January Business and Human Rights Update

Ngā mihi o te tau hou ki a koutou katoa! Happy new year ... hope everyone had a refreshing and festive break. :)?

I'm carrying on this year with the monthly updates on Business and Human Rights focussing on the Aotearoa New Zealand experience. Hope you enjoyed following along last year, and let me know if there is anything I can do differently/better.

What to expect from this update ....

As we head into a new year, various organisations have published their list of 'big issues' looking forward to 2022. So I'm going to share my own quick list of 'the big 5' from an Aotearoa perspective. But with a specific focus: key policy and legislative intiatives to watch for this year.

But first, some international context:

Here are two insightful takes on the big BHR issues for 2022:

• In December's update, I included the top-ten issues for 2022 from the perspective of the Institute of Business and Human Rights;
• there's another good one from the consultancy, Ergon Associates. To mention some of what it covers: the trend towards mandatory due diligence; the ongoing pandemic; greater worker protection in the platform economy; bolstering standards for certification bodies; human rights in the just transition; the living wage campaign; plus a few others.

The big picture seems to be one of both great opportunity but also significant uncertainty. Two recent reports highlight the latter. The World Economic Forum's latest Global Risks Report highlights the significant and also unevenly distributed impact of Covid-19 globally, splitting economics down “diverging trajectories”. This economic uncertainty has political ramifications too. This is explored in the Human Rights Watch's latest report describing the global threats to democracy (but also its ongoing resilience and popular appeal as well).

But while there are clearly great challenges, there are also positive signs too. Key movements/narratives - the BHR movement, ESG, CSR, sustainability, and so on - continue to grow in influence. And that's having an impact on how business is being done. The firm, Clifford Chance, recently released an insightful update on these global developments and how businesses are, and should be, responding.

New Zealand's Big 5 for 2022

There are winds of change in New Zealand as well, though still plenty of uncertainty about precisely where they will blow us! For my own 'big 5', I wanted to focus on various policy and legislative intiatives to watch for this year. It's not at all a comprehensive list; I'm mostly picking up on themes discussed in previous updates. So I'd love to hear your own thoughts on what your own 'big 5' might be!

Here goes ...

1: Migrant exploitation due diligence law

Last year, the Government's policy review into issues of domestic migrant worker exploitation culminated in a raft of policy proposals, which are neatly summarised here. Perhaps the most significant of these seeks to introduces a new duty on third party businesses to take reasonable steps to ensure exploitation does not occur in their supply chains.

Migrant exploitation has been associated with smaller businesses at the bottom-end of subcontracting and franchising arrangements. This leads to an accountability gap: for on the whole, only the immediate employer can be found liable for breaching basic employment standards for its employees. This makes it easy for third parties up the supply chain to overlook how their own operations and influence often cast a long shadow over these smaller businesses. (The Chorus saga provides one case in point.)

The proposed law seeks to plug that gap, with a new duty modelled off but perhaps going even further than an Australian equivalent. More details can be found in this policy document from [37] onwards. Importantly, the proposed law is so far intended to apply only in situations where both the employer and the third party are based in New Zealand.

The proposal has already gone through a substantial public review process, so we might expect it to consolidate into a bill sometime this year. Its trajectory, however, might end up becoming intertwined with the proposed modern slavery act ...

2: Modern Slavery Legislation?

After World Vision and Trade Aid's successful SignForFreedom campaign, the Government has convened a modern slavery leadership group to advise it on legislative options for regulating modern slavery risks in supply chains. Those two NGOs, plus the Human Rights Commission and MBIE, all presented to the petitions committee late last year. The Government's commentary can be found here, and it was also summarised in my November update. Significantly, the Government indicated there will a public consultation early this year.

Here are three big questions that will probably feature heavily in the debates to come:

• All the stakeholders, including the government, seem to drawing from the UN Guiding Principles on Business and Human Rights, and keying into into the rapidly growing movement internationally around mandatory due diligence legislation. But the transparency-based modern slavery acts of our commonwealth neighbours, the UK and Australia, will also carry weight. So there are tensions there. For instance: What is the proper scope of legislation (modern slavery, or broader human rights, or even evironmental considerations)? Transparency or a due diligence standard of care? Light-touch government intervention or more rigorous enforcement? Etc.
• Another live issue is how (and how well) we can draw from these international examples and apply them to New Zealand's context. Does NZ have the same human rights risk profile? What difference does it make that our economy is almost entirely small-to-medium sized enterprises?
• Finally, how does this proposed law fit with the proposal for a new duty around migrant exploitation discussed above? Is one targetting domestic exploitation and the other international exploitation? How will that work? Or will they merge?

3. Mandatory Climate Change Reporting

Last year, New Zealand enacted its Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act. With this enactment, New Zealand becomes one of the first countries globally to mandate climate-risk reporting in the financial sector (although just for a slice of the sector: its narrow scope has attracted criticism). Still, the Government has said it?“is expected to make a significant contribution to New Zealand achieving?carbon neutrality by 2050".

Although the law is in force, there is a grace period. The first reporting period starts from 1 January 2023, so the first climate statements will need to be made in 2024. But there's plenty going on in the meantime.

In particular, the External Reporting Board?(XRB)?is empowered to issue guidance on ESG/non-financial reporting. Some of that consultation is still ongoing this year, e.g. around strategy, metrics and targets. A draft of the full standard is expected later this year.

4. Bill on Directors Duties

Another interesting legislative development is around directors duties. The Companies (Directors Duties) Amendment Bill (75-1), a short bill introduced in September last year, clarifies that directors can factor in considerations beyond profit maximisation when determining the ‘best interests of the company’. I spoke a bit more about this in my November update. The Bill is sponsored by a labour MP so we might expect it to wind its way through Parliament this year.

One interesting thing about the bill is that it lists five factors of the kinds of things directors might want to be considering. It's a non-exhaustive list, but they still send signals. They are: recognising the principles of Te Tiriti, reducing environmental impacts;?upholding high standards of ethical behaviour; upholding fair and equitable employment practices: and?recognising the interests of the wider community. Good things, clearly. But one point we might raise is: nowhere is migrant exploitation, modern slavery, or even climate change expressly mentioned.

This leads to a fourth observation.

5. Business will want coherence and legal certainty.

There are clearly a lot of policy and legislative changes in the pipeline. They are all part of what one recent high-profile report from the Institute of Directors and MinterEllisonRuddWatts called the "perfect storm" that businesses are experiencing: "the pandemic, climate change and social inequality are all presenting business leaders with some of the most extreme economic and social dilemmas in generations". And along with these challenges comes society's rapidly changing norms and expectations for business. It's a confusing, and exciting time.

But one obvious question from all this is: how well do all these policy and legislative developments cohere? Both substantively (in terms of their obligations, scope, enforcement regimes, and so on) but also in terms of the messages they send. We can perhaps expect a lot of the public debate this year to be driven by businesses calling for greater cohesion and clarity in this regulatory space.

From the Government's side, one context in which this reconcilling work might take place is in its first ever National Action Plan (NAP) on the UN Guiding Principles. The Government indicated it will developing its first NAP in its submissions to the petitions committee on the modern slavery law question. This is an important step forward in thinking through what 'business and human rights' means for NZ. We might expect that document to take stock of:

• the various legislative initiatives just mentioned,
• the wider Pacific context (the 2nd UN Pacific Forum on BHR just occured late last year)
• the interrelationships of human rights with environmental and climate change concerns (which is an increasing focus internationally, as people speak more about a JustTransition out of our climate crisis).

...

That's the big five! An exciting time indeed. Let's see what unfolds ...