Is it possible for a company to operate in a country with widespread human rights abuses and yet comply with law, investor expectations, and live up to its own codes of conduct? These questions have gained immediate relevance for businesses operating in Sudan, after the Sudan Divestment Task Force (SDTF) launched its campaign for a “targeted divestment” approach, which is perhaps the most refined contribution to this debate. It suggests three criteria that make companies eligible for divestment: If they have a business relationship with the government or a state-created project; if their investment does not benefit the country’s underprivileged; and if they have no substantial governance policy concerning Darfur.

While these criteria will exempt many companies from the divestment campaign ⁽¹⁾, it also means that companies in the extractive sector will likely face greater scrutiny. The sector continues to face considerable criticism for the negative impacts of its operations. Some of the learning and tools developed in response could inform this debate and guide decision-making by the investor community, across different sectors. This article sets out some of the existing options for companies to mitigate negative impacts, after briefly reviewing some of the frequent criticisms raised in particular against oil, mining and gas companies.

For extractive companies, SDTF’s first criterion is formidable, because extractive companies rarely have the option of working without partnering with the host government. Lack of transparency in these business relationships has led to corruption, with some government officials able to embezzle funds or use the proceeds to finance human rights abuses and prolong violent conflict. ⁽²⁾ These and other links to governments have exposed companies and company representatives to charges of complicity in abuses of international human rights and humanitarian law. ⁽³⁾

Secondly, being capital intensive, the extractive sector requires only a few technically-skilled operators. Beyond the more labour-intensive construction phase, extractive operations do not generate many jobs, particularly for the underprivileged sections of society.⁽⁴⁾ At the same time, extractive projects can endanger existing livelihoods, through resettlement or contamination of the environment. ⁽⁵⁾ Companies have sought to assist host communities through social investments, but urgent needs frequently remain unaddressed, often leaving a sense of injustice among community members over the distribution of benefits and burdens from extractive operations. In some cases, company social investment projects themselves have been criticized for generating new intra-community tensions, for instance in the Niger Delta. ⁽⁶⁾

Finally, the sector is blamed for its negative impact on the human rights of host communities, and their potential for exacerbating conflict further in contexts of violence such as in the Darfur region of Sudan. This frequently happens in companies lacking appropriate policies and tools.

Tools and guidance for companies operating in conflict zones

Some industry leaders realize this and have become active in proposing solutions and adopting conflict-sensitive business practices. The sector has developed several voluntary initiatives since 1999, based on multi-stakeholder processes and consensus-building involving governments, civil society and the private sector. Evaluating corporate conduct based on these initiatives can help determine corporate performance under the SDTF criteria.

(1) Promoting transparency in business relationships with governments

UK Prime Minister Tony Blair announced the Extractive Industries Transparency Initiative (EITI) at the World Summit on Sustainable Development in Johannesburg in 2002.⁽⁷⁾ Signatory companies and governments have pledged to declare all payments made and received in their business relationships, including taxes, royalties, signature bonuses and others. Publication of accounting figures, and their auditing by an independent body, is meant to empower citizens and institutions to hold host governments to account. In theory, this makes mismanagement or diversion of funds away from development purposes harder. It should also benefit developing and transition economies by improving the business environment, helping them to attract foreign direct investment. Responsible companies stand to benefit from a more level playing field, a more predictable business environment and better prospects for energy security.

EITI is an important initiative, but problems remain. There is not sufficient accountability or complaints mechanism within the model to cover breach of principles and criteria. There is also a capacity gap in many developing countries’ institutions and civil society organisations to analyze data coming out of the EITI process, making it harder to hold governments to account. Capacity-building of monitoring bodies is, therefore, a priority.

(2) Assessing the human rights context and responsible corporate behaviour

Companies must comply with national rules and regulations where they operate. Where host governments are unwilling or unable to enforce these, or where there are gaps in national legislation, companies should refer to international human rights instruments and humanitarian law and abide by those conventions. ⁽⁸⁾ Certain international laws supersede local laws if no such local laws exist, and companies aspiring for global leadership are expected to exceed prevailing standards.

Many companies have adopted corporate policies to ensure that their operations respect human rights and mitigate the likelihood of contributing, directly or indirectly, to their abuse. ⁽⁹⁾ However, both determining whether a company observes these standards and operationalizing human rights compliance are not easy. While there is clarity about corporate liability in the face of grave abuses of human rights, there is a certain amount of ambiguity for lesser offences. ⁽¹⁰⁾

There are now several types of human rights impact assessments (HRIAs) for private sector projects available. The Danish Institute for Human Rights’ diagnostic tool, the Human Rights Compliance Assessment is a web-based tool which helps companies identify potential human rights risks. ⁽¹¹⁾ The Canadian NGO Rights and Democracy has developed a tool to assess corporate performance from the community’s perspective. International Alert’s Conflict- Sensitive Business Practice tool assists companies to assess two-way risks – the risks the project faces, and the risks the project creates. These and other similar tools are currently being tested in company operations; businesses participating in these pilots may be able to share important lessons with the investor community.

The Voluntary Principles for Security and Human Rights for the Extractive Sector were launched in 2000 by the US and UK governments, with a view to ensure that while providing security for their people and assets, extractive companies would also uphold fundamental rights and freedoms. Sixteen companies, four governments and seven NGOs are part of the process. ⁽¹²⁾ Participants in the initiative are experimenting with the implementation of these principles on the ground in Nigeria and Colombia; and some companies have integrated them into legal frameworks with the host government that governs their operations.

(3) Promoting principles of do-no-harm and conflict-sensitivity in company operations

The decisions and operations of companies complying with international law can still have unintended consequences due to inadequate scrutiny of business partnerships, employment practices or security arrangements, particularly in places with pre-existing conflict. Often, this happens due to a lack of understanding of the local context, which has resulted at times in companies becoming embroiled, even if inadvertently, in local conflict dynamics. Previously, international humanitarian and development agencies had to learn this same lesson, intervening in complex situations with sometimes little previous knowledge of the conflict history of a place. To address this gap, donor agencies and NGOs have promoted conflict-sensitivity in their work. ⁽¹³⁾

Now the same principles are being applied to companies. ⁽¹⁴⁾ The Global Compact led the way in establishing a policy dialogue on business in zones of conflict. In 2002, it published a groundbreaking business guide on conflict impact assessment and risk management.⁽¹⁵⁾ Since then, this work has evolved, to including International Alert’s Conflict-Sensitive Business Practices (CSBP) and the OECD’s recently published risk-awareness tool for multinational enterprises in weak governance zones, follow-up to the OECD Guidelines for Multinational Enterprises, a voluntary, government-backed code of conduct for international business.⁽¹⁶⁾

These are recent developments and companies are still piloting the tools in their operations. ⁽¹⁷⁾ Investors seeking to identify companies making due diligence on such concerns can learn by adapting these tools.

Remaining gaps, and a role for investors
Despite this diverse range of initiatives to mitigate the negative impact of company operations on human rights and conflict, there remain serious gaps. A recent publication by the Global Compact on these issues summarizes these well. It argues, for example, that “voluntary initiatives have not been widely adopted by companies, nor have they coalesced into a cumulative and sustainable systemic impact”. ⁽¹⁸⁾ If investor communities use the voluntary tools to evaluate the performance of the companies, then the companies too would take the tools more seriously.

The report also argues that the existing proliferation of voluntary codes of conduct lacks global reach and authority. ⁽¹⁹⁾ Indeed, there is currently no internationally-agreed, overarching instrument, either legally binding or voluntary, on conducting business in unstable areas in a way that minimizes conflict risks and mitigates human rights abuses. This makes it difficult for investors to identify a commonly agreed set of standards on which to base investment decisions. Home governments have a role to play here in strengthening the international regulatory environment and taking a coherent and collective approach across different areas of foreign policy. ⁽²⁰⁾

But beyond governments, investors can take the lead in forcing accountability on companies, by creating benchmarks based on commitments companies have already made, whether or not legislation has caught up with them. That way, not only would investors spur better performance from companies, they will also encourage conflict-sensitive business practices and greater respect for human rights.

Salil Tripathi is Senior Policy Advisor at International Alert, a UK-based NGO that works to build sustainable peace in countries and communities affected or threatened by violent conflict. At Alert, Salil leads on public policy advocacy to improve multinational company conduct in conflict zones, as well testing and promoting conflict-sensitive business practices and tools with companies.

Canan Gündüz is Senior Programme Officer with International Alert’s Peacebuilding Issues Programme, where she coordinates outreach and awareness-raising among domestic businesses to contribute to peacebuilding efforts in conflict-affected countries. She also leads work on research and advocacy on donor efforts to stimulate post-conflict economic recovery.

Endnotes

1. The Sudan Divestment Task Force says the criteria ‘implicitly excludes the vast majority of companies in Sudan, including those tied to the agriculture sector, distributing general consumer goods, promoting non-oil related infrastructure development in underprivi¬leged regions of the country, or involved in provision of goods and services intended to relieve human suffering or to promote welfare, health, education, and religious and spiritual activities.’ SDTF Information Sheet
2. See for instance, Global Witness (2005) The Riddle of the Sphynx: Where has Congo’s Oil Money Gone? (London: Global Witness).
3. Human Rights Watch (2005) The Curse of Gold (New York: Human Rights Watch).
4. See for instance, Extractive Industries Review (2003) Vol.1: The World Bank and Extractive Industries (Washington DC: World Bank).
5. See for instance, Friends of the Earth Nigeria (2005) Gas Flaring in Nigeria: A human rights, environmental and economic monstrosity (FOE Nigeria).
6. See for instance, Christian Aid (2004) Behind the Mask: the Real Face of Corporate Social Responsibility (London: Christian Aid ).
7. For more information, see http://www.eitransparency.org/ . A new internet-based portal by Global Advice Network and DANIDA provides country-by-country information on corruption for companies, and presents tools and good practices to promote private sector integrity: http://www.business-anti-corruption.dk/Home.asp
8. For guidance on company responsibilities, as well as protection for company staff and assets, under international humanitarian law, see ICRC (2006) Business and International Humanitarian Law (Geneva: ICRC).
9. For a list of companies with policy statements explicitly mentioning human rights, see http://www.business-humanrights.org/Categories/Companypolicysteps/Policies/Companieswithhumanrightspolicies (this is not necessarily an exhaustive list).
10. In order to clarify company liability under international law, the UN Secretary General in 2005 appointed a Special Representative on Business and Human Rights in, Professor John Ruggie. His recent report on the issue to the UN Human Rights Council is available from http://www.business-humanrights.org/Gettingstarted/UNSpecialRepresentative
11. http://www.humanrightsbusiness.org/040_hrca.htm
12. See http://www.voluntaryprinciples.org/
13. Mary B. Anderson (1999) Do No Harm: How Aid Can Support Peace – Or War (Collaborative for Development Action).
14. The Collaborative for Development Action’s Corporate Engagement Project for instance has been working with companies at the site level to identify operational options to improve relationships between groups in the companies operating environment, and between the company and communities. http://www.cdainc.com/cep/
15. Global Compact (2002) Global Compact Business Guide for Conflict Impact Assessment and Risk Management (New York: Global Compact).
16. See http://www.oecd.org/dataoecd/26/21/36885821.pdf
17. Oil companies Occidental and Ecopetrol for instance are currently piloting CSBP in Colombia.
18. Karen Ballentine and Virginia Hauffler (2006) Enabling Economies of Peace: Public Policy for Conflict-Sensitive Business (New York: UN Global Compact).
19. Ibid.
20. See for instance, International Alert (2006) Conflict-Sensitive Project Finance (London: International Alert).