Human rights and the extractives industry

Companies operating in the extractives sector face a multitude of complex human rights issues.

They tend to have a big operational footprint, which can lead to long-term risks. While the local operating context is key to determining risks arising from operations, oil and gas and mining companies face different risks and issues.

Mining operations tend to be more sole operators or have joint ventures with fewer operating arrangements. They typically rely on large quantities of unskilled labour, which may pose various human rights risks such as bonded labour, hazardous working conditions, lack of collective bargaining and freedom of association, and health and safety accidents.

In contrast, oil and gas companies often have smaller scale operations and operate as joint ventures, for which contracts may look quite different. While the major oil and gas companies have found a number of ways to impose standards on their business partners, this can be quite challenging if the operator is not an oil major.

What are human rights?

Human rights include civil, political, economic, and social and cultural rights, such as the right to life, the right to freedom of association or the right to health. They were first recognised following the Second World War and The Universal Declaration of Human Rights and were added to in later international treaties (e.g. ILO’s Declaration on Fundamental Principles and Rights at Work). They have been turned into local laws in some countries, and are featured prominently within sustainability guidelines for companies such as the OECD Guidelines for Multinational Enterprises or the first two out of the ten principles of the UN Global Compact.

This engagement used the UN Guiding Principles for Business and Human Rights (the UNGPs) as a key reference point. They are not mandatory, but clearly define corporate responsibility to respect human rights and are being taken increasingly seriously by companies and investors. The OECD Guidelines for Multinational Enterprises are aligned with the UN Guiding Principles and allow individuals and NGOs to bring complaints in front of National Contact Points. Alongside this, pressure is mounting from governments, who themselves are increasingly expected1 to ensure respect of human rights in their jurisdictions.

Why are investors engaging on this topic?

As extractive companies tend to operate in high-risk locations and are subject to human rights controversies, investors play an important role in engaging proactively with companies on developing policies and tools that can prevent human rights violations, rather than only reacting to them once they’ve happened. Actively engaging with companies on the topic also makes financial sense: a recent academic study which explored whether shareholder engagement adds value, found that successful engagements improve profitability at target companies.

Actively engaging with companies makes financial sense: a recent academic study found that successful engagements improve profitability at target companies

Investors are increasingly aware and concerned about the significant potential and actual operational, legal and reputational risks companies might face when they do not take adequate steps to manage human rights issues. These could include project delays and cancellations, lawsuits and significant fines and negative press coverage and reputational damage.

By managing human rights well, companies in the extractives industry can ensure inclusive socio-economic development and benefit from a number of opportunities, including:

being more attractive to prospective employees and investors;
enhanced employee motivation, leading to increased productivity and higher retention rates;
maintaining a diverse workforce and being better equipped to compete in the global economy;
having access to debt and equity markets;
developing/sustaining a social license to operate and the building of good community relationships.

This could also mean that investors are better able to manage risks as they also have a responsibility, under the OECD Responsible Business Conduct for Institutional Investors, to implement the due diligence recommendations of the OECD Guidelines for Multinational Enterprises to prevent or address adverse impacts related to human and labour rights. By ‘knowing and showing’ that the investor meets the expectations under the OECD guidelines (and thereby also the UNGPs), investors make a positive contribution to sustainable development, and have an increased ability to meet expectations of clients (in the case of investment managers) and beneficiaries (in the case of asset owners).