The “just transition”
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.”
Moving away from carbon
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.
Moving towards renewable energy
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.
Legislative developments
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.
- Corporate Sustainability Due Diligence Directive (CSDDD): CSDDD will require within scope companies to undertake risk-based human rights and environmental due diligence to identify and assess actual and potential adverse impacts, and (as appropriate) prevent, mitigate, and remedy such impacts in their own operations and value chains. CSDDD will also require certain companies to adopt climate transition plans in accordance with the Paris Agreement. See our recent article on CSDDD.
- Sustainable Finance Disclosure Regulation (SFDR): SFDR introduces human rights-related reporting requirements for Financial Market Participants (FMPs). It requires FMPs to publish sustainability statements on both mandatory and voluntary social indicators, known as Principal Adverse Impacts (PAIs), in relation to the social, environmental and human rights performance and risks of portfolio companies. In addition, FMPs are required to report on whether and how investments align with the UN Guiding Principles on Business and Human Rights (UNGPs).
- EU Taxonomy: The EU Taxonomy Regulation establishes a classification system for environmentally sustainable activities. For an investment to be considered “sustainable” within the taxonomy, one of the four conditions it must meet under Article 18 is adherence to the “Minimum Safeguards.” The Regulation describes the Minimum Safeguards as “procedures implemented by an undertaking that is carrying out an economic activity to ensure the alignment with the OECD Guidelines for Multinational Enterprises (OECD Guidelines) and the [UNGPs]”. This includes compliance with human rights and labour standards in accordance with the UNGPs. This means that, regardless of how environmentally “green” an activity is, it will not qualify as environmentally sustainable under the Regulation if the relevant undertaking has not implemented appropriate measures, aligned to the UNGPs and OECD Guidelines, to mitigate human rights risks. See our article on the Minimum Safeguards.
- Corporate Sustainability Reporting Directive (CSRD): CSRD requires certain large EU and non-EU businesses to report and disclose information on their societal and environmental impacts and external sustainability factors affecting their business. Reporting under CSRD takes place within the framework of the European Sustainability Reporting Standards (ESRS), which cover environmental, social, and governance issues, including climate change, biodiversity and human rights. See our recent articles on the CSRD and the ESRS.
- EU Deforestation Regulation (EUDR): The EUDR is aimed at curbing deforestation and forest degradation in an effort to combat climate change. It prohibits specified goods from being placed or made available on the EU market or exported, unless they are (a) deforestation-free, (b) have been produced in accordance with the relevant legislation of the country of production, including laws relating to human rights, labour rights, the principle of free prior and informed consent (in the context of Indigenous Peoples) and environmental protection laws; and (c) covered by a due diligence statement. Illustrating the interrelated nature of these laws, the Recital 60 of the EUDR indicates that operators subject to other EU-level laws that “set out due diligence requirements in the value chain with regard to adverse impacts on human rights or on the environment”, such as CSDDD and CSRD, “should be in a position to fulfil the reporting obligations” under the EUDR by including the same information.
Integrating a human rights-based approach
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.
