Winter 2017

Business and Human Rights:  Closer scrutiny of businesses in the United Nations’ General Comment on State Obligations in the Context of Business Activities

On 23 June 2017, the United Nations’ Committee on Economic, Social and Cultural Rights (the “Committee”) adopted a new General Comment on State Obligations under the International Covenant on Economic, Social and Cultural Rights (the “ICESCR”) in the Context of Business Activities (the “General Comment”).  The ICESCR guarantees a range of socio-economic rights, including the rights to adequate housing, education, health, water and sanitation.

The new General Comment affirms the important role of businesses in realising socio-economic rights, including by contributing to the creation of employment opportunities and to development, through private investment.  However, the Committee also emphasises the duty of States to prevent and address the potential adverse impacts of business activities on human rights.  Given the additional risks associated with the extractive industry, it calls for particular due diligence with respect to mining and oil development projects.

As its title suggests, the focus of the General Comment is squarely on the obligations of States under international human rights law.  The General Comment expressly notes that “it only deals with the conduct of private actors, including business entities, indirectly.”  However, the General Comment also “seeks to assist the corporate sector in discharging their human rights obligations and assuming their responsibilities, thus mitigating any reputational risks that may be associated with violations of Covenant rights within their sphere of influence.”

The new General Comment calls on States Parties to take a more robust approach to business activities which may give rise to potential human rights violations.  Most notably:

  • The General Comment expressly calls on States Parties to align business incentives with human rights responsibilities by revoking business licences and subsidies from offenders and by revising relevant tax codes, export credit and other forms of State support in case of human rights violations. Further, the General Comment asserts that lowering rates of corporate tax with a sole view to attracting investors is inconsistent with the duties of States Parties to the ICESCR.
  • The General Comment calls on States Parties not to enter into trade or investment treaties which conflict with their ICESCR obligations, to ensure that future trade or investment treaties expressly refer to States’ human rights obligations and to ensure that investor-State dispute settlement mechanisms (and, ultimately, bodies) take human rights into account when interpreting investment treaties. Specifically, the Committee proposes that “investment treaties may deny protection to foreign investors … that have engaged in conduct leading to a violation of Covenant rights.”
  • The General Comment calls on States Parties to require corporations to deploy their best efforts to ensure that their subsidiaries (including overseas subsidiaries) and business partners respect ICESCR rights. In particular, corporations domiciled in the territory of one State Party should be required to act with due diligence to identify, prevent and address abuses by subsidiaries or business partners “wherever they may be located.”

This last recommendation echoes the Committee’s previous findings in its 2016 “Concluding Observations on the sixth periodic report of Canada”.  In those Observations, the Committee expressed concern that the conduct of corporations registered or domiciled in Canada and operating abroad was negatively impacting the ICESCR rights of local populations.  The Committee highlighted that local victims have “limited access to judicial remedies” before Canadian courts and that existing non-judicial remedy mechanisms had not always been effective.  It recommended that Canada specifically strengthen legislation governing the conduct of corporations registered or domiciled in Canada in their activities abroad.

Public international lawyers also will be interested in the Committee’s assertion that “[t]he extraterritorial obligation to protect requires States parties to take steps to prevent and redress infringements of Covenant rights that occur outside their territories due to the activities of business entities over which they can exercise control, especially in cases where the remedies available to victims before the domestic courts of the State where the harm occurs are unavailable or ineffective.”  This is not a widely accepted view.  Indeed, the issue was the subject of criticism by several governments and academics during the consultation phase on the draft General Comment.

Although the Committee’s General Comments are not formally binding, they are typically regarded as authoritative interpretations of the ICESCR and, therefore, highly influential.  It remains to be seen whether and how States will implement the recommendations and statements in the latest General Comment.  Certain aspects of the General Comment – such as the Committee’s stance against the lowering of tax rates to attract investment and the invitation to withdraw investment treaty protection from certain foreign investors – are likely to prove divisive.  However, the call to ensure enhanced monitoring and accountability for corporations in respect of their overseas subsidiaries and business partners reflects an increasing trend towards home State accountability for large multinational corporations.  This trend is likely to continue and to result in increased litigation risk for multinational companies, particularly in the extractive industry.

There are currently 167 States Parties to the Covenant.  The most recent General Comment is the 24th General Comment issued by the Committee.  The Committee issued its first in 1989.