Expanding investment in renewable energy technologies—such as wind, solar, and biofuels—is a critical component of global efforts to achieve a net-zero carbon economy. In 2019 alone, investment flows in the renewables sector totaled $282 billion, with solar and wind energy capacities reaching approximately 8% and 9%, respectively, of global generating capacity.
As investment in renewables continues, corporations and investors should evolve their approach to human rights due diligence (HRDD). While HRDD risks may be well understood for the traditional oil and gas business model, renewable energy projects differ in key respects, requiring stakeholders to adapt to minimize exposure.
Where Are the Risks?
Corporations and investors should be mindful of relevant (nonbinding) international “soft” law obligations, such as the U.N. Guiding Principles on Business and Human Rights (UNGPs), which increasingly provide the foundation for new (binding) domestic laws. Indeed, depending on the domestic jurisdictions where projects occur, there may be applicable “hard” law obligations as well.
There may also be reputational considerations, with corresponding business implications, derived from public perceptions on responsible business conduct. This also may impact interactions with governments, especially for investments made outside of the home country, given continued scrutiny by regulators.
HRDD risks for renewable energy projects may be compounded by their close nexus to climate change priorities. Even where climate change intervention obligations may not apply directly to private actors, but instead to governments, reputational and concrete legal risks may still persist. For example, some claimants have successfully pursued legal strategies that combine domestic legal obligations, international human rights law, and environmental treaties to hold corporations accountable for reducing emissions.
How Can Corporations and Investors Respond?
Savvy corporations and investors will have existing robust HRDD policies and processes for the traditional oil and gas business model. However, renewable energy projects come with a unique set of considerations that will require even the most sophisticated of operations to adapt. Three key considerations can aide in evaluation and adaption of established HRDD policies and processes.
First, renewable energy projects may involve direct impacts on local communities; in particular, land acquisition or labor rights may be affected by investment in wind or solar projects. If the rights of indigenous peoples have been affected, corporations and investors may need to navigate both domestic and international obligations. For example, alleged human rights violations affecting local indigenous communities in connection with wind farms in Oaxaca, Mexico, have been highly scrutinized in recent years. Implementing robust consultation processes within the HRDD platform can provide an ongoing forum for stakeholder engagement to address risks posed by business operations in local communities.
Second, the materials involved in renewable energy projects may present unique challenges. Energy storage technologies, such as batteries, require extraction of minerals including lithium, nickel, and zinc, among others. Extraction has been highly scrutinized for its impact on labor rights and the rights of indigenous peoples. For example, there has been intense scrutiny on Xinjiang, the Chinese region in which the majority of the world’s polysilicon (used in solar panels) is extracted, due to alleged human rights abuses against local ethnic and religious minorities, especially the mostly Muslim Uighur inhabitants. Additionally, solar panel manufacturing practices can expose workers to hazardous chemicals, such as cadmium. Corporations and investors should carefully scrutinize how materials used in renewable energy projects are sourced, especially given the risk of potential trade controls and sanctions. They should also consider downstream HRDD impacts, including post-lifecycle disposal of technologies that rely on such materials.
Third, renewable energy projects may involve new supply chain partners. Partners’ activities may pose risks for corporations and investors. For example, the biofuels industry relies on supply chain partners in the palm oil industry, which has been scrutinized for its impacts on labor rights in Malaysia, Indonesia, and Thailand. The U.N.'s guiding principles extend corporate responsibility to both direct and indirect business relationships, including with partners, where adverse human rights impacts may be “directly linked” to their operations elsewhere in the global supply chain.
For investors specifically, the Office of the High Commissioner for Human Rights has clarified that “directly linked” can in principle apply where an investor has provided financing to a client and the client, in deploying those funds, subsequently causes an adverse human rights impact. Importantly, there is a trend towards “hardening” certain nonbinding guidelines.
For example, German parliament recently passed the “Act on Corporate Due Diligence in Supply Chains,” which creates various binding HRDD obligations regarding risk management, reporting, and remediation for large corporations beginning in 2023.
At the European Union level, a draft directive released earlier this year calls on the EU to implement binding supply-chain due diligence obligations, which would extend to suppliers and subcontractors. Indeed, the directive even moves away from the label “supply chain,” and instead tethers the scopes of regulated activities and entities to a broadly defined “value chain”.
Corporations and investors should proactively assess the HRDD policies and processes of new partners to ensure alignment and mitigate risks. This will be increasingly critical where these partnerships intersect with jurisdictions with applicable domestic laws.
Even for corporations and investors with robust HRDD policies and processes, the energy transition presents unique challenges. To proactively mitigate risks, stakeholders should assess current policies and processes against planned and existing renewable energy projects, review any jurisdiction-specific requirements, and engage early with partners to ensure a shared vision for HRDD.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Nicholas Diamond is a director and leads the Global Health Group at C&M International, the public policy and regulatory affairs affiliate of Crowell & Moring LLP. He is also an adjunct professor of law at the Georgetown University Law Center.