Last week, the Japanese government (Government) announced that it will soon introduce human rights due diligence guidelines (Guidelines) for Japanese businesses. The aim of these guidelines will be to assist businesses in identifying and responding to, as well as preventing, adverse human rights impacts in their operations and supply chains.
This latest move comes amidst a recent focus on improving human rights protections across the nation and is consistent with worldwide trends towards the introduction of human rights due diligence requirements for companies.
Renewed attention on human rights in Japan
In late 2020, a Government committee launched the National Action Plan on Business and Human Rights 2020-2025 (NAP). The NAP acknowledges that many jurisdictions, such as the US, Australia and nations across Europe, have introduced legislation and other regulative instruments which require companies to take steps to identify and avoid risks to human rights in their operations and supply chains. The Guidelines were announced by Mr Gen Nakatani, former Defence minister, who was appointed in November 2021 as special adviser on human rights to Prime Minister Fumio Kishida.
The NAP also called on companies to carry out human rights due diligence, but a more recent survey by the Government revealed that half of Japan's public companies do not undertake human rights due diligence.
In recent times there have been reports that some Japanese businesses have faced obstacles in relation to trade and investment activities overseas due to lack of compliance with international standards of responsible business conduct and local regulations in other markets. These reports, as well as increased focus on ESG globally, have led to calls for Japan to align more closely with international standards.
Proposed human rights guidelines for businesses
At this stage, the scope and content of the Guidelines that will be introduced is not known. For the time being, it appears the Guidelines will be non-binding, although the Government has considered it may also consider introducing legislation in this area in due course if the response to the Guidelines is inadequate.
It is also unclear what types of businesses the Guidelines will apply to. Further developments will need to be considered before it can be said whether any entity that does business in Japan (regardless of where they are incorporated) will need to follow the Guidelines.
Because the announcement of the Guidelines has been linked to instances of Japanese companies facing allegations of using forced labour in their supply chains, it is expected that the Guidelines may focus on this topic. It is less clear whether the Government will give guidance more broadly on how companies should approach human rights due diligence in other areas.
Whilst the volume of businesses which may fall within the scope of the new Guidelines and the extent of any due diligence requirements are not yet clear, Japan's commitment to working towards meaningful action to tackle human rights abuses linked to the private sector indicate that businesses will have to take note and keep up to date with any relevant developments.
Importantly, the fact the Guidelines are not legally binding does not necessarily indicate mere "window dressing" or a lack of seriousness around ESG issues on the part of the Government. It is not unusual for the Government to rely on informal guidance, with a strong expectation of adherence by Japanese companies, as a flexible and consultative method of achieving regulatory and policy aims. This can be seen in the area of competition law, for example, where the Japan Fair Trade Commission commonly issues reports warning of potentially problematic conduct in preference to formal enforcement.
Larger Japanese companies trading internationally will need to consider how to implement the new Guidelines alongside other requirements they may be subject to as a result of their presence in other markets. Many Japanese companies are subject to modern slavery reporting obligations in the UK and Australia and may also be required to comply with mandatory human rights due diligence laws which have been introduced in a number of European companies including France and Germany. Japanese companies should also pay attention to the development of an EU-wide directive on human rights due diligence.
Despite some Japanese businesses and entities doing business in Japan already taking their own steps towards better compliance to human rights through internal policies, training and measures, they may soon have a new set of requirements that they will need to consider and implement into their broader risk management framework.