Publication
Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Global | Publication | February 2024
The concept of a “just transition” refers to the principle that the move away from carbon-intensive activities to combat climate change should not cause or contribute to adverse human rights impacts. There is a risk that as part of this necessary transition to more sustainable practices, workers and communities, in particular those who are most vulnerable from a human rights perspective, will be negatively impacted. “Just transition”, a topic on which we have previously written, is an evolving concept that was included in the 2015 Paris Agreement and gained further traction at the 2021 UN Climate Conference in Glasgow.
The desire for a just transition forms part of a wider developing trend which reflects the understanding that human rights and climate change are interconnected issues. The UN has recently recognized the right to a clean, healthy and sustainable environment as a human right and the Office of the High Commissioner for Human Rights (OHCHR) has called for a “human rights-based approach to climate change.”
For companies moving away from high carbon-emitting processes, human rights considerations may include the impacts of their transition plans on workers and communities which are likely to be affected in the company’s own operations and value chains. For example, as part of a decision to withdraw or scale down economic activities, assets may be decommissioned or sold to less responsible buyers, potentially creating risks for workers and communities. Furthermore, the decline of carbon-intensive industries may impact the working and living conditions of those who rely on those industries. For the transition to be “just”, businesses will need to carefully consider whether assets can be re-purposed rather than decommissioned or sold, and whether to invest in upskilling and redeploying an existing workforce for employment in a new sector or with a new technology.
It is well-recognized that the climate crisis has led to an escalation in global demand for renewable energy resources. A just transition includes the need to ensure that the development and use of renewable energy does not itself negatively impact human rights. However, reports have raised concerns around alleged human rights issues arising in the supply chain of the renewable energy sector, particularly in relation to the mining of certain minerals.
Issues relating to land rights, access to water, local community and Indigenous Peoples’ rights are also relevant when large areas of land are being developed, for example for wind or solar farms. This also raises questions relating to community equity and fair access to energy sources, as well as issues around the use of security services. See our recent article on just transition in the renewables sector.
Recent legislative developments are introducing corporate duties which combine human rights and environmental elements, including in relation to climate change, with a strong focus on value chain due diligence. In this way, the just transition is fast becoming a compliance issue.
Some examples at the EU level include the examples set out below, in addition to national-level legislation such as the French Duty of Vigilance Law, German Supply Chain Due Diligence Act and Norwegian Transparency Act. See our article on these developments.
In order to meet emerging legal due diligence and reporting obligations, companies need to adopt an integrated approach to their climate transition strategies. This will include ensuring that human rights due diligence informs decision-making and approaches to key transactions such as climate-related acquisitions and disposals, other investments and divestments, and supply agreements. Such due diligence should be informed by an assessment of the specific legal obligations that apply based on the jurisdictions, sectors and markets in which the company and its subsidiaries operate and do business.
With thanks to Dani Bass (trainee solicitor) for her contributions.
Publication
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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