The rise of Western, particularly American, power in the twentieth century has been closely wedded to the ascendancy of extractive industries, chiefly oil, mining, and gas. Extractive projects, conducted by consortiums of multinational corporations (MNCs), have projected Western power and influence around the globe while providing the vital resources to fuel Western industrial and military might. The superior technology possessed by Western MNCs throughout much of the past hundred years has allowed them to maintain a monopoly over these resources. The extractive industry’s role as a de facto extension of Western power and influence has made the success of these companies a vital concern to American and European policymakers. However, the benefits of extractive industry investment, production, and development have come at the expense of many of the host states where business is conducted. The world’s most corrupt and least developed countries, such as Angola, the Democratic Republic of the Congo, Myanmar, Nigeria, Sierra Leone, and Sudan, contain some of the world’s most valuable natural resources. Revenue from resource extraction in the developing world has enabled regimes to derive their power from the natural riches of the earth rather than constituencies of their countrymen, which thereby undermines the emergence of democracy. In the developing world, an oil-producing country is twice as likely to suffer internal rebellion as a non-oil-producing one. In theory, the revenue generated from these commodities has the potential to elevate developing countries out of poverty and thus minimize the cycles of conflict and humanitarian disasters commonly found in the developing world. In reality, extractive projects frequently adversely affect the environment and disrupt the local economic and social fabric, which potentiates poverty, disease, and conflict.
Western corporations operating in the developing world have a lamentable record of pursuing economic expediency at the cost of upholding the human rights ideals that the Western world purportedly espouses as a society. MNCs have justified these practices by citing the social and political operating environments of host-nations beyond their control. While this may be true in part, there is an increasing body of evidence that MNCs have actively perpetrated or have been complicit participants in human rights violations. Furthermore, the very presence and nature of extractive projects exacerbate existing human rights violations. As non-Western extractive industry corporations, such as the state-owned Chinese National Petroleum Corporation (CNPC), expand their footprint in the developing world without ratifying international human rights conventions, Western MNCs are further incentivized to pursue what have been considered economically expedient policies to maintain competitive advantage. However, there is also a body of evidence that MNCs’ silent or active perpetuation of human rights violations in their areas of operation may prove increasingly costly in the form of negative brand imaging, legal liability, and long term costs of operating in areas with significant social and political instability.
This study will describe the Human Rights Impact Assessment (HRIA), a mechanism for Western MNCs to proactively mitigate or eliminate the negative human rights impacts of their operations in the developing world. Moreover, it will demonstrate that adopting the practice of an HRIA has the potential to yield economic benefits, hopefully changing the calculus that respecting human rights is an expensive departure from the core mission of extractive enterprises. This study will first look at common indignities brought about by corporations operating in the developing world that often result in human rights abuses. It will then elucidate how these practices are economically costly to Western MNCs and examine the body of international voluntary initiatives that has emerged to attempt to standardize MNC operational protocol in the developing world. After proposing the outline and implementation of the HRIA, this study will explore how its adoption by Western MNCs may be economically beneficial.
MNCs in the Developing World: Do No Harm?
The world’s largest MNCs operate where resources exist, regardless of a host state’s infrastructure or capacity. As a result, three core challenges emerge. First, many of these valuable natural and human resources are located in developing countries where the rule of law is weak or nonexistent. Most of these states do not monitor or enforce minimum internationally recognized human rights standards. Second, MNCs are often the only significant economic opportunity for the state. The government often lacks the capacity or legitimacy to reign in the power and activities of MNCs even if they so desired. As a result, the ruling elite, often in an effort to maintain power, overlooks labor, environmental, and safety standards in order to accommodate MNCs and to maintain control of the funds generated. Finally, the lack of uniformity in defining human rights and their relevance to MNCs results in legal uncertainty and unclear regulations for private entities operating in a host state.
In spite of the challenges associated with conducting business in the developing world, there is potential for good. Ravaged by civil war, autocratic governments, and poverty, these countries’ hopes for progress, development, and stability are often dependent on revenue from hydrocarbon extraction. Extractive industry profits present aid-dependent countries with the opportunity for creating optimal state capacity. Capital from MNCs provides the opportunity for economic development, which can promote an open society. Many resource-rich countries are classified as “conflict trap” countries, meaning that they are perpetually in a state of civil war; their only hope of peace is during post-conflict periods, when international assistance or domestically earned revenue can break the cycle. In theory, monetary capital can legitimize a state and break the “conflict trap.” When MNCs operate with sound judgment, they assist in creating state guidelines that ensure transparency and the appropriation of funds. They also have the potential to raise a state’s labor, health, human rights, and environmental standards. In reality, these benefits are rarely realized. Extractive industry projects in the developing world commonly cause direct or indirect environmental, health, and human rights violations; legitimize corrupt regimes; and provide little to no job opportunities for the domestic economy. These infractions are intertwined, but they can be classified into five general categories.
1. Corrupt Regimes Become Legitimized. When MNCs begin project development planning, dealing with one regime reduces the MNCs’ complexities. In this instance, the ruling elite controls all aspects of the negotiated deal and services for the MNC; from transportation and security personnel to payment and revenue allocation structures, those controlling the state’s power provide all services. When commercial production begins, the new source of revenue serves to legitimize, empower, and enable the existing, often autocratic or rebel, regimes. The misappropriation of economic benefits from resource revenue is rampant and devastating to the host state.
For example, DeBeers, the world’s largest diamond producer, enabled multiple autocratic regimes to maintain power. However, the company realized that dealing exclusively with corrupt ruling elite often results in human rights atrocities and damages the company’s brand—a massive anti-DeBeers publicity campaign was launched in New York City after it became apparent that the company’s corporation was legitimizing violent rebels and funding multiple civil wars. “A diamond is forever,” the company’s popular advertising phrase turned into a marketing nightmare when grassroots organizations brought worldwide attention to “blood diamonds.” The company operated mines in Botswana, Namibia, South Africa, and Tanzania, and had effectively traded guns for gems with rebel groups in conflict zones such as Angola, the DRC, and Sierra Leone. The diamond industry has a contrived value, largely through marketing campaigns, and regulates supply to match demand. DeBeers took this negative press, turned it into a positive by working with the international community, including the United States, and avoided liability for passive or active complicity in human rights violations. In 2002, following UN Security Council resolutions imposing sanctions against “blood diamonds,” diamond traders, DeBeers, and major diamond trading countries created an international protocol known as the Kimberly Process, which calls for minimum standards of certification of rough diamonds from conflict regions. The countries and companies agreed to establish internal controls to eliminate the import and export of conflict diamonds from their territories. Although steps have been taken to ensure transparency and independent monitoring, many technical and operational complexities remain with significant loopholes. As will be described below, conducting an HRIA has the potential to add another level of accountability and protection for host-state citizens.
2. Forced Relocation of Populations around MNC Projects. Construction of facilities and infrastructure necessarily requires resettlement of populations, often involuntarily. Displaced villagers are rarely provided with explanations and information regarding their resettlement, meaningful and adequate compensation, or basic necessities in their new home sites.
Chevron discovered vast, significant oil fields in southern Sudan in the 1980s, but was forced to withdraw from Sudan in 1984, due to the instability in the region; during this time three Chevron employees were killed by southern rebels. In 1988, Chevron resumed its activities and developed a six-year exploration and drilling program. With the Sudanese civil war intensifying between the north and south, and production facility and employee safety a significant concern, Chevron relinquished all of its Sudanese land concessions in 1991, after spending more than $1 billion. By 1992, CNPC, Britain’s Greater Nile Operating Company (GNPC), and the National Company of India (ONGC) had moved into Chevron’s former drilling blocks. To provide access for companies to drilling sites, the Sudanese government forcibly removed local people, their cattle, and grain from the resource-rich land. The government, using helicopter gunships to curb resident opposition, relocated large population groups to “peace camps” in western Sudan, Darfur, where they were forced to live and work for the soldiers for free. While 3 million western Sudanese citizens have been displaced and over 200,000 killed by the government-backed janjaweed, China and other consortiums continue to operate throughout the region.
3. Abuses at the Hands of Security Guards. Without buy-in from local communities and sufficient planning for sustainable development, it becomes necessary for MNCs to employ security guards for their facilities and infrastructure. When MNCs turn to the ruling elite to secure or clear a production field or pipeline route, guards are often government or paramilitary forces. Security personnel are often antagonistic to local populations and commonly subject them to forced labor and other physical abuses.
In 1996, the Union Oil Company of California, UNOCAL, became the first corporation in U.S. history to face trial for com-mitting human rights abuses abroad under the Alien Tort Claims Act of 1789. During the 1980s, the oil giant and its partners had hired local military forces in Burma, now recognized as Myanmar, to secure a pipeline carrying natural gas from the Andaman Sea into Thailand. These army units forced locals to work on the pipeline, raped, robbed, and murdered civilians, and displaced entire villages. Thirteen peasants from Myanmar filed suit against UNOCAL officials in U.S. federal and California state courts, accusing the oil company of forced relocation, slave labor, rape, torture, and murder. The Supreme Court of California ruled in favor of the peasants, noting that UNOCAL “knew or should have known that the military did commit, was committing, and would continue to commit these tortuous acts.” After nearly a decade of litigation, UNOCAL agreed to a confidential multi-million-dollar settlement. UNOCAL was acquired by Chevron Corporation shortly after the settlement.
4. Environmental Degradation Violates Health and Living Standards. Once production facilities are up and running, public health catastrophes can result from a project’s toxic leaks, gas flares, and dumping of waste. The Amazon region of Ecuador has suffered grave environmental degradation due to oil extraction. In 1971, Texaco began building oil wells in areas of the Ecuadorian rain-forest, which were inhabited by indigenous communities, and continued project development through 1992. The rivers in the region are vital to the livelihoods of the native people, providing them with food, hygiene, and transportation. Texaco’s contamination of the rivers brought about alarming rates of cancerous tumors, auto-immune diseases, birth defects, and spontaneous miscarriages to the indigenous populations. Dwindling fish stocks led to widespread malnutrition, poverty, and migration to the cities where employment was already lacking. In 2001, the Chevron Corporation acquired Texaco, which became a brand name under Chevron. In 2003, United States trial attorneys and thousands of Ecuadorian peasants brought a class action lawsuit against Chevron for environmental and human rights infractions while Texaco was operating in Ecuador. Charged with dumping billions of gallons of toxic oil waste into the local rivers and contaminating an area the size of Rhode Island, Chevron also faces human rights accusations including cultural genocide, and racial and ethnic discrimination. In early 2008, an Ecuadorian court-appointed independent geological engineer recommended that Chevron spend $8 to $16 billion to clean up the environmental degradation, if the company loses the case currently in New York courts. In April 2008, Chevron reportedly lobbied the U.S. government to end trade preferences with Ecuador over the lawsuit; the New York court ruled that the case should be tried in Ecuador and is currently under appeal.
5. “Dutch Disease”: The Boom Town Effect. Large-scale projects can drastically change local economies, a phenomenon commonly referred to as “Dutch Disease.” The sale of extractive exports increases the value of the local currency, making other export goods uncompetitive in the international market. As a result, a country becomes solely dependent on resource extraction. As the costs of goods and services rise sharply, labor is drawn away from traditional sectors, such as education and agriculture, into temporary cash service jobs. Traditional culture and social cohesion are disrupted by these jobs and incentives for corruption are increased. Far from home, workmen often engage with flourishing drug and prostitution markets, contract HIV/AIDS, and then unknowingly spread the deadly virus in their home communities. Additionally, the precarious economic system collapses once a project matures, leaving vulnerable and dependent workers in an under-diversified economy with fewer employment opportunities than prior to the beginning of resource extraction.
In the 1960s, Nigeria possessed a diversified economy; it was the largest producer and exporter of palm oil, the second largest producer of cocoa, and the leading exporter of cotton, rubber, and hides. Farmers produced 70 percent of Nigeria’s exports and 95 percent of its domestic food needs. Although oil was discovered in the Niger Delta in 1956 by Royal Dutch Shell and British Petroleum, it was not until the end of the Nigerian Biafran war and the rise in oil prices in 1971 that Nigeria began to receive significant petroleum revenue. In 1983, imports financed from borrowed resources had risen dramatically to over 33 percent of gross domestic product. Today this figure is almost double from 1974 figures when imports were 17.8 percent of GDP. Nigeria’s economy has become single commodity-based; in 2007 with the high price of petroleum, oil and gas was more than 95 percent of Nigeria’s exports, accounted for 85 percent of government revenues, and 52 percent of GDP. Nigeria is now a food-importing economy. Due to corruption, poor governance, and microeconomic policy, the government incurred $37 billion in external debt at its peak in 2005, up from $1 billion in 1971. As the Nigerian population increased, agriculture production decreased, employment opportunities vanished, and today 54 percent of the population lives on less than one dollar a day.
MNC Liability in Host State and Home State
Evidence suggests that the MNCs are finding that associating with corrupt regimes and passive or active complicity in human rights violations is an increasing financial liability rather than merely an unfortunate but economically expedient externality of the industry. From the boardroom and courtroom to the stock market floor and Internet, the globalized world presents MNCs with challenges at home and abroad when operating in the developing world. On the ground, MNCs are making medium- and long-term investments in unstable and often violent areas. Wall Street can react harshly to negative MNC brand imaging, resulting in pressure from the stockholders. Finally, host state peasants testifying in United States courts can be costly to the company’s reputation in the public sphere, boardroom, and stock market.
In the host state, political instability can cause significant risk to MNC production. In 2000, due to concerns over political unrest, ExxonMobil refused to be the primary shareholder in the Chad-Cameroon Pipeline Project without the World Bank serving as project overseer. The World Bank agreed, believing that the project would alleviate poverty because revenue would be invested in local poverty programs. However, the project’s completion only served to raise the stakes among those vying for power and has funded the ongoing conflict with neighboring Sudan. Talisman, a Canadian-based oil and gas company, with-drew from Sudan after its private military forces became em-broiled in a bloody oil war and the ongoing genocide. Talisman indicated that the perceived in-country political association was causing its stock price to sharply decline and thus posed too great a risk.
Nigeria, the eighth largest oil producer in the world, has lost 20 percent of its oil exports since early 2006, due to militant at-tacks on Shell and Chevron’s production facilities, on and off-shore. On June 20, 2008, Shell declared a “force majeure,” a legal clause permitting producers to miss deliveries due to circumstances beyond their control, after Bonga, its floating production storage and offloading facility, was attacked and production halted. Bonga, one of the largest floating facilities in the world, is located 120 kilometers offshore and was believed to be protected from the commonplace near- or on-shore attacks. In November 2008, Shell declared force majeure on gas supplies following pipeline damage by thieves; this is still in effect. In 2009, eleven attacks have already occurred against Shell and smaller outfits such as Canadian Addax Petroleum. In January 2009, militants attacked a Shell tanker, tugboat, and vessel, taking eight employees hostage. On February 13, 2009, Shell again declared force majeure on shipments from its primary Nigerian terminal because of attacks on facilities. Industry executives fear that the rise in piracy may force smaller oil services to withdraw from Nigeria. These firms are essential to offshore operation and could cripple the industry.
In their home countries, MNCs are spending billions of dollars to promote their brand name. In many respects, brand imaging for responsible corporate human rights stewardship is analogous to the shift toward greater corporate environmental responsibility. However, there is a perception on the part of MNCs and an increasing reality that responsible practices and/or publicity campaigns claiming their ethical behavior add more value to a company than expedient ones. Although not necessarily portraying accurate information, brand image awareness campaigns are everywhere. Full-page newspaper and commercial television advertisements for oil and gas companies such as BP, Chevron, ExxonMobil, and Shell fill the media outlets; these ads acknowledge environmental concerns, global warming, and tout the companies’ eco-friendly innovations. In the 1990s, BP suffered from one of the worst safety records of all the major petroleum corporations. After pulling out of the Global Climate Coalition, and following the 1998 BP-Amoco merger, BP invested substantially in a “Beyond Petroleum” campaign to brand the company as socially responsible. Although little has changed with regards to BP’s safety and environmental standards, the campaign succeeded. Critics accuse BP of using green language to distract the public. However, the campaign won the company the coveted American Marketing Association 2007 Gold EFFIE Award; BP’s brand awareness increased from 4 percent to 67 percent between 2000 and 2007. Sales rose from $192 billion in 2004 to $266 billion in 2006 and according to the Landor Associates, 21 percent of customers thought BP was the greenest petroleum company, followed by Shell at 15 percent, and Chevron at 13 percent. In 2007, Chevron launched a “will you join us?” campaign with ads filmed in thirteen countries and aired in eight languages worldwide. Additionally, the same year Shell produced a nine-minute film about a compassionate oil engineer and distributed the DVD inside National Geographic magazines.
Respect for human rights is a critical piece of the puzzle, not only for publicity campaigns, but also for a company to maintain competitive advantage and profit maximization. In the United States, Warren Buffet’s Berkshire Hathaway was criticized for its $3.3 billion stake in PetroChina Co., a subsidiary of the CNPC, which is the biggest operator in the Sudanese oil sector. On July 31, 2007, the United Nations Security Council passed resolution number 1769 under Chapter Seven of the UN Charter, authorizing a 26,000 peacekeeping force to police Darfur. The initiative came to fruition after China changed its position in support of the resolution. Buffet agreed on July 11, 2007 to begin divesting in PetroChina, completely selling all 2.3 billion shares by October 18, 2007. An August 7, 2007 Market Watch Report stated, “Ultimately, Buffett the capitalist must have realized that investing in PetroChina was a bad idea. The Gates’ charity that will get a fortune from Buffett has spent millions aiding Sudanese refugees.”
Human Rights Rubric in the International Community
International government leaders, business executives, and non-profit groups have begun to create standards for accountability and transparency. Taking into account the human rights atrocities that commonly occur during MNC operations in the developing world, these promising campaigns, guidelines, standards, declarations, and tools stem from the first international human rights doctrines seventy years ago. Following World War II, forty-eight Western and Muslim world leaders met in Paris to adopt the International Bill of Human Rights, which outlines politically agreeable minimum standards for human rights. The United Nations Universal Declaration of Human Rights was the first of three documents created to comprise the IBHR. Article one declares, “All human beings are born free and equal in dignity and rights.” In 1966, the additional Covenants were ratified—the International Covenant on Economic, Social and Cultural Rights, and the International Covenant on Civil and Political Rights. This group of Covenants maintains that human beings have the right to food, water, shelter, religious, and political freedom, and should be protected from arbitrary abuse at the hands of their state. The ICCPR, to which many less developed countries are signatories, outlines an obligation for states to ensure human rights to all individuals within its territory and subject to its jurisdiction.
After forty-five years, UN representatives from 171 States, together with over 7,000 participants, met in Vienna in June 1993, to create, “a new vision for global action for human rights into the next century.” The Vienna Declaration and Program of Action was endorsed by the UN General Assembly, resolution 48/121, recognizing the “interdependence between democracy, development and human rights,” and the need for cooperation between domestic and international organizations.
In an address to the World Economic Forum in 1999, former UN Secretary-General Kofi Annan extended an invitation to business leaders to join an international initiative, The Global Compact, which is designed to bring companies together with UN agencies, foreign governments, labor unions, and civil society in order to address the challenges of globalization. More than 3,000 MNCs worldwide have become signatories, including 178 extractive industry corporations such as DeBeers, Shell, and BP. At the 2002 World Summit on Sustainable Development Building, former British Prime Minister Tony Blair launched the Extractive Industries Transparency Initiative to increase the transparency of and accountability for cash flows between MNCs and governments. The synergy between MNCs and governments is based on the understanding that a lack of accountability and transparency when handling oil revenues potentiates corruption, conflict, and poverty, which inevitably leads to human rights atrocities. The International Finance Corporation (IFC) led another initiative, the Equator Principles; the IFC worked with ten international banks in London to create an industry-wide framework to address environmental and social risks in project finance. There are additional promising initiatives and standards geared towards addressing corruption, transparency, and good governance; these include the “Publish What You Pay,” a campaign to help citizens of the developing world hold their governments accountable for petroleum revenues, the Group of Eight Transparency Compacts, designed to work with developing countries to fight corruption and improve transparency, the Business Leaders Initiative on Human Rights, to lead and develop a corporate response to human rights, Revenue Watch Institute, to promote responsible management of natural resource wealth for the public good, and the Organization for Economic Cooperation and Development’s Guidelines for Corporate Governance, which includes twelve standards for international stability.
In June 2007, the International Business Leaders Forum, the IFC, and the GC jointly produced their draft Guide to Human Rights Impact Assessment and Management to be tested by businesses and finalized by mid-2009. Independent organizations have also taken salient steps to create HRIA tools and frameworks. Canadian organization Rights and Democracy is conducting HRIA methodology trials in five countries; The Da-nish Institute for Human Rights and Aim for Human Rights, a Netherlands organization, have produced HRIA tools that are available online.
The Human Rights Impact Assessment Framework
In a capitalist market, a corporation’s primary objective is to maximize profits for its shareholders. In today’s globalized world, MNCs are operating on a scale that was previously not possible. The MNCs’ increasing role as corporate citizens on the world stage presents potential to do both good and harm. It is not an easy position: MNCs are operating in corrupt states where it is the norm for citizens to be deprived of basic rights by their government, but MNCs should not be actively or passively complicit in perpetuating a lack of basic rights. Drawing from the footprint of existing literature, the HRIA is designed to serve as a practical medium- and long-term risk management tool that incorporates the human rights rubric into a company’s decision-making process. Corporate risk through the human rights lens is defined here as legal liability, potential for project interruption or abandonment, and/or negative impacts on the corporate brand. An HRIA is designed to anticipate corporate risk prior to, during, and after project implementation. An HRIA focuses on human rights impacts occurring within a corporation’s sphere of influence, which may either, contribute to or detract from the fulfillment and progressive realization of internationally-recognized human rights standards.
Being a medium- and long-term investment, the HRIA presents MNCs with the opportunity to spread wealth, maintain competitiveness, keep investors, develop new markets, and be responsible global citizens. Corporations in the extractive indus-try move into the developing world, operate an oil field block for ten to twenty years, employ few locals, and operate in a bubble removed from the host state’s shortcomings. The first step is encouraging host governments to comply with basic human rights standards to decrease dependence on foreign aid and gain stature in the international community. As a balance of transparency and accountability begins to create lasting frameworks throughout the MNC and international diplomatic community, in theory, there will be increased opportunities for new markets through emerging societies, higher production, and profits.
As stability is encouraged and promoted within societies, demand is inherently created, providing MNCs with new markets for their products. As wealth trickles into a state economy, people need cars, gas, tires, plastic items, and entire infrastructure. This will require more extractive products which will in turn increase the corporation’s profits. Regional stability creates the opportunity to increase outlets for other byproducts of oil drilling. There is often excess natural gas in operating fields, much of which gets burned off as required by environmental laws, and is too costly and difficult to export to the world market. As the quest for resources continues, it is likely that liquefying and transporting natural gas will be an increasingly popular method. Refineries present additional opportunities; these can be lengthy fifty-year projects, and pose corporate risk when they are not located in secure environments. Although the World Bank recently recommended that small refineries in Africa be closed, there is increasing global demand, especially as U.S. refineries are requiring extensive repair. As MNCs look to provide energy from sources other than hydrocarbons, such as local wind power, oil-producing countries will become additional energy markets. As the practice of an HRIA becomes widely held, the value will be in the inherent process of engaging all stakeholders and creating a sense of ownership while respecting human rights.
The HRIA framework is grounded in the successes of environmental and social impact assessments that have been the cornerstone of environmental and social protection in developed countries. Environmental Impact Assessments (EIAs) and Social Impact Assessments (SIAs) were developed to systematically assess applicable impacts and offer alternatives to mitigate negative impacts. EIAs evolved out of the 1969 U.S. National Environmental Policy Act (NEPA) and have been adopted worldwide. The Foreign Assistance Act of 1979 effectively extended the NEPA’s reach to U.S. foreign aid activities. SIAs came into fruition in the United States in the 1970s as it became evident that projects altering natural ecosystems also alter the culture and social organization of embedded populations that surround the projects. Both SIAs and EIAs represent proactive, transparent, and structured approaches that avoid or mitigate significant and irreversible damage through describing preexisting conditions on the site, creating a plan for action, identifying potential impacts that may occur as a result of the action, and evaluating impacts and risk-mitigating alternatives. Impact Assessments are disclosure tools that governments and corporations recognize and accept. This study proposes building on the SIA/EIA principles to create the HRIA, an early warning system and an essential first step in creating transparent accountability within corporations and host states. The seven crosscutting basic principles that should guide the corporate HRIA are described below.
1. Designing an HRIA Team: Work with Competent Practitioners and Credible Data. It is essential to choose the right team to work with an MNC in order to devise an effective and efficient HRIA. There is a growing list of exceptionally qualified consulting agencies offering services to prepare impact assessments. External auditors should exhibit familiarity with HRIAs, and maintain financial and institutional independence to avoid actual or perceived corrupt practices, the team should report directly to the MNC’s board of directors. Employing and consulting with credible experts in the field of human rights, anthropology, political science, and local NGOs provides an MNC insight into the geopolitical complexities on the ground; this is essential to building a sound HRIA that is integrated into corporate decision-making and viable to the international community. There should be an internal group within the MNC to work with the external auditors during the creation of the HRIA framework.
2. The Business Case: Involve All Stakeholders and Create a Sense of Ownership for All. Once the HRIA team is defined and has peripherally assessed the host state’s social, political, and economic climate, the team needs to identify and meet with representatives of all groups that will be involved with or affected by the project. This should include everyone from senior staff to under-represented stakeholders such as project workers, host communities, and local NGOs. Maximum inclusion of all actors, especially any politically marginalized segments of the state’s population, is particularly critical when operating in states where the rule of law and infrastructure is virtually absent. Interactions between parties present a real opportunity for joint problem-solving and cultural exchange. Whether through town meetings or surveys, these exchanges should be interactive and not a sales pitch. Community buy-in and liability protection is essential to maximize short- and long-term project investment opportunities. In the event that misappropriations of funds or human rights violations result during project implementation, the MNCs will have established a relationship with all players and documentation of that interaction.
A Salient Case Study: The World Bank Chad and Cameroon
Pipeline Development Project
At times, project consortiums attempt to involve the affected public but fail because they are unable or unwilling to consider the local culture, history, and their complexities to formulate a meaningful process. In 2000, the World Bank took an unprecedented step by switching from their role as major financial development lender to project overseer of the Chad-Cameroon Petroleum Development and Pipeline Project. The $4.1 billion project attempted to avoid the opaque practices that have fueled graft and corruption in other African oil states such as Angola, Congo, Equatorial Guinea, Gabon, and Nigeria. The World Bank guided the private sector consortium of ExxonMobil, Petronas, Texaco, and Chevron in order to design a model for developing countries to use revenue from their own resources in a transparent manner to alleviate poverty. Although the consortium was well intentioned in its efforts to involve the southern Chadians about pipeline construction, the result was dismal. The consortium arranged nearly 900 village meetings, distributed a nineteen-volume information pamphlet to libraries, and showed an information video. Despite the ongoing military attacks by the northern government militia in the south, the same northern guards were tapped to accompany the ExxonMobil representatives to the southern meetings. Given the low literacy rate, scarcity of libraries, and numerous dialects in southern Chad, the non-translated video and the pamphlets could not, and did not, engage the local citizens. With the innovative safeguards, the consortium hoped to promote accountability, transparency, and democracy, prevent further class separation and the legitimization of corrupt ruling elites, and minimize environmental and human rights abuses. However, the project is still failing and Chadian President Idriss Déby is embroiled in a brutal conflict with the neighboring Sudanese regime.
3. Design Methods for Defining, Measuring, and Addressing Impacts. Once all potential stakeholders are determined, impacts need to be identified, defined, and classified into categories. Similar to a practical risk management tool, this step simulates the interests and demands of all stakeholders throughout the length of a project. Each impact should then be pre-classified as a: (1) potential problem; (2) potentially mitigated problem; or (3) potentially reversible problem. The HRIA team should create a methodology to address each category. Each proposed action should be assessed while examining its impact on local dynamics. This will create long-term risk management by strengthening and legitimizing the impact assessment while simultaneously encouraging accountability. This classification system should be used by the team throughout the project to monitor the identified potential problem areas. It is timely and cost efficient to discuss, define, and forecast potential complex issues surrounding the project’s impact on local communities prior to production; for example, once production is under way, the daily burn rate is significantly increased compared to the pre-project planning stage. A byproduct of this step is the creation of a complex emergency response system, should problems arise during or after production. This system can be used in tandem with the local and international community experts, who would have been previously approached by the team. It also creates benchmarks for measuring progress and problems while encouraging transparency and accountability for all actors.
4. Assess Equity of Impacts. After gathering reliable and informed data, the HRIA team should determine the positive and negative impacts from the project and any potential unbalanced distributions between communities, such as the state’s current human rights situation, stability, and any historical divisions. This includes different assumptions, such as the development needs of the community, the education needs of employees, corruption threats, and the exacerbation of ethnic tensions. Groups that are disenfranchised may become frustrated and aggressively retaliate, thereby threatening production, as is witnessed in Nigeria. Assessing the equity of impacts directly confronts potential complicity and liability issues; this requires MNCs to be familiar with existing labor, environment, health, and housing standards around the project as they pertain to human rights.
5. Internalize the Impact Assessment in Corporate Decision Making. The HRIA assumptions and projections should be institutionalized throughout the corporate management structure; otherwise it will be a useless exercise. Clearly delineated internal codes of conduct need to be outlined for receiving and internalizing in-formation with explicit policies for addressing discrimination, labor, security, and indigenous peoples. At this time, staff training and management protocol should be designed for overseeing contractors and local employees. If the perceived risks outlined by the HRIA suggest that the human cost from the project could be devastating, the board room is required to consider suspending the project. If the project is recommended, communication between the HRIA team and the corporate decision-makers should be clearly outlined. Once revenue is flowing into the community, bi-monthly meetings are recommended with the HRIA team and the corporate decision makers. The MNC needs to create a sense of ownership in the project that permeates through every stakeholder, including the local population and NGOs, company crane operators and engineers, the host state government, Wall Street executives, and stockowners. When team pride and integrity is nurtured at all levels of a business, optimal production and results will be realized, even when operating in complex and volatile areas.
6. Transparency: Share Findings. The first step in gaining credibility with the company’s stakeholders, international initiatives, and human rights organizations is to publicly disclosing the process and results of a HRIA. The public disclosure of findings by MNCs sends the right message to the ruling elite, encourages discussion, media coverage, and transparency, and potentially decreases corporate complicity in the event of litigation or human rights atrocities. International organizations, such as branches of the UN, World Bank, IMF, and Open Society, can provide economic and development advisors to the state, offering petroleum revenue allocation structures, debt restructuring, development, and education initiatives. Through these actions, the state will have the potential to gain prestige and legitimacy in the world arena. Raising the standard of living for the local population presents the opportunity for a regime to win the hearts and mind of its people. MNCs are presented with a unique opportunity to create internal standards early, involve the public, and set operating procedures on the international stage. The MNCs must honestly disclose the HRIA study to an appropriate extent in order to legitimize the corporation’s process and decision-making as well as encourage the host state’s government and local population participation.
7. Ongoing Monitoring and Evaluating: Managing Human Rights. Once a project is underway, the HRIA team should aggressively monitor all human rights impacts related to the project. Detailed monitoring and reporting should include disclosure of profits, payments dispersed to given entities, estimated production rates, fluctuations in the value of the commodity, the impact on the ground, and the status of potential impacts assessed during pre-project planning. Now is the time for the team to draw on the HRIA investment, sharing successes with crane operators, the boardroom, and the press, or working through potential complex issues surrounding complicity, inhumane practices by subcontractors, or misappropriation of funds by the government. MNCs must be mentally prepared to temporarily suspend production or significantly alter their course of action should massive human rights violations commence.
An HRIA Makes Economic Sense
A Smart Investment
With a global economic recession, plummeting oil prices, and the decrease in oil production, MNC executives are under pressure to cut costs, promote efficiency, increase productivity, and maintain strong profit returns and competitiveness. It may seem contrary to the CEO mindset to dedicate energies toward promoting transparent and ethical dealings with corrupt state regimes. To be sure, MNCs cannot be solely responsible for a state’s success or failure to effectively utilize resource revenue to elevate populations out of poverty. However, conducting HRIAs has the potential to yield economic returns in the medium- and long-term. This system is an ethical, promising, and cost-effective tool for MNCs to assess and control the impact of their development activity in places where host governments are unable to safeguard their citizens’ rights. HRIAs are win-wins for the corporation. Although more time and money is initially required, an HRIA is a sensible insurance policy, especially considering the monetary and public costs of facing a trail in the long run. Additionally, while oil production is down, it is an optimal time to integrate the HRIA into corporate decision-making, design an independent HRIA team to work with MNCs, and engage the developing world. New processes and procedures are easier to implement when beginning new projects.
Maintaining Western CompetitivenessChange Begins at Home
The United States was founded on the principles of encouraging competition, excellence, opportunity, and the ethical treatment of all peoples. During the eight years of the Bush ad-ministration, the United States violated international human rights covenants on the basis of protecting national security. The Central Intelligence Agency’s secret detention centers located overseas and the imprisonment of detainees at Guantanamo Bay, without respect to the Geneva Conventions, decreased U.S. influence on the international stage when arguing for human rights standards in Myanmar or Sudan. The Obama administration has initiated positive steps toward restoring global trust and moral leadership in the international community with the projected closing of Guantanamo and a renewed commitment to uphold the Geneva Conventions when apprehending suspected terrorists on foreign soil. As the Obama administration continues to strive for principled and transparent leadership, to combat extremism, and to protect national interests, the United States needs to begin by promoting, recommending, and enforcing ethical codes of conduct with businesses at home. U.S. foreign policy should reflect a meaningful effort to improve the basic quality of life of all citizens in the world; U.S.-based corporations have the potential to be leaders in this area, as they ask others to follow suit.
Using the NEPA as a roadmap, the U.S. Congress should lead the Western world in designing an HRIA for applicable U.S. private- and public-sector overseas projects. The scope of this legislation may encompass extractive and/or other projects with significant human rights impacts undertaken, financed, or otherwise supported by corporations operating or registered in the United States. This legislation would include application to private lenders, the Overseas Private Investment Corporation, the Export-Import Bank, the U.S. military, and USAID. Congress may design tax incentives for MNCs that adopt and incorporate the HRIA tool into their corporate decision making. It is recommended that the U.S. government support the creation of an independent and competent board of human rights auditors and/or an auditor certification scheme to provide corporations with reliable and timely impact assessments. To avoid allegations of impropriety, it is advisable to establish a funding or payment mechanism that ensures the financial integrity of the HRIA process.
The United States should encourage the adoption of Human Rights Impact Assessments at the supranational level and incorporate the cross-sector codes urged by the Global Compact, World Bank, International Monetary Fund, Equator Principals, and others. At the international level, Congress is encouraged to seek an agreement among states holding corporations directly liable for their HRIA obligations in the absence of domestic accountability. The international community should put significant pressure on developing world leaders to address any real or potential problems from an HRIA. This may include resolutions from the United Nations Security Council, sanctions by the United States, or MNC royalty penalties outlined as a result of the HRIA.
Today, all states are challenged globally from the top-down, receive local population pressure from the bottom-up, and the corporate world comes at them side to side. The good news is that this presents new opportunities for positive influence beyond the conventional thought and corporate mindset. Stakeholders have expanded to include actors from all corners of the world. The corporate citizen is challenged to emerge with proactive ways to create new markets, long-term investment return, and socially responsible practices. The HRIA is a promising step toward creating future markets, decreasing costs in the long term, and preventing the manipulation and abuse of people in developing countries.
Margo Tatgenhorst Drakos recently completed her MA in international affairs from Columbia University. She is co-author of “Getting Human Rights Right,” published in the winter 2008 issue of Stanford Social Innovation Review, and “Extracting Corpo-rate Responsibility: Toward a Human Rights Impact Assessment,” published in the spring 2007 issue of the Cornell International Law Journal. She is chief operating officer of InstantEncore.com, a digital music and social networking site for live classical music based in San Diego.