Call it what you will – sustainability, corporate citizenship, environmental, social and governance (ESG) or a host of other common terms – but ultimately the underlying idea behind corporate social responsibility (CSR) has gained an intractable foothold in global commerce, and is only set to grow in prominence. NGOs, customers, employees (especially the younger ones) and investors are piling ever more pressure on companies to engage in business on ethical, accountable terms; failure to heed these concerns could result not only in seriously detrimental PR, but also, increasingly, falling foul of the authorities. Luckily, our ever-vigilant Lexology contributors have kept their fingers firmly on the pulse of global trends and legal developments in this area.
Increased legislative efforts to eradicate modern slavery
Over the past few years we’ve seen a raft of global legislative efforts to ensure responsibly managed supply chains that safeguard human rights, with more jurisdictions poised to introduce similar laws. Perhaps most prominent of these is the United Kingdom’s ground-breaking Modern Slavery Act 2015 – although its light-touch, name-and-shame approach to targeting companies complicit in human trafficking has faced growing criticism of late. After issuing several rounds of compliance guidelines, the Home Office is finally turning up the heat a bit, conducting an audit of over 17,000 companies in an attempt to compel further disclosures; Addleshaw Goddard provides a tidy summary of the audit, plus tips on how to prepare for it. Boyes Turner, meanwhile, looks at the implications of the recent enforcement push for tech companies, while Womble Bond Dickinson examines the impact for the construction industry. The audit, alongside a recent report recommending increased transparency requirements under the act, may well pave the way for more stringent enforcement in the form of penalties in future.
Australia has followed suit with its own modern slavery legislation, first in the state of New South Wales and subsequently at federal level; Clayton Utz has produced a helpful side-by-side comparison of both laws. More recently, the federal government has published draft guidance on compliance with the Commonwealth-wide act – K&L Gates offers a detailed overview, highlighting the key considerations for companies when preparing their modern slavery statement.
While the New South Wales law provides for fines of up to A$1.1 million for non-compliance, the federal legislation suffers the same criticism as its British counterpart: a lack of teeth. Finnish firm Castrén & Snellman makes a bold case for tough EU-wide CSR regulation, but as Seyfarth Shaw notes in its insightful exploration of global anti-slavery initiatives, steadily increasing pressure from consumers and investors “will make it increasingly difficult for businesses to ignore the issue of modern slavery, whether or not they are subject to a law In their home jurisdiction”.
Unsustainable companies in court
The UK Supreme Court’s landmark judgment in Lungowe v Vedanta has been one of the hottest Lexology topics of the year thus far, and for very good reason. The court held that a claim against the UK-based parent company of a Zambian mining operation accused of polluting a local village’s only water source was triable in the English courts – thus potentially exposing parent companies to much greater liability for the actions of their subsidiaries. Freshfields provides an incisive review of the case in the context of corporate social responsibility, highlighting the need for multinationals to develop group-wide polices that promote and ensure human rights and sustainability in their operations.
Sustainability issues were also recently addressed by the New South Wales Land and Environment Court when it refused to give planning permission to a coal mine due to its likely impact on the local community in particular and the environment in general. As Corrs Chambers Westgarth explains in its astute analysis of the case, the decision implicitly recognises the adverse human rights implications of climate change and may prompt planning authorities to be more mindful of the link between the two when deliberating on development projects.
Voluntary compliance – good for the soul, good for business
While much is made of the ‘hard’ law, companies and their counsel would do well to pay close attention to the ‘soft’ law too – that is, the voluntary codes of conduct and reporting systems to which consumers, supply chain partners and investors are increasingly demanding adherence as a pre-condition for cooperation. These voluntary commitments take many forms, including most prominently:
- the Global Reporting Initiative Standards, a broad framework for global reporting on economic, environmental and social factors affecting sustainability performance;
- the Sustainability Accounting Standards Board Standards, an investor-focused programme that provides more targeted, industry-specific guidance on sustainability reporting across a wide range of sectors; and
- the recommendations of the Task Force on Climate-related Financial Disclosures, another investor-centric scheme to encourage the disclosure of risks arising from climate change.
As White & Case points out, sectors with a high risk of human rights and environmental violations in their supply chains have an even greater impetus to comply with such voluntary initiatives. In the same vein, Hogan Lovells’ briefing pinpoints the ESG factors that investors in and executives of energy and natural resources companies would be unwise to ignore; while CMS considers the angle for financial services in the European Union.
Indeed, the rewards of taking proactive transparency and sustainability measures are becoming more apparent with each passing day. Research has shown that companies incorporating CSR/ESG principles – and making the relevant disclosures – tend to perform better financially. And if any further incentive is needed, it’s increasingly easy for companies to account for their operations through the use of sophisticated new technology. Gowling, for instance, notes the immense potential for blockchain to play a major role in ensuring that food products across the global supply chain are ethically sourced.
In-house counsel seeking to stay on top of the trend towards greater sustainability and accountability are advised to take a broad view of CSR compliance – encompassing both black-letter law and the growing expectations of stakeholders and the general public – and constantly re-evaluate their action plan to accommodate the continually evolving CSR landscape. Stay vigilant by bookmarking our CSR and Human Rights hubs, and check out our on-demand CSR webinar in partnership with Ropes & Gray (also conveniently broken down into bite-size chunks on the CSR tab of Lexology Learn).