Japan Leads Effort in Asia to Promote Human Rights Due Diligence

As the European Union and the United States actively consider legal and regulatory measures to address human rights abuses in business supply chains, Japan has issued guidelines for Japanese businesses to assist them in monitoring and disclosing such abuses.

The Government of Japan has endorsed the Guiding Principles on Business and Human Rights for Implementing the United Nations “Protect, Respect and Remedy” Framework (UNGPs). In the July 2017 Leaders’ Declaration G20 Summit in Hamburg, the G20 members, including Japan, agreed to commit to fostering “human rights in line with internationally recognized frameworks, such as the UNGPs” and “work towards establishing adequate policy frameworks in our countries such as national action plans on business and human rights.” The Tokyo 2020 Olympic Games and efforts by the Japan Business Federation (Keidanren), the leading business association in Japan, have provided the Government of Japan with a strong incentive to develop a framework on human rights and business for Japanese companies.

While similar initiatives in other jurisdiction have tended to focus on specific types and areas of human rights abuses (such as human trafficking, child labor, and abuses related to conflict minerals),  the Japanese approach reflects a more holistic and comprehensive consideration of a wide range of potential human rights abuses depending on sector and geography, and encourages companies and organizations to formulate human rights policies and action plans that address risks and challenges that are specific to their global businesses and strategy. Whether and how this approach will evolve will depend in part on the Japanese government’s intention to make human rights due diligence mandatory and to impose human rights disclosure requirements on Japanese companies.

Framework of Human Rights Due Diligence in Japan

The Japan National Action Plan on Business and Human Rights (NAP) (link to pdf in English) was published on 16 October 2020 (link to texts in English).  The Government of Japan believes that the development of the NAP pertaining to respect for human rights in business, which is becoming a new global standard, will enhance the promotion of human rights in business activities. Encouraging Japanese companies to advance progressive initiatives on respecting human rights in the context of business will also contribute to boosting and maintaining the competitiveness of Japanese companies in the global market.

Following the NAP, in September 2022, the Ministry of Economy, Trade and Industry (METI) issued the Guidelines on Respecting Human Rights in Responsible Supply Chains (Guidelines)(link to PDF in English).

On 4 April 2023, METI released a collection of case studies that can be used by businesses as a reference when they conduct human rights due diligence (Human Rights DD) to verify whether human rights abuses exist in their supply chains. This release consists of:

• The Practical Reference Materials on Respecting Human Rights in Responsible Supply Chains (Materials) (link to PDF in Japanese)
• Appendix 1 (Casebook) (link to PDF in Japanese)
• Appendix 2 (Worksheet) (link to Excel sheet in Japanese).

In the release, METI includes examples of human rights risks in each relevant sector, such as forced labor and child labor, as well as products that are prone to human rights abuses. According to a press report (Japan to urge greater scrutiny over human rights with new checklist - Nikkei Asia ), the goal is to promote Human Rights DD among small and medium-sized enterprises, which have lagged behind large companies in their Human Rights DD efforts.

The Guidelines and Materials do not impose mandatory requirements, but in light of increasing social and political demands for transparency on human rights and businesses, METI strongly recommends that Japanese companies adopt these frameworks in order to promote greater respect for human rights. As one aspect of this policy, on 3 April 2023, the Government of Japan announced that in public procurements, whether a company wishing to bid on the procurement has Human Rights DD based on the Guidelines will be considered in selecting the winning bidder.

Overview of the Guidelines

Under the Guidelines, businesses are expected to undertake the following to respect human rights:

1. Establish Human Rights Policy
   A human rights policy is a policy pursuant to which a business clearly presents its commitment to respect the human rights of stakeholders, both inside and outside of the enterprise.

2. Conduct Human Rights DD
   Human Rights DD refers to a series of acts undertaken by an enterprise to identify, prevent, and mitigate adverse impacts on human rights in the enterprise, group companies, and suppliers, to track the effectiveness of their responses, and to account for and disclose information on how they address adverse human rights impact. By undertaking Human Rights DD, an enterprise assesses any “adverse impact on human rights” (Identifying and Assessing Negative Human Rights Impacts) and establishes methods to prevent and mitigate such adverse impact on human rights. Adverse impact on human rights can be categorized into the following three categories:
   • Impact arising from the activities of an enterprise (Cause Type)
   • Impact that is contributed by the activities of an enterprise - either directly or through some outside entities (government, business enterprises, or other) (Contribute Type).
   • Impact resulting from the actions of an entity having a business relationship with an enterprise and is “directly linked” to the enterprise’s own operations, products or services. For example, a retailer entrusts embroidery of its clothing products to a supplier. The supplier, as a trustee, in violation of its contractual obligations, re-entrusts the embroidery to another supplier that uses child labor to make the embroidery (Direct Link Type).

3. Ensure remedy
   The term “remedy” refers to mitigating and addressing adverse human rights impacts and the process for doing so. The Guidelines provide that an enterprise should provide remedy for adverse impact that is Cause Type or Contribute Type. In addition, even if the adverse impact on human rights is Direct Link Type, the enterprise should strive to use its leverage with other businesses that have caused or have been contributing to the adverse impact.

Overview of the Materials

The Materials supplement the Guidelines by providing examples of important considerations and implementation flow for Identifying and Assessing Negative Human Rights Impacts, which is the first step in establishing a human rights policy and conducting Human Rights DD.

1. The Materials identify the following considerations for establishing a human rights policy:
   • positioning of the human rights policy as one of an enterprise’s corporate policies;
   • identifying the applicable scope of the human rights policy;
   • including a statement to call for respect for human rights by employees, business partners, and other stakeholders;
   • including a statement of commitment to respect internationally recognized human rights (e.g., respect for the International Bill of Human Rights and the ILO on Fundamental Principles and Rights at Work);
   • including a statement of compliance with laws and regulations;
   • identifying key issues for the company in relation to respect for human rights; and
   • specifying ways to implement respect for human rights (e.g., implement Human Rights DD, establish policy for remedies, conduct dialogue with stakeholders, assign human rights officer).

2. In relation to Identifying and Assessing Negative Human Rights Impacts, METI released the Casebook and Worksheet to facilitate Human Rights DD. Identifying and Assessing Negative Human Rights Impacts generally consist of the following steps: (i) identifying the sectors having potential risk to human rights; (ii) identifying the root and mechanism for causing risk to human rights; and (iii) assessing risks of human rights abuses related to a company’s business and prioritizing actions to address them. The Casebook lists examples of human rights risks in the following sectors:
   • agriculture & fishing
   • chemicals & pharmaceuticals
   • forestry and logging
   • general manufacturing
   • infrastructure
   • mining & metals
   • oil & gas
   • power generation
   • service industry
   • utilities & waste management.

For example, the Casebook lists the main human rights risks in the agriculture & fishing sector as follows:

• risk to the health and safety of workers and communities - chemical use, machinery, working environment (especially deep-sea fishing), communicable disease;
• child labor;
• forced labor;
• impacts on communities and their traditional livelihoods due to monoculture, commercial and large-scale fishing, overfishing, land use for cash crops, water use, and wastewater and waste impacts; and
• forced displacement of communities, including indigenous people.

The Casebook also includes examples of responsive actions to address identified risks corresponding to each business sector.

The Casebook lists the types of products, such as agricultural products (cacao, coffee, tea, sunflower, etc.), livestock products, seafood, apparel products, textile products, minerals, and miscellaneous goods where the risk of child labor and forced labor has been identified by international organizations.

In addition, the Casebook classifies countries by risk index in relation to child labor. The Somali Republic has the highest risk with an index of 9.1 and France has the lowest risk with an index of 1.1. Japan’s index is 2.5, ranked 168th out of 195 countries.

Enterprises can refer to the Casebook when conducting Identifying and Assessing Negative Human Rights Impacts. The Worksheet also includes a brief questionnaire to assist with Identifying and Assessing Negative Human Rights Impacts.

Human Rights DD in the Global Context

While no country in Asia currently requires businesses to monitor and address human rights abuses in their supply chains, these recent efforts by the Government of Japan to encourage voluntary action on behalf of Japanese businesses reflect growing recognition of the role that businesses are expected to play in ensuring respect for human rights and the global trend to implement specific measures to hold businesses accountable for human rights abuses.

While Japan has developed non-mandatory guidelines, a growing number of  countries has legislation imposing obligations on companies regarding human rights (Anti-slavery and human rights obligations on corporations: impact on supply chains | DLA Piper).

The French Duty of Vigilance Act, for example, imposes a broad Human Rights DD obligation on companies. Under this Act, companies are obligated to publish and implement plans that describe measures to identify risks relating to human rights and the environment (e.g., risk mapping) to address human rights abuses. Parent companies are held liable if damage results from their failure to properly implement an adequate plan. The German Supply Chain Act requires companies to conduct Human Rights DD in relation to a range of human rights issues such as child labor, slave and forced labor, working environment, restrictions on basic labor rights, and environmental issues affecting the human body (water pollution, air pollution), with penalties resulting from failure to conduct Human Rights DD (it may lead to exclusion from public procurement). On the other hand, the UK Modern Slavery Act and the Australian Modern Slavery Act provide for investigative and reporting obligations of companies for specific human rights abuses such as human trafficking, child labor, and slave labor.

A notable difference between these European and Australian laws and the Japanese Guidelines is that the former imposes enforceable obligations on companies (with civil liability and penalties). This means that, while a Japanese company may be subject to voluntary guidelines in Japan, their overseas subsidiaries and affiliates may need to comply with a growing number of human rights legislations, resulting in a need to formulate and adopt a comprehensive and globally consistent human rights policy as part of the company’s business strategy and compliance program. Companies without significant overseas operations may also need to be mindful of global standards and investor expectations in relation to human rights, which may influence their reputation and access to capital.

The risk of legal liability of the parent company for subsidiary conduct or failure is another factor that supports the need for a balanced and consistent approach to human rights globally. Global companies are generally responsible for their overseas subsidiaries as “topco”. Under Japanese law, a fundamental duty of directors of Japanese companies is the “duty of care” (zenkan chui gimu) and the “duty of loyalty” (chujitsu gimu). Under these duties, a director has the duty to carry out the mandated business with the care of a “good manager” in compliance with the main purpose of the mandate. Directors of a parent company are responsible for the management of its subsidiaries, whether domestic or foreign. In other words, the parent company is a shareholder of the subsidiary, and the directors of the parent company have a duty of care or duty of loyalty to the parent company to manage the subsidiary as an important corporate asset and to prevent damage to the parent company. Therefore, it is essential for the parent company in Japan to monitor its overseas subsidiaries and branches and their compliance with applicable law, including human rights legislation, and failure to do so may result in the parent company being subject to litigation and held liable for abuses at the subsidiary level.

In addition, while a company may seek to promote its corporate value and publicly articulate its commitment to respect human rights in its global business, it should also be mindful of the risk of over-commitment, especially if any of its subsidiaries or suppliers were to be found complicit in any human rights violation.  Any stated position needs the supporting risk management tools to go with it. The landscape is one of growing complexity and there is an evolving nature of overlapping and jurisdiction-specific human rights legislation. The increased activism on the part of non-governmental organizations and claimants to hold companies responsible for human rights abuses arising from their global operations has involved arguments that a duty of care arises from the human rights statements being made by companies. A company needs to navigate these developments carefully when looking to meet its public commitment to human rights.