A wave of technological innovation is transforming the way individuals and businesses operate and interact with each other and society.
Although these innovations are on the whole positive, some of them can have a crushing human cost: the misuse of personal data; invasive surveillance by governments; the use of child and forced labour sometimes found in the mining of raw materials and global supply chains for mobile devices; environmental degradation; and the destruction of livelihoods of local communities in resource rich areas to list just a few.
This article highlights ten key business and human rights issues in the tech sector, spanning salient risks, increasing business imperatives for proactively addressing them, opportunities that tech solutions create to accelerate progress in addressing them and the need for lawyers to account for these key business risks in everything we do.
Salient risks for the tech sector
1. Supply chain risk
Society’s thirst for certain “high risk” minerals needed to build hardware and power mobile and battery devices has increased exponentially in recent years. However, some metals and minerals, such as cobalt, are mined extensively in countries which rank low in Transparency International’s Corruption Perceptions Index and where the use of hazardous and artisanal mining techniques is common. The journey that the phone in your pocket or the laptop on your desk takes from mine to factory to distribution and consumer bumps against an array of human rights risks: labour exploitation (including forced and child labour); corruption; abuses by security forces; and land rights violations.
Today, it should go without saying that legal, financial and reputational risks will arise where a business cannot demonstrate that their end product is not tainted with these issues. For example, in recent years we have seen major mobile device brands and manufacturers face significant legal and reputational challenges and risks resulting from allegations that their suppliers are involved in labour exploitation in foreign factories.
2. Privacy and discrimination
As more of our personal and professional lives move online, the use of data analytics, behavioural prediction techniques and automated basic decision-making has commoditised data like never before. As some commentators suggest, data is now the world’s most valuable commodity.
Against this backdrop, privacy is a fundamental right, recognised as such in both legal and social norms across many countries. Individuals are keen to be seen as just that, individuals, in control of their personal data and informed of where and how their data is being used.
A number of high profile examples have emerged in recent years where governments and businesses have allegedly misused personal data resulting in not only an intrusion into individuals’ privacy but also in more serious consequences for their safety, security and place in society. As the volume and use of data increases, so too does the potential for misuse. Recent examples involving social media platforms show the consequences for companies that do not put privacy front and centre of their activities include multi-jurisdictional legal and regulatory claims, shareholder actions at AGMs and some, like Cambridge Analytica, have even faced administration.
Increasing business imperatives
3. Shareholder activism
In response to some of these issues, shareholders have been deploying their voting power (or, in particular for minority shareholders, using the AGM as a campaign platform) to demand that tech companies take action to address risks to human rights as a critical business issue, demanding more sophisticated human rights risk management and governance structures be put in place to protect user data and privacy rights as well as demanding companies take action on issues like discrimination and diversity at the highest levels. We have seen an increase in these types of shareholder actions in key jurisdictions like Australia and the USA.
4. Investor pressure
Institutional investors are voicing their concerns in shareholder meetings that human rights due diligence is no longer optional or a “nice-to-have” but a key risk management issue. A number of studies in recent years have shown that companies with better environmental, social and governance (“ESG”) standards typically record stronger financial performance and beat their benchmarks, leading to bigger profits. It is also our experience in practice that there is a positive cost and value correlation when these issues are managed early during investment planning and screening rather than in response to a major or systemic crisis.
Access to capital is increasingly only available to those who meet sophisticated ESG criteria, and the pressure on investors themselves to ensure all investments meet this minimum criteria has seen the management of ESG risks like human rights and labour violations, environmental degradation, corruption and bribery become a key issue for mainstream investors.
In his letter to CEOs in January 2018, Blackrock CEO, Larry Fink, explained that “society is demanding that companies, both public and private, serve a social purpose”. As a consequence, he states “just as the responsibilities your company faces have grown, so too have the responsibilities of asset managers”. Continuing this theme in his 2019 letter, he reinforced that
“Profits are in no way inconsistent with purpose – in fact, profits and purpose are inextricably linked” and that “when a company truly understands and expresses its purpose, it functions with the focus and strategic discipline that drive long-term profitability”.
These comments will be instructive to how institutional investors and asset managers engage with companies globally.
5. Class actions and novel claims
As with many businesses at the top of complex global supply chains, tech companies face an increased risk of litigation associated with human rights harm occurring further down their supply chains.
Tortious claims against companies at the top of a supply chain are progressing further in some jurisdictions, for example England and the Netherlands, while in other jurisdictions, like the USA, there is an increased use of novel legal constructs to seek accountability by using advertising laws, competition and consumer laws and other non-human rights specific legal principles. In Canada, for example, the inclusion of reference to international human rights norms in claims against companies, not just the norms of the state where the litigation is being heard, could see new areas of legal risk emerging around the gap between national laws and international legal principles.
6. Business interruption
Those companies operating without long-term sustainability at the heart of their strategy, underpinning their “social licence to operate”, face increased continuity risks to business operations and their supply chains in the form of strikes, riots, looting, and also frontline operations, from areas such as vigilante hacking.
Major insurance companies have become more demanding of companies adhering to best practice in these areas. For example, at a 2016 UN Forum a number of global insurers and reinsurers stated that they may refuse cover where adequate systems of human rights risk management and due diligence do not exist.
Opportunities for tech-driven solutions
7. Use of DLT for supply chain transparency
Technological innovations are already transforming the way businesses create value and manage risks in global supply chains related to human rights and labour exploitation, sanctions, bribery and corruption, environmental damage, and other supply chain risks, and are capable of much more.
For example, Distributed Ledger Technology (“DLT”), commonly referred to as blockchain technology, is behind a wave of innovation that has the potential to revolutionise the way global businesses operate across a range of sectors. Research has shown that reducing risk and fraud is a primary benefit of blockchain technology and as more pilot programmes emerge so too does the potential for blockchain to be used to improve traceability and transparency of materials as they move through supply chains. Whilst not a complete solution, this technology shows great potential to reinforce existing tools and processes that support businesses to manage these risks.
Smart contracts could also be used to create effective protocols that ensure real time verification and compliance with agreed human rights standards and commitments. This has the potential to give business partners, consumers and users of products greater confidence that businesses have effective systems in place to identify and manage human rights risks. However, this is likely only to be practicable where it makes business sense for those further along a supply chain if there is a market for a premium, certified product, or where the market for uncertified products effectively drops away entirely (as is now the case e.g. with diamonds).
8. Data analytics to minimise corruption risk
Cloud data management and data analytic technology can support businesses to enhance audit processes by enabling real-time and ongoing data verification rather than on a pre-planned, “snapshot” basis. More effective red flag systems can support businesses to create sophisticated early warning systems and understand better where to focus resources – a key challenge when managing complex global supply chains. This data can also be used to monitor more effectively human rights strategies and KPIs designed to address and remediate issues as they arise.
Mobile technology has enabled better collection and monitoring of local data through smart devices and the internet of things. Examples continue to emerge such as drones being used to monitor activities and workers in remote or dangerous contexts, smart meters measuring more effectively emissions and waste as well as water and resource usage, and human generated data such as worker feedback, verification of labour rights protections and union activities as well as anonymised health and safety data to ensure worker protection in accordance with relevant human rights standards is possible. GPS technology has enabled better tracking of raw materials and monitoring of production in accordance with agreed standards.
9. Facilitating access to justice
Following the success of inaugural SCL/HMCTS Online Courts Forum, we are all more aware of the role of technology in facilitating access to state-based remedy.
One way for businesses to address more proactively issues associated with business and human rights risks before they develop into disputes and crises is to build in effective operational level grievance mechanisms in line with the UN Guiding Principles on Business and Human Rights (“UNGP”). This can help flag issues at an early stage and allow effective remedy to be provided before issues get to the class-action stage. When dealing with issues affecting large numbers of people, in areas which are geographically difficult to access, or where anonymity is a concern, technology has the ability to both facilitate access to justice and feed data from grievance processes back into the on-going evaluation of risk in business and human rights based due-diligence processes.
Back to the legal world…
10. The role of the lawyer
In the nascent technological landscape, business lawyers are uniquely placed to guide clients through the complex web of legal, financial and reputation risks and help them to create legal and commercial solutions. Effective solutions must have regard to addressing the human cost of technological innovation, which fundamentally requires not only an understanding of the emerging legal risk landscape, but also stakeholders’ expectations with respect to human rights. For some lawyers, this will be a shift in what they have traditionally understood their role to be. For others, understanding applicable laws and regulations has always been part of a wider legal and commercial advisory picture that includes a sophisticated understanding of voluntary initiatives, international human rights standards and the social, cultural and ethical norms and expectations, that are at play.
Whilst the technology sector is faced with many of the same human rights challenges as other sectors, it has the greatest potential of any sector to support the development of effective legal and commercial solutions to address these critical business challenges.
Sarah Ellington is Legal Director at DLA Piper
Daniel D’Ambrosio is an associate at DLA Piper
Sarah Ellington recently recorded a podcast with Dr Christine Chow, of Hermes EOS, to discuss the societal issues affecting business and technology touching on the issues set out in the article above. Listen to the podcast below:
