Business and Human Rights: Companies will be socially responsible without direct transactions

Faculty Fellow, RIETI

Consideration for human rights has become an essential part of doing business. A major trigger for this shift was the American footwear company Nike’s child labor incident in 1997. Child labor was discovered at factories in Indonesia, Vietnam, and other countries to which Nike outsources its manufacturing. A U.S. non-governmental organization (NGO) demanded an investigation into Nike’s practices, which lacked social responsibility, leading to a worldwide boycott campaign.

In 2013, a sewing factory in Bangladesh caused another major stir when it collapsed, killing many of its employees. The cause of the accident was repeated illegal expansion of the factory to accommodate the many sewing companies moving in. This was against the backdrop of the fact that garment manufacturers from around the world had chosen to produce in the country in search of low-cost labor.

Companies are now required to include human rights considerations in their planning and operations from upstream procurement to downstream sales in their supply chains. This was clearly stated in the Guiding Principles on Business and Human Rights, which were approved by the United Nations in 2011. The Guiding Principles require companies to respect human rights in their business activities and supply chains (human rights due diligence).

Although the Guiding Principles are not legally binding, related legislation is being enacted, particularly in Western countries, and in 2021 the United States enacted the Uyghur Forced Labor Prevention Act, which prohibits the import of products manufactured in the Xinjiang Uyghur Autonomous Region. Japanese companies are also expected to actively practice human rights due diligence in line with the Guiding Principles. This column describes the issues and notable points related to Japanese companies.


The Guiding Principles call for companies to avoid adverse human rights impacts induced or contributed to by their business activities and to address adverse impacts. When adverse human rights impacts do occur in relation to products and services, companies need to work to avoid or mitigate them even if they are not directly involved.

Therefore, companies are required to implement (i) commitments through corporate policies to fulfill their responsibilities in terms of respecting human rights, (ii) human rights due diligence procedures to identify, prevent, and mitigate adverse human rights impacts and take measures to address them, and (iii) procedures to enable remedies for adverse human rights impacts induced or contributed to by companies.

The human rights policy mentioned in (i) above must be prepared based on information provided by experts and approved by the highest levels of management and must be reflected in the company's policies and procedures. Entities (employees, business partners, and others) that are directly related to the company's business activities, products, and services, that may be adversely affected by the company's human rights, must be specified and informed of this circumstance

Human rights due diligence mentioned in (ii) above is a core component of a company's responsibility to respect human rights. It is an ongoing process that includes assessing actual and potential adverse human rights impacts, integrating assessment results and tracking actions that are taken, and disseminating remedial measures (see figure).

Figure 1. Due Diligence Process & Supporting Measures
Figure 1. Due Diligence Process & Supporting Measures
Source: OECD Due Diligence Guidance for Responsible Business Conduct, 2018, p23

First, companies should identify and assess actual and potential adverse human rights impacts that result from their business activities and relationships in order to measure human rights risks. In making this assessment, the company will utilize the expertise of internal and external human rights experts and consult with stakeholders, including groups that may be adversely affected, provide the findings of the human rights impact assessment to relevant internal departments, and take appropriate action, and finally conduct follow-up surveys to verify whether the measures taken are effective in reducing or avoiding adverse impacts.

In addition, companies are required to provide information to the public on how they have addressed adverse human rights impacts. In doing so, they must inform stakeholders, especially those who have been adversely affected, of the details. Where companies are found to have induced or contributed to adverse human rights impacts, they are required to provide remedies through due process.

The remedy mechanism mentioned in (iii) above is for individuals or groups of people that are adversely affected by business activities, products, or services to file a complaint with a company in order to obtain an appropriate form of remedy. The requirements for companies to ensure the effectiveness of the remedy procedures are as follows:

(1) It is trusted by stakeholders and ensures fair implementation of the remedy process (legitimacy) (2) It informs stakeholders and provides assistance to those who have difficulty accessing it (accessibility) (3) It clearly explains the time required, available procedures, types of remedies, and means of monitoring their implementation (predictability) (4) It is fair and transparent (5) The remedy conforms to internationally recognized human rights; (6) Measures are taken to ensure continuous learning to improve the mechanism; and (7) Dialogue with stakeholders is emphasized in addressing and resolving grievances.

Companies are required to adopt a series of procedures from the formulation of human rights policies to the design and implementation of human rights due diligence and the development of remedy mechanisms. In doing so, particular attention should be paid to the following four points:


First, the design of the procedures should be specific to the circumstances of each company, since the adverse effects of business activities on human rights vary depending on the company's business type, products and services, and the geographic scope of its business activities and supply chains. If a company’s business or products/services change, the series of procedures will need to be reviewed.

Second, not all adverse human rights impacts related to business activities must be addressed. When setting priorities based on the severity of adverse impacts, it is important to consider whether the business is operating in a high-risk country (e.g., countries with a lack of rule of law, high corruption rate, etc.) or is involved in high-risk activities or manufacturing processes (e.g., activities with high levels of informal employment, use of toxic chemicals, etc.). The adverse human rights impacts that need to be addressed are then prioritized, and a series of procedures are designed and implemented.

However, there is a possibility that negative impacts on low-priority human rights will materialize. A remedy mechanism is important to collect information on such adverse effects and deal with them appropriately.

Third, how to deal with adverse human rights impacts that occur upstream and downstream in supply chains that are not directly involved in the business relationship is an important issue in the design of the system. It is premature to assume that because there is no direct business relationship with the company, no action is required. It is necessary to indirectly address adverse human rights impacts through first- and second-tier suppliers (e.g., parts companies). It would also be beneficial to seek the cooperation of human rights organizations that are familiar with the local situation.

Fourth, the standards that must be adhered to in business processes are the internationally recognized human rights standards. Even if overseas operations comply with local national laws, they cannot escape liability if they do not meet internationally recognized human rights standards.

Currently, Japanese companies are not legally obligated to introduce human rights due diligence. However, as the trend toward legalization is gaining momentum in Western countries, Japanese companies doing business in Europe and the U.S. are obligated to introduce human rights due diligence. Even if they do not do business in Europe or the U.S., they may be required to do so as suppliers by their U.S. or European business partners.

The Japanese government has also changed its stance of expecting companies to take voluntary action and has adopted a policy of more proactively encouraging the introduction of human rights due diligence, and pressure from investors who place importance on ESG (Environmental, Social, and Corporate Governance) is increasing. Japanese companies should make the introduction of human rights due diligence a management priority. This will also lead to the implementation of the Sustainable Development Goals (SDGs), for which the slogan is "leave no one behind.”

>> Original text in Japanese

* Translated by RIETI.

June 17, 2022 Nihon Keizai Shimbun

July 11, 2022