Andy Symington 

The importance of human rights due diligence as a means of detecting the risk of negative impacts on rights in corporate supply chains is increasingly being recognised by companies. This is particularly relevant to supply chains for renewable energy technology. However, the corporate instinct to divest from problematic suppliers does not serve to eliminate or mitigate the human rights impacts and may worsen them; using leverage, where possible, to improve the situation is a better strategy. 

In the ten years that have passed since the launch of the UN Guiding Principles on Business and Human Rights (UNGPs) in 2011, much of the global dialogue on the subject of companies and their impacts on rights has coalesced around them. One of their key components, human rights due diligence (HRDD), has gathered increasing momentum around the world as a consequence. 

Nature of human rights due diligence 

HRDD operationalises the UNGPs’ requirement for businesses to respect human rights by focusing on the risk of harm to people – rather than on the risk of harm to business that is the focus of normal due diligence – in companies’ operations and supply chains. This type of due diligence has, in recent years, been mandated by law in certain jurisdictions, and promoted by other pieces of legislation imposing reporting requirements – Australia’s Modern Slavery Act 2018 (Cth) is an example of the latter. It is also increasingly being employed by companies as they seek to gain understanding of actual and potential human rights impacts caused or contributed to by their activities or those of their suppliers. As well as for compliance with legislation, due diligence may be conducted in the context of public reporting on sustainability or environmental, social and corporate governance (ESG), for example, or to fulfil requirements imposed by customers, lenders, investors or stock markets. 

HRDD typically involves detailed mapping of company supply chains in order to better comprehend where risk to people might lie. So far, so good for the influence of the UNGPs. But what happens when a company detects human rights risk, or negative rights impacts that are already occurring, in its supply chain? 

The impacts of divestment following HRDD 

Many businesses now realise that negative human rights impacts in their supply chains can result in significant reputational damage for the company. Risk to people often thus directly translates to risk for business. While this is an important validation of the UNGPs’ position, it also means that the first instinct of many companies on detecting the risk of harm is to change supplier or divest from investments. 

This strategy may be effective in eliminating that risk to people from a company´s supply chain but it is unlikely that the victims of the rights impact will feel the benefit; it may, in fact, worsen the situation for rights-holders. This point was strongly made by representatives of Bangladeshi garment workers in the wake of the Rana Plaza disaster in 2013: for European and United States (US) companies to boycott Bangladeshi-made clothes in order to cleanse their supply chains of labour rights risks would leave workers without their livelihoods and at the mercy of less scrupulous companies. In general, the garment industry heeded the workers and, rather than disengaging, got involved in order to improve conditions on the ground. 

However, in the context of the sustainable energy transition, some of these lessons appear to have been forgotten. Recently, some electric vehicle companies have been working to remove Congolese cobalt from their lithium-ion battery supply chains and kickstarting ‘sustainable’ European lithium projects to guarantee supply free of the association with harmful environmental and Indigenous rights impacts associated with some North and South American producers. It is understandable that companies dealing in renewable technology have a need to be seen by the public as sustainable. However, affected rights-holders would be better served not by divestment but by vehicle and battery manufacturers engaging with mining companies and the communities themselves in order to find a common strategy to mitigate negative rights impacts and promote positive ones. 

Leverage and the requirements of the UNGPs 

The UNGPs are actually quite clear on the matter of divestment in Principle 19, only countenancing disengagement as something to consider when efforts to engage with the supplier have not changed the situation, or in situations where no leverage exists. Yet in the case of most minerals in renewable technology supply chains – such as the examples of lithium and cobalt given above – leverage most certainly exists. In fact, there are some existing multistakeholder projects underway involving mining companies, communities and customers downstream in the supply chain; these initiatives seek to guarantee a more sustainable supply without abandoning rights-holders by divesting. 

However, the requirement of the UNGPs that companies first attempt to use their leverage to improve rights outcomes in their supply chains is often ignored. This is not helped by the fact that reputational damage is rarely the result of a nuanced analysis by the public. As consumers we are easily persuaded by media coverage to believe that all Congolese cobalt is mined by children or that all South American lithium projects cause desertification. These are simplifications that derive in part from the difficulty of penetrating complex supply chains and in part from the desire to take a broad-brush approach to risk. However, they are simplifications that do not serve the rights-holders who are, after all, the reason for the whole HRDD enterprise. 

That the UNGPs have had notable success in disseminating an awareness for the need for HRDD to increase transparency of corporate supply chains is evident. Yet, if we are to achieve a ‘just transition’ to a sustainable energy future, it is important that companies whose technology is driving that transition acknowledge that the risk to rights-holders does not disappear when they are removed from a supply chain. Adhering to the UNGPs’ requirement for companies to engage with suppliers on these issues and use their leverage – along with genuine engagement and partnership with the rights-holders themselves – is the best way to guarantee those rights. A transition that delivers environmental benefits without realising social ones cannot be considered just.  

Andy Symington is a business and human rights consultant with KPMG Banarra and a PhD candidate at UNSW Law & Justice, investigating human rights dynamics in renewable energy extraction and supply chains. 

Australia is currently reviewing its illegal logging laws and seeking input on how best to ensure these laws are fair and effective. In a recent government submission, I make recommendations on how to enhance the existing legal framework, based on findings of my academic research. The submission window has now closed, and we can expect recommendations in the first quarter of 2022. 

Illegal logging is estimated to cost the global community up to AUD$206 billion each year. It contributes to global deforestation and biodiversity loss and compromises the planet’s resilience to global warming. It undermines legitimate timber industries and livelihoods, and has been linked to corruption, organised crime, human rights abuses, and armed conflict. Luckily, countries around the world have taken steps to eliminate illegal logging, developing laws that attempt to prevent and punish this harmful activity. 

In Australia, the laws that target illegal logging are the Illegal Logging Prohibition Act 2012 (Cth) (‘Illegal Logging Act’) and Illegal Logging Prohibition Regulation 2012 (Cth) (‘Illegal Logging Regulations’) (hereafter, ‘Illegal Logging Act and Regulations’). These laws prohibit the importation and domestic processing of illegally harvested timber. They require that timber importers conduct due diligence to ensure illegally harvested timber does not enter their supply chains and end up on the Australian market. There are also penalties for non-compliance, which are enforced by the Department of Agriculture, Water, and the Environment. 

My research demonstrates the importance of destination country laws such as Australia’s Illegal Logging Act and Regulations, which also exist in other destination countries and jurisdictions such as the United States, United Kingdom, and the European Union.  

Destination country laws interact with laws in source countries around the globe, as well as with certification schemes and the efforts of stakeholders at the local, national, regional, and international levels. Relevant stakeholders include corporations and industry associations, non-government organisations (NGOs) and civil society groups, banks and investment bodies, governments and regulators, consumers, and forest reliant communities. Collectively, interaction between these legal mechanisms and stakeholders impact the effectiveness of efforts to end illegal logging. 

By combining due diligence requirements for companies, prohibitions on importation of illegal timber, and penalties for non-compliance, destination country laws represent an essential component of the transnational regulatory framework. However, my research also shows a number of risks and limitations with these laws.  

Limitations include significant rates of non-compliance by corporate actors; enforcement challenges stemming from fraud and corruption in complex transnational supply chains; and, a need for greater interaction between destination country laws and laws in place in source countries. There is also a pressing need for greater collaboration between stakeholders to ensure that incentives for illegality are reduced, and opportunities for sustainable and ethical forest governance practices are enhanced. 

To overcome existing limitations and enhance the opportunities for stakeholder collaboration, I make the following recommendations for improving Australia’s Illegal Logging Act and Regulations: 

1. The definition of the term “illegally logged” should be broadened and clarified to account for the interaction between harvest-specific laws and other relevant laws including anti-bribery laws, environmental laws, labour and human rights laws, constitutional protections, and customary land rights.  

2. The due diligence process should mandate consideration of corruption and human rights abuses (including modern slavery) through inclusion of these risks under sections 10 and 13(3) of the Illegal Logging Regulations.  

3. The Illegal Logging Regulations should mandate that the timber importers and processers who are subject to regulation make public non-sensitive elements of their due diligence system, to allow stakeholders (including consumers, investors and NGOs and civil society groups) to evaluate these systems and support the evolution of best practice. 

4. Consideration should be given to expanding the scope of the Illegal Logging Act and Regulations to mandate due diligence by importers of ‘forest risk commodities’ and ‘financial institutions’, not just timber importers and processors. 

This final recommendation deserves further explanation. Currently, the Australian law only applies to importers and processors of ‘regulated timber products’ (section 9 of the Illegal Logging Act and section 5 and schedule 1 of the Regulations). However, illegal logging can result from practices unrelated to the forestry industry. Notable examples include land clearing for palm oil or other agricultural activities and the raising of livestock for international export.  

Expanding the scope and purpose of the law to address illegal logging that results from sourcing and trade of other commodities would be a valuable step towards an effective transnational framework to eliminate illegal logging. This step would align with developments in the United Kingdom, where the Environment Bill 2020 proposes due diligence requirements for all ‘forest risk commodities’.  

I also recommend expanding the scope of the law to mandate due diligence systems and reporting for financial institutions, as well as importers. This step would align with global trends towards recognising the role of responsible investment and lending practices in tackling transnational problems. Financial institutions and investors are key stakeholders in the effort to end illegal logging. Existing data shows that the big four Australian banks (Westpac, NAB, CommBank and ANZ) have collectively provided USD$2.21 billion of credit to forest risk projects since 2013. Globally, the numbers are much larger. Expanding the coverage of the law to include financial institutions would increase incentives for collaboration between stakeholders and support sustainable and ethical practices by Australian businesses. 

Countries, including Australia, must continue to support each other to eliminate illegal logging and develop a robust transnational legal framework to prevent harmful deforestation. By taking the above steps to improve its illegal logging laws, Australia has a unique opportunity to lead the world in this transnational effort. However, Australia cannot solve illegal logging alone. It must leverage the support of other powerful stakeholders and implement and enforce legal obligations to incentivise market transformation. 

If we cannot eliminate illegal logging, the consequences will be catastrophic. However, if we succeed in this effort, we have an opportunity to protect vital forest ecosystems and the communities that rely on them, while increasing our planet’s resilience to climate change and contributing to sustainable economic opportunities for all. 

The full submission, endorsed by Transparency International Australia, is available here.  

Dr Hannah Harris is a legal scholar and Senior Lecturer at Macquarie Law School. Her research area is transnational law and corporate regulation. Her current work includes analysis of legal responses to transnational challenges, including illegal logging, modern slavery, and foreign bribery. Her research also explores the potential for technology to support transnational regulatory efforts, including the use of Artificial Intelligence and Machine Learning for supply chain governance, law enforcement, and corporate governance. See details of her work here, and connect on Linkedin.