights

- Interpretation under national and international law

- Assessment of causal relationship

- Drafting third party/supplier contracts

DUE DILIGENCE – ROLE OF COUNSEL

• Guiding Principles require businesses to cooperate in legitimate processes, including non-judicial grievance mechanisms, to remedy human rights grievances that they have caused or to which they have contributed

• Appropriate measures will vary

• Most difficult aspect of Guiding Principles

REMEDIATION

CONCLUSION