The renewable energy sector is leading the transition to a net-zero carbon economy, and was recognised again in the Climate Change Authority’s recent report as being fundamental to a sustainable recovery from the impacts of COVID-19.
However, there is an increasing appreciation that ensuring immediate and long term steps in this clean energy transition also needs to reflect the complex interactions between environmental, social and governance (ESG) considerations to ensure it does not adversely impact human rights.
- Investors and financiers are increasingly setting expectations and asking developers to respond to ESG issues, including human rights, which reflect social expectations.
- A recent benchmark report has revealed the poor human rights performance of some of the world’s largest wind and solar companies to date. Greater transparency and accountability is also on the horizon through modern slavery reporting regimes and proposals for human rights diligence laws.
- To better safeguard human rights in the transition to a net-zero carbon economy, and also better manage their own potential risk exposures, renewable energy developers can undertake regular and comprehensive human rights due diligence over their operations and supply chains.
Important role of the renewable energy sector in economic recovery
The recent report of the Climate Change Authority Economic Recovery, Resilience and Prosperity after the Coronavirus (July 2020) reiterates the opportunity for accelerated investment in clean energy as a ‘triple win’ for economic recovery, resilience and prosperity in a low-emissions world.
It remains important for the sector to demonstrate its value across broader environmental issues and human rights issues, not just in carbon reduction.
Benchmark report reveals poor human rights performance of largest renewable companies
The international non-governmental organisation Business & Human Rights Resource Centre has developed the Renewable Energy & Human Rights Benchmark, the first of its kind which evaluates the alignment of human rights policies and the performance of the world’s 16 largest publicly traded wind and solar companies. The key findings from the report (Report) are available here.
While limited in some respects, the Report indicates that the world’s largest solar and wind companies are currently not fully meeting their responsibility to respect human rights, as defined by the UN Guiding Principles on Business and Human Rights (UN Guiding Principles), available here. These do not impose a direct legal responsibility on companies.
Of note is that the explosive growth experienced by the sector has led to at least 197 allegations of human rights abuses recorded since 2010, and 40 in 2019 alone, including killings, threats and land seizures.
The Report finds that the main high risk areas for the renewable energy sector are shared with other high-risk sectors with large land footprints, for example agribusiness and extractive industries. These main risks to human rights are:
- mineral supply chain management;
- rights of First Nations Peoples (including denial of land rights and unjust acquisition);
- labour rights; and
- mitigation of long-term environmental impacts.
Alongside of wind and solar, increasing attention is also being paid to the potential ESG impacts of batteries and other large-scale energy storage technologies. Business & Human Rights Resource Centre has also developed a Transition Minerals Tracker, available here, that tracks the human rights policies and practices of companies extracting minerals forming key inputs into those technologies, such as cobalt, copper, lithium, manganese, nickel and zinc.
Report consistent with current trend of growing importance of ESG in clean energy development
The Report articulates a benchmark for the respect of human rights in the renewable energy industry and is consistent with the increasing scrutiny of ESG matters for sectors as well as for specific companies. In many jurisdictions, modern slavery reporting is providing enhanced transparency and accountability in relation to human rights risk exposures in companies’ operations and supply chains.
Additionally, the Report is timely in the context of proposals in Europe (both at a European Union-level and in several countries) for human rights due diligence regimes, which would have the potential to significantly increase regulatory and stakeholder expectations with respect to managing human rights risk exposures in clean energy development and other sectors.
The Report has its limitations, including its analysis of a limited sample size of the largest publicly traded wind and solar companies and some investors. At least one of the evaluated companies has expressed disappointment with the level of consultation in preparation of the Report.
However, the evaluation undertaken for the Report by reference to the UN Guiding Principles provides a useful reference for benchmarking and may assist companies to consider their own approach to human rights across their business.
Effective due diligence and firm policy commitments to human rights will pave the way for the future of renewable energy development
The Report found that most of the clean energy companies which were reviewed lacked essential policies and practices to identify, reduce the risk of, and remedy human rights abuse through both their operations and supply chains.
Above doing good for goodness’ sake, developers will be aware of the risks posed in failing to give due consideration to upholding human rights, in particular the implications of economic, reputational and litigious risk exposures, and the challenges in attracting investment from increasingly ESG-focussed investors and financiers.
A sustained commitment to developing, refreshing and enforcing policies and procedures which are designed to identify and manage human rights risk exposures is central to meeting society’s and investors’ expectations of the energy industries, and necessary so as not to hinder the time critical transition to a zero-net carbon economy.
Renewable energy developers can take the following practical steps to align with the UN Guiding Principles, including:
- making a policy commitment to a human rights due diligence process and appropriate redress mechanisms;
- regularly carrying out human rights impact assessments and diligence to identify, prevent, mitigate and publicly account for their adverse human rights incidents;
- taking appropriate action in response to identified human rights risks, including adopting processes and procedures for internal decision-making, budget allocations and oversight processes. Companies should monitor the effectiveness of their responses and consider appropriate public reporting.
If you have any queries about this development or the role of ESG in renewable energy, please contact our team below.