Global landscape: International/Government sanctions and company actions

Russia’s unprovoked invasion of Ukraine on 24 February has prompted many governments to implement a set of coordinated sanctions covering finance, exports, imports, travel and individuals, including those more used to this approach, like the European and American governments. The response from Asian governments has been more varied. Singapore, which acts as Asia’s financial hub, made an unprecedented decision to impose targeted financial sanctions on Russia, joining the three other Asian countries, namely Japan, South Korea, and Taiwan.

Heightened human rights due diligence: Why is it important?

The risks facing companies which might seek to remain operating in Russia are significant, and this has pressured more companies to make an early exit from Russia, considered less costly. However, little attention has been paid to the heightened human rights due diligence companies are expected to conduct irrespective of whether they decide to leave or stay in Russia or Ukraine. This is extremely concerning.

The international standards for companies are clear. As set out in the United Nations Guiding Principles on Business and Human Rights (UNGPs), in situations of armed conflict business should conduct enhanced human rights due diligence to identify, prevent and mitigate heightened risks and adopt a conflict-sensitive approach. Companies need to do so because of the severe risk of gross human rights abuses and the risk of exacerbating conflict-drivers, in addition to the need to abide by international humanitarian law.

It is crucial for businesses to understand they are not neutral actors even when they do not take sides in a conflict such as Russia’s invasion of Ukraine.

UN business standards stress the human rights due diligence companies are expected to conduct on an ongoing basis in peacetime must be complemented by a conflict-sensitive approach when they operate in conflict-affected settings. This approach involves a conflict analysis that will help companies identify additional, conflict-related risks and human rights impacts caused by identified risks in their operations and supply chains. This should include both the underlying drivers of conflict, as well as potential flash-points or triggers of violence, alongside human rights abuse which must be avoided. There are many methodologies on conflict analysis for companies to choose from, but their approach should be ongoing, as conflict dynamics are constantly shifting. Assessing the severity of the human rights risks from a conflict sensitivity lens and developing a clear action plan to mitigate or eliminate them will inform human rights due diligence practice at different stages. It is also imperative to engage stakeholders in due diligence processes, prioritising those whose rights are most likely to be affected, including employees and community members.

Under the forthcoming EU Corporate Sustainability Due Diligence Directive, EU-operating companies will soon be legally required to conduct due diligence on adverse human rights and environmental impacts in which they are implicated through their operations and business relationships. Even though this includes contexts of armed conflict, the proposal does not explicitly mention conflict or list in its annex the international humanitarian law conventions which already apply to all actors in conflict-affected contexts including business). As Johannes Blakenbach, our EU Senior Researcher, said, “The current crisis shows the EU Commission’s legislative proposal still needs to be substantively strengthened. For instance, the draft does not provide any explicit direction on a conflict-sensitive approach which should complement and augment companies’ human rights due diligence. This should change. Also, the broader gaps in the current proposal, such as weak provisions on safe stakeholder engagement, or mere one-off due diligence for financial actors, limit the law’s potential impact in conflict, where risks may evolve quickly, and worker and community feedback is all the more vital.”

Company responses: Key findings

The technology sector has been the most responsive so far. Twenty tech companies got back to us, providing nine general comments, seven partial responses to the questionnaire and one full response. The remaining three companies are still working on their responses. Three companies from the oil and gas sector provided full responses to the questionnaire, while two provided partial responses and six provided general comments. Four companies from the food and beverage sector provided general comments and two provided full responses to our questionnaire.

Analysing the geographical distribution of responses, we found companies headquartered in USA were the most likely to respond - 24, followed by companies headquartered in Germany with 13 responses and nine responses from Japanese companies. These include full and partial responses as well as general comments.

The 34 companies which provided full or partial responses to our questions include Accor, BASF, Booking Holdings, Bosch, Carlsberg, CCC, Chevron, Clifford Chance, Credit Suisse, Engie, Eni, Ericsson, Fortum, HeidelbergCement, Hewlett Packard Enterprise, Henkel, Hitachi, illycaffè, LG Electronics, Marks & Spencer, Michelin, Novartis, Novo Nordisk, Pirelli, Raiffeisen Bank, SAP, Shell, Siemens, Twitter, Uber, Unilever, Uniper, Vitol and Wintershall Dea.

What have companies reported?

Most companies that responded said the safety and well-being of their employees is their top priority and described the immediate steps they had taken to ensure this. Yet many companies did not provide any relevant information in response to our questions about their heightened human rights due diligence. While some companies did mention human rights due diligence processes they have in place, including Engie and Fortum, they did not mention any concrete measures taken to enhance existing human rights due diligence in response to the Russian invasion. And even though no company referenced undertaking a conflict analysis, some said they had set up mechanisms to identify, prevent and mitigate heightened risks caused by the conflict in Ukraine. There are some useful lessons to be learned from the better practice of a minority of companies:

Similar cross-functional teams and task forces have been set up by seven companies: Henkel, Hitachi, Novartis, Novo Nordisk, Pirelli, Siemens and Wintershall Dea.

Four companies provided us with updates about further actions taken in response to the invasion after submitting their initial response. Henkel sent an update which outlined the company’s decision to exit business activities in Russia. AbbVie decided to donate all profits from Russia to support direct humanitarian relief efforts in Ukraine. Marubeni said the company will not engage in any new Russia-related business and will negotiate terminations of existing transactions wherever possible. SAP announced further steps toward an orderly exit from Russia that included a focus on responsibly managing the impact on its employees in the country.

The remaining companies, however, simply listed the human rights policies, guidelines and standards they have in place without indicating any specific, concrete measures they are taking in response to the Russian invasion of Ukraine.

Absence of conflict-sensitive human rights due diligence

Human rights due diligence is an ongoing process which enables companies to periodically evaluate new risks as they emerge. Establishing multi-disciplinary teams prior to, or as soon as a conflict situation arises, to deliver more comprehensive due diligence on conflict risks and harms may help companies avoid due diligence policies going rapidly out of date as conflict dynamics shift. According to the ICRC, effective human rights due diligence in complex environments “requires early identification of potential security challenges and their proactive management, in order to prevent impacts such as use of force against community members.” The past few months have revealed companies operating in the region cannot have been undertaking sufficient human rights due diligence in the years and months prior to the invasion of Ukraine.

The concentration of approx. 100,000 Russian troops alongside tanks and weapons on the border with Ukraine in early December 2021 was a clear security risk which should have been considered by all companies operating in Ukraine or Russia. Yet most of the teams and task forces mentioned above were set up either shortly before or after the full-scale invasion on 24 February 2022. This raises even more questions given this is not the first time Russia has attacked Ukraine. Ukraine has been at war with Russia for the last eight years since Russia annexed the Crimean Peninsula in 2014 before invading and partially occupying the Luhansk and Dontesk regions in Eastern Ukraine.

Conclusion

Companies have taken unprecedented action and public announcements in response to both the invasion and the imposition of sanctions on Russia. This response is welcome. But only a small number of companies appear to be taking their obligations under international human rights law and humanitarian law seriously. The conflict may not end quickly.

It is now imperative that companies operating in Russia and Ukraine, and their investors, institute robust human rights due diligence to identify and mitigate the risks they may be creating for workers and communities in the precarious and dangerous conditions of war, and to ensure they are not contributing to the underlying drivers of conflict or triggers for violent episodes.

Without this effort, companies and investors may abuse workers and communities, and are leaving themselves exposed to significant legal and reputational risk.

Bringing together multi-disciplinary teams from across the functions of a company and its supply chain is an important first step to help identify salient risks created by a company’s business model and responses to the invasion, and to create and oversee the implementation of an action plan to eliminate or mitigate these risks and avoid abuse. Companies need to explicitly demonstrate they have incorporated a conflict analysis into their human rights due diligence – which none have so far disclosed.

Recommendations for investors and companies