Based on findings from the PRI roundtables with extractive companies, and research into the reporting of 50 extractive companies, the PRI in conjunction with steering committee members suggest six areas for engagement.

These are key to risk management, and feasible in light of the industry’s current state.

The six areas follow the structure of the UN Guiding Principles and the steps that companies would undertake to manage human rights. They include developing a human rights commitment, embedding it into practice, undertaking due diligence (following the plan–do–check–act cycle), and providing access to remedy. The only divergence to this structure is to look at a company’s response to incidents and allegations as a first point, where relevant. This is to recognise both that engagement dialogues tend to naturally include incidents and allegations as these occur, as well as the prevalence of incidents and allegations in the industry.

Engaging laggards

Findings from the PRI research showed that 24% of the companies can be considered ‘laggard companies’21 because they have no human rights commitment in place and/or provide information on only three or less of the 16 data points22 reviewed. Where companies in this category have a human rights commitment in place, it tends to be very limited. For example, a company might state that it aims to respect human rights, but provides no information on what it regards as its human rights impacts and responsibilities. Where it does, further description is limited to direct employees, and typically includes rights such as nondiscrimination. First steps when engaging those companies that are in very early stages of their journey to manage human rights risks are:

Investigating the company’s response to incidents or allegations

A recurring theme at the PRI roundtables was that company culture is a key element when it comes to managing human rights risks effectively. This includes how a company responds in cases where human rights abuses have occurred or where allegations have been made. More specifically, a company should be able to demonstrate to investors that it is able to respond adequately and timely, provide remediation where relevant and learn from mistakes. This only applies to companies where human rights incidents or allegations have occurred, but Vigeo found that during 2009-2012 more than 20% of the companies in a sample of nearly 1,500 European, Asian and North American companies faced one or more human rights allegations.

Request the company publishes a human rights commitment

Having at least a basic human rights commitment in place is common practice in the extractive sector, which provides a good starting point for engagement, and allows investors to point to good practice examples from peers in the same region. Where companies do not have a commitment in place, or where the commitment is limited, investors can play a role in helping companies to both understand their responsibility to respect human rights, and the scale and scope of its human rights impacts. For example, good practice includes aligning with international and industry standards.

The state of play of human rights reporting in the extractive industry

A human rights commitment is the only standard element in extractive companies’ human rights reporting

The PRI research into the public reporting of human rights policies, processes and performance of 50 extractive companies has shown that only very few elements are currently standard practice among extractive companies. Notably, 90% of the companies reviewed have a human rights commitment in place.

Only about half of the companies report on key aspects of how they manage human rights

This breaks down as governance and oversight (50%), training for employees (48%) and security providers (50%), and risk assessment (54%). Reporting on stakeholder engagement is marginally higher, standing at 60%.

Only 2% of companies report on the effectiveness of their human rights practices

Other under-reported areas include remediation (36%), integration of findings from human rights risk assessments (20%), and the effectiveness of grievance mechanisms (18%). None of the companies reported on the effectiveness of training.

Moving the middle

Findings from the PRI research suggest that 54% of the companies reviewed reported some information on embedding human rights and undertaking due diligence, but failed to provide the same level of reporting as the companies described as leading below. When engaging these companies, it is helpful to point towards good practice in the areas of governance and embedding human rights, human rights risk assessment, stakeholder engagement and grievance mechanisms. All are increasingly becoming part of what constitutes common good practice in the extractive sector.

Inspect how human rights standards are governed internally and embedded in practice

Companies tend to report publicly on their human rights policies, but they provide a lot less information to support the extent to which this is followed through in practice. As a result, investors need to be aware of both the level of understanding of human rights risks at board and senior management level, and how the board and senior management balance human rights aspects against other factors in decision making. Given the high exposure to human rights risks in the extractive sector, it is striking that only 50% of companies report just basic information on how human rights are governed within the company, or whether there is any board or senior management oversight of the company’s human rights risks.

Surprisingly, a number of companies failed to provide any information on governance and oversight on their website, but included it as part of a research project on the Business and Human Rights Resource Centre24 website. This suggests that many companies are building board/senior management oversight into their human rights management systems, but may be facing a potential lack of demand from investors and other stakeholders on this aspect of reporting.

Human rights issues affect many areas of a business, including human resources, legal and procurement. Corporate participants in the PRI roundtable revealed that it is vital that human rights responsibilities are not the sole responsibility of a dedicated human rights contact, and should be part of the overall corporate values and culture. A key element of embedding human rights into practice is therefore training. Corporate participants at the PRI roundtables highlighted the need to ensure that relevant human rights skills are available at site level.

Probe the company’s due diligence processes, especially human rights risk assessment

According to the UN Guiding Principles , identifying and assessing human rights risks is a key part of a company’s human rights due diligence. Only companies that fully understand the risks they face can mitigate, appropriately manage or avoid negative impacts in future, and make use of opportunities around positive human rights impacts. There are different ways to assess risks; some companies undertake standalone risk assessments, others integrate human rights into existing risk assessments. Overall, companies need to demonstrate that they have a clear process in place, and assess risks on an ongoing basis.

All extractive operations face potentially significant human rights risk, regardless of geography, and companies need to be risk aware, rather than risk averse

Top 50 extractive company executive

Ensure the company engages critical stakeholders and has effective grievance mechanisms “Community issues are not the soft part of the business; they can shut down a project faster than any technical issue, and can take years to resolve.”

One of the most critical things companies can do in identifying, assessing and addressing human rights risks is to continually engage with relevant stakeholders. Many companies are already aware of this; stakeholder engagement was one of highest areas of reporting, with 72% of companies publicly committing to engaging stakeholders. Investors are however also trying to understand the quality of these processes. A number of companies at the PRI roundtables reported that bringing in both a reputable third party organisation as well as a partner with local knowledge and a good standing in the community increases the quality of engagement.

Engagement needs to happen as a continuing, two-way process and be moulded by local context. Engagement takes time; one company revealed that it took ten years to develop a balanced relationship with a local community, enabling the community to help itself. Companies also reported that just being able to demonstrate that they are listening to stakeholders has a positive impact on those relationships.

Stakeholder engagement can help shape companies’ policies and processes, and ranges from input into the human rights policy to co-designing a resolution process for grievances. In particular, embedding grievance mechanisms in community engagement will help build relationships of trust with local stakeholders in the mechanism. In addition, instead of waiting for grievances to come in, regular informal checkins with the community, local press, government and third parties can help to prevent grievances.

Engaging leaders

of the companies had relatively strong reporting (provided at least some reporting in 12 or more of the 16 aspects reviewed) in place compared to their peers. Additionally, leading companies do well in the key area of governance and oversight. They not only report that there is board or senior management oversight on human rights, but also report on how the human rights policy and due diligence process is overseen at the highest level. In dialogue with those companies investors need to act as partners to find solutions to some of the more challenging areas of implementation of their human rights commitments. They also need to ensure that they communicate their expectations on disclosure and implementation in evolving areas from an early stage.

Examine if the company is able to manage human rights risks in its business relationships

Looking at human rights risks in business relationships including at security providers, other suppliers and contractors as well as joint venture partners, is a relatively new area even for more advanced companies. This is because companies tend to look at direct operations in the first instance. At the PRI roundtables investors referred to the need for companies to provide more assurance over entering new projects and countries. Companies need to be able to demonstrate that they have the capacity to mitigate risks, including the capacity to respond appropriately to changing or increasing risks in politically unstable environments.

Another evolving area in which companies are looking for guidance is measuring the effectiveness of processes, such as grievance mechanisms. This is an area where, in supporting companies to identify solutions, investors can help move the sector forward.

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Human rights and the extractive industry: why engage, who to engage, how to engage