C&M International Director Nicholas Diamond (Nicholas Diamond) said that as investment in renewable energy continues, companies and investors should improve their human rights due diligence methods. It lists three considerations for applying human rights due diligence in the oil and gas industry to renewable energy.
Expanding investment in renewable energy technologies such as wind, solar, and biofuels is an important part of the global effort to achieve a zero-carbon economy. In 2019 alone, the total investment in the field of renewable energy reached 282 billion US dollars, of which solar and wind power generation capacity reached approximately 8% and 9% of the global power generation capacity respectively.
As renewable energy investments continue, companies and investors should improve their human rights due diligence (HR) methods. Although traditional oil and gas business models can well understand the risks of HRDD, renewable energy projects are different in key aspects and require stakeholders to adjust to minimize risks.
Where is the risk?
Companies and investors should understand the relevant (non-binding) international obligations of “soft” laws, such as the United Nations Guiding Principles on Business and Human Rights (UNRP), which are increasingly new (binding) national laws. In fact, depending on the jurisdiction of the country where the project is implemented, there may also be “strict” legal obligations that apply.
There may also be reputational considerations, and the corresponding business impact, stemming from the public’s perception of responsible business practices. In view of the continuous review of the regulatory agencies, this will also affect the interaction with the government, especially investments made outside the home country. The HRDD risk of
renewable energy projects may be exacerbated by its close connection with climate change priorities. Even though climate change intervention obligations may not directly apply to private actors, but to governments, specific legal and reputational risks may persist. For example, some plaintiffs have successfully applied legal strategies that combine national legal obligations, international human rights law and environmental treaties to hold companies responsible for reducing emissions.
How should companies and investors respond?
Smart investors and companies will have strong HRD policies and procedures applicable to traditional oil and gas business models. However, renewable energy projects have a unique set of considerations, and even the most complex operations must adapt. Three key considerations can help evaluate and adjust established HRD policies and procedures.
First, renewable energy projects can involve direct impacts on local communities; In particular, land acquisition or labor rights may be affected by investment in wind or solar energy projects. If the rights of indigenous peoples are affected, companies and investors may have to grapple with national and international obligations. For example, complaints related to the wind farm in Oaxaca, Mexico, which affect the human rights of local indigenous communities, have been highly scrutinized in recent years. Implementing a robust consulting process within the HRDD platform can provide an ongoing forum for stakeholder engagement to address the risks of local community business operations.
Second, the materials involved in renewable energy projects can present unique challenges. Energy storage technologies, such as batteries, require the extraction of minerals such as lithium, nickel, and zinc. The extractive industry is under great scrutiny for its impact on labor rights and the rights of indigenous peoples. For example, due to suspected human rights violations of local ethnic and religious minorities, especially major Muslim groups, Xinjiang is the mining area for most of the polysilicon (used for solar panels) in the world, and thus therefore, it is subject to close scrutiny. .
Uighur residents. Additionally, solar panel manufacturing practices expose workers to dangerous chemicals like cadmium. Companies and investors should carefully review the sources of materials used in renewable energy projects, especially considering the potential risks of trade controls and sanctions. They must also consider the impact of downstream HRDs, including the post-life cycle phase-out of technologies that rely on such materials.
Third, renewable energy projects can engage new supply chain partners.
Partner activities may bring risks to the company and investors. For example, the biofuel industry relies on supply chain partners in the palm oil industry, which has conducted research on the impact of its labor rights in Malaysia, Indonesia, and Thailand. The UN guidelines extend corporate responsibility to direct and indirect business relationships, including relationships with partners, in which adverse human rights impacts may be “directly related” to their operations in other parts of the global supply chain.
With regard to investors in particular, the Office of the High Commissioner for Human Rights clarified that “direct contact” can in principle be applied to situations where investors provide financing to clients, and the clients have subsequent impact by deploying these funds. Not good for human rights. Importantly, certain non-binding guidelines have a tendency to “tighten”.
For example, the German Parliament recently passed the “Due Diligence Act for Supply Chain Companies”, which stipulates several binding HRD obligations for large companies in risk management, reporting and remediation to from 2023.
At the EU level, a draft directive issued earlier this year calls on the EU to implement a binding due diligence obligation in the supply chain, which will be extended to suppliers and subcontractors. In fact, the directive even removed the “supply chain” label, rather than limiting the scope of regulated activities and entities to a broadly defined “value chain”.
Companies and investors should proactively evaluate new partner human resource development policies and procedures to ensure coordination and reduce risk. This will become increasingly important when these associations intersect with jurisdictions that apply national law.
Looking to the future
Even for companies and investors with strong human rights policies and procedures, the energy transition presents unique challenges. In order to proactively reduce risks, stakeholders must evaluate current policies and procedures against existing and planned renewable energy projects, review jurisdiction-specific requirements, and engage with partners as early as possible to ensure a vision for human rights.
This column does not necessarily reflect the opinions of the National Affairs Office or its owners.
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Nicholas Diamond is the director and chairman of C&M International Global Health Group, C&M International is the regulatory affairs and public policy subsidiary of C&M