Project funders looking at HUMAN RIGHTS in due diligence

The question of human rights has become a risk increasingly under scrutiny by financial institutions when they conduct their due diligence on prospective project investments.

BY SRK CONSULTING*

This is hardly surprising, given that over a decade has already passed since the UN Guiding Principles on Business and Human Rights was ratified. However, for many companies seeking finance for their mining and other industrial projects, this focus presents a new set of potentially complex requirements.

The issue has moved beyond a general concern with how the private sector upholds human rights as part of its environmental, social and governance (ESG) commitment. Today, many financiers want applicants to pinpoint the detailed risks associated with human rights. They will expect a much more concerted focus on these issues in due diligence studies and impact assessments – alongside the potential consequences and mitigating responses. As SRK, the studies we conduct often require a “deep dive” into the question of human rights.

Mobilised

Society has mobilised increasingly around human rights, environmental compliance, labour practice and anti-corruption measures. This has raised the potential for stakeholder concerns to boil over into the serious disruption and delays, and even collapse of projects.

In this context, lenders are much more aware of human rights-related risks that project developers must carefully analyse and mitigate. A key aspect of identifying and addressing these risks is stakeholder engagement. This is seen, for instance, in the Global Industry Standards on Tailings Management (GISTM), which was fast-tracked in response to the catastrophic tailings dam failure in Brumadinho, Brazil in 2019.

Engagement

The GISTM prioritises that mining companies respect the rights of project-affected people by meaningfully engaging them at all phases of the tailing facility life cycle. Engagement with communities and other stakeholders is now a vital element of the human rights agenda.

Preparation for mine closure is another area that demands extensive engagement with stakeholders. The mining sector has built considerable capacity in the environmental field, to deal with closure. This is not matched on the social front – with many projects struggling with more abstract social impacts and focusing on purely technical considerations.Communities are often dependent on mining activities for employment, services and a market for local businesses. With mines historically falling into the trap of industrial paternalism, they tend to provide mine employees with services such as housing and health care but are still wrestling with how best to create sustainable communities beyond the life-of-mine.

Vulnerability

Aspects like gender equality are gaining importance in the sustainability space. These concerns relate, for instance, to the reality of women often having less secure land rights. This makes them particularly vulnerable to land grabs, eviction and dispossession that are still associated with some large-scale developments in the extractives and agricultural sectors.

Any injustices in the treatment of project-affected people can raise warning flags about the project’s lack of sustainability – or at least certain strategic weaknesses. These are, of course, of great concern to everyone who wants the project to succeed, including funders – for whom there are considerable financial interests at stake.

context. Not only should this include a policy commitment to meet their responsibility to respect human rights; it should also contain a due diligence process to identify, prevent, mitigate and account for how they address their impacts on human rights. Further, there should be processes in place to remediate adverse human rights impacts.

This focus on human rights extends beyond the operational realm into the project’s entire upstream and downstream supply chain – and into aspects such as responsible sourcing. In Europe, the RE-SOURCING initiative is already paving the way for a common understanding about responsible sourcing between mineral producers and their Europebased customers.

SRK is integrally involved in this project, which arises from decades of global concern about issues like child labour, slavery and unethical behaviour in the mineral supply chain. The RE-SOURCING project works to promote both strategic agenda setting and a coherent application of practices for responsible sourcing.

Minerals like cobalt, for instance, are increasingly important to the future of battery and renewable technology. At the same time, there are concerns about human rights in the artisanal mining sectors of countries like the Democratic Republic of Congo – where much of the world’s cobalt is mined.

With the eyes of the public and authorities focused intensely on mining for many reasons, the industry will need to develop systematic and credible strategies to address human rights risks. The most effective approaches will begin early in the project life cycle and be carried forward to post-closure phases.

Basic Needs

A human rights focus is not new to environmental and social impact assessments (ESIAs), and people’s rights have in many ways always been embedded in our work as ESIA practitioners. Our investigations of environmental impacts such as water quality, air emissions or noise pollution consider how these will impact people’s health and basic needs – essentially their rights.

More recently, financial institutions will often require SRK to include an in-depth assessment of human rights impacts within a due diligence or other study or review. A growing concern is the reputational risk related to borrowers’ non-compliance with key industry benchmarks like the UN’s Guiding Principles and the International Finance Corporation (IFC) performance standards.

Suitable Policies

The UN’s Guiding Principles demand that business enterprises should have the right policies and processes in place, to suit their size and