1. Climate Change and Business Impacts

Global warming is a key aspect of the climate change that the world has been experiencing for some time, with long-term rise in temperatures globally. While some changes in global temperatures occur naturally over long spans of time, it has been acknowledged that the significant rise in temperatures that the world has experienced in recent decades is due to increased concentrations of greenhouse gases (GHG) in the atmosphere caused by human activities ^[1][2]. This includes, in particular, industrial activities, such as the burning of fossil fuels (oil, gas, coal), deforestation and clearing of trees and bushes for farming or industry, agriculture (and notably livestock like sheep and cattle that produce methane, a powerful greenhouse gas), farming of soil which can release stored greenhouse gases, and use of fertilizers that release greenhouse gases ^[3].

The role of companies as main drivers of global warming has been widely acknowledged. In 2015 companies were found to account for 91% of global industrial greenhouse emissions and 70% of all human-made emissions ^[4]. Energy production, transport and use account for almost three quarters of global GHG emissions; agriculture and land use for about one fifth, and industry and waste for almost one tenth ^[5]. The Intergovernmental Panel on Climate Change (IPCC) has repeatedly called for strong and sustained reductions in CO₂ emissions.

The Paris Climate Change Accord (‘Paris Agreement’) was adopted in 2015 with the aim of strengthening the global response to the threat of climate change, and included a commitment by the State Parties to keep the increase in the ‘global average temperature to well below 2 °C above pre-industrial levels’ by 2100 and to pursue efforts ‘to limit the temperature increase to 1.5 °C above pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change' ^[6]. The Paris Agreement also invites non-State actors, including the private sector and financial institutions, ‘to scale up their efforts and support actions to reduce emissions and/or to build resilience and decrease vulnerability to the adverse effects of climate change and demonstrate these efforts' ^[6].

In addition to combatting climate change through reducing direct GHG emissions, many companies are also involved in climate mitigation. Climate mitigation, in particular the turn to low-carbon energy, creates new business opportunities for companies involved in innovation, development, construction and/or renewable energy, such as wind, solar and hydro-power, batteries for energy storage, and mining of the minerals required for those renewable energy production and storage.

2. Climate Change and Human Rights

Climate change has a major impact on a wide range of human rights. In addition to the right to a clean, healthy and sustainable environment and livelihoods, climate change threatens or contributes to reduced enjoyment of the rights to life, adequate food, safe drinking water and sanitation, physical and mental health, education, adequate housing, and just and favourable conditions of work ^[7]. Climate change is exacerbating the risk of other human rights violations and is also a major driver of forced displacement ^[7]. The range of risks or actual adverse human rights impacts resulting from climate change underscores the need for urgent action to combat and mitigate climate change.

The right to a clean, healthy and sustainable environment was recognized by the United Nations as a human right in 2022 ^[8]. The resolution acknowledges that the impact of climate change interferes with the enjoyment of a clean, healthy and sustainable environment, and that climate change is among the most pressing and serious threats confronting the ability of present and future generations to effectively enjoy all human rights. The resolution refers to the UNGPs, which underscore the responsibility of all business enterprises to respect human rights ^[8]. United Nations expert bodies have also acknowledged that companies should participate responsibly in climate change mitigation and adaptation efforts with full respect for human rights ^[9]. Acting with respect for human rights in the context of climate change therefore requires private actors to ensure that their actions do not worsen climate change, and to find more environmentally sustainable modes of production and consumption .

Ironically, the establishment of low-emission energy infrastructures, such as wind, solar and hydro-power, as well as the mining of minerals for low-emission energy technologies and batteries for energy storage are not only significant for combatting GHG emissions and the longer-term human rights impacts resulting from climate change. The economic activities to produce low-emission energy and the necessary minerals can also cause adverse human rights impacts, especially for communities that host or live close by wind farms or dams for hydro-power, or workers involved in transition mining ^[10][11].

The preamble part of the Paris Agreement, which sets out the policy and wider societal context for the Agreement’s legally binding obligations, recognizes the need to address human rights risks in the context of climate mitigation ^[12]. Moreover, Agenda 2030–in the United Nations resolution which set forth the 17 Sustainable Development Goals (SDGs)–also recognises that risks to human rights and the environment must be addressed ^[13]. In particular, SDG 13 on urgent action to combat climate change and its impacts, and SDG 7 on access to affordable, reliable, sustainable and modern energy for all, contribute to driving up activities to support the implementation and production of facilities and technical solutions for energy that is sustainable from a climate change mitigation perspective. While SDG 17 calls for partnerships to implement the SDGs, thereby encouraging companies to contribute to SDG implementation, para. 67 of Agenda 2030 explicitly notes that SDG implementation must not cause harm to human rights and the environment. In this context Agenda 2030 refers to the UN Guiding Principles on Business and Human Rights (UNGPs) ^[14]. The UNGPs are an international soft law instrument that sets out detailed guidance for companies on how to fulfil their responsibility to respect human rights, i.e. through the exercise of human rights due diligence. A management process to identify and manage risks and actual harmful human rights impacts resulting from business activities, this form of due diligence has influenced wider and emergent concepts of risk-based corporate sustainability due diligence, as explained in the subsequent section.

The connection between climate change, human rights, and corporate impacts underscores the significance of companies having processes in place to identify their actual or potential harmful impacts. This applies whether impacts are directly related to climate change and indirectly to human rights, through GHG emissions that spur and may extend climate change and its adverse human rights impacts; or whether their impacts are directly related to human rights through working condition problems or other potential or actual risks to workers and communities affected by climate change mitigation, such as harmful impacts on land rights, personal integrity or security (typically through private security companies), housing, health, education, participation or other human rights. An outward-oriented corporate sustainability due diligence process allows companies to identify and handle their impacts, as described in the following.

3. Human Rights Due Diligence and Risk-Based Corporate Sustainability Due Diligence

Originally proposed in relation to the adverse impacts of business activity on human rights, the expectation on companies to undertake due diligence for their human rights impacts has progressively been extended to other existing or potential adverse societal impacts, including those that businesses may cause to the environment and climate change. Based on take-up by the OECD Guidelines for Multinational Enterprises ^[15], the wider approach was originally (2011+) termed risk-based due diligence. More recently, it has come to be addressed as corporate sustainability due diligence with the advent of European Union (EU) policies and laws setting out such due diligence requirements on companies.

3.1. Human Rights Due Diligence

The concept of human rights due diligence originates in two reports from the UN’s Human Rights Council that have been defining for the current regime of business and human rights: The ‘Respect, Protect and Remedy’ Framework (UN Framework) ^[16], an analytical report providing extensive reasoning for business responsibilities for human rights ^[17], and the UNGPs ^[18], which operationalize the UN Framework through detailed instructions for states and business enterprises in regard to business-related harmful human rights impacts. This rests on 3 ‘pillars’: (1) the state duty to protect against human rights abuses committed by third parties, including by business, affecting individuals and communities within their territory or jurisdiction; (2) the corporate responsibility to respect human rights; and (3) effective access to remedy for victims. The corporate responsibility to respect covers all internationally recognised human rights and exists over and above compliance with national laws and regulations protecting human rights. It is independent of States’ abilities and/or willingness to fulfil their own human rights obligations ^[14] and presumes that business enterprises self-regulate to the level of international human rights when the national law in an operational location does not live up to that level in terms of substance, implementation and enforcement.

The UN Framework and UNGPs observe that the responsibility to respect human rights is a global standard of expected conduct for all business enterprises wherever they operate, and that discharging the corporate responsibility to respect human rights requires human rights due diligence. In this sense, human rights due diligence is core to the corporate responsibility to respect human rights and instrumental for companies to honour that responsibility. Taking an outward direction, human rights due diligence focuses on risks to people and society, as opposed to transactional corporate risk management due diligence, which aims at preventing the legal, technical and financial risks to the company (an inward direction from the perspective of the company) ^[19][20]. The human rights due diligence expectation applies to all companies globally, regardless of form and size, and reach throughout their value chain.

As a management process that companies are expected to put in place in order to identify, prevent and address adverse human rights impacts, human rights due diligence is an ongoing and contextual process. It aims to uncover human rights risks in which the company is involved, and generate appropriate and effective responses. What is an adequate response varies, inter alia, according to whether there is a risk that adverse impact may occur, or whether actual impact has occurred. Potential risks are to be prevented. In relation to actual risks, when harmful impacts have arisen, they must be mitigated and remedy provided.

Human rights due diligence involves a series of steps: assessing actual and potential human rights impacts, integrating and acting upon the findings, tracking responses, and communicating how impacts are addressed ^[14].

Leaning on impact assessment theory and practice as integrated in other types of societal risk-identification, such as for environmental purposes, human rights impact assessments is a cornerstone of the first step of the human rights due diligence process for companies to identify and understand how existing and proposed projects or activities may affect human rights. Simply, impacts or risks of impacts must be known and understood in order for the company to properly be able to prevent, mitigate and/or remedy them, as appropriate. In order to do this, companies should integrate the findings from their impact assessments and take appropriate action ^[14]. What constitutes appropriate action varies according to, inter alia, the degree of involvement of the company in the human rights risk. In particular, companies may be involved in human rights risks in three ways: they may cause adverse impacts, they may contribute to adverse impacts through their own activities, or they may be directly linked to the adverse impacts ^[14]. A company causes harm where ‘its own activities (its actions or omissions) on their own “remove or reduce” a person’s (or group of persons’) ability to enjoy human rights’. Appropriate action consists of taking ‘the necessary steps to cease or prevent the impact' ’^[14]. A company contributes to an impact if its actions and decisions influenced another entity ‘in such a way as to make the adverse human rights impact more likely' ’^[21].  Appropriate action requires the company to ‘take the necessary steps to cease or prevent its contribution and use its leverage to mitigate any remaining impact to the greatest extent possible' ’^[14]. A direct linkage refers to a situation in which there is a direct link between a company’s operations, products or services by its business relationships and an adverse human rights impact, even if it has not caused or contributed to those impacts. In this situation, appropriate action requires the exercise of influence (referred to as leverage in the business and human rights context) to encourage and help the entity causing the harm to mitigate and/or cease it ^[14]. Where the company lacks leverage, it should seek ways to increase it. Leverage can be applied individually or in collaboration with others. It may take various forms, such as dialogue, capacity building, or involvement in industry initiatives to address sector-specific issues ^[14].

The UNGPs recognizes the importance of engagement with all stakeholders; but the due diligence process is particularly focused on stakeholders at risk, such as workers, suppliers, customers and communities. Meaningful engagement with such stakeholders should form a core element throughout the human rights due diligence process. The process of identifying and assessing impacts must include meaningful consultation with potentially affected groups and other relevant stakeholders, as appropriate to the size of the business enterprise and the nature and context of the operation. From the commentaries to the UNGPs and the wider context, it is clear that this is not a formal consultation but a process of engagement that involves rights-holders in an active role as experts on potential or actual harmful impacts, even if they may not phrase the risks or impacts in human rights terminology ^[17].

3.2. Risk-Based Due Diligence and Corporate Sustainability Due Diligence.

The term risk-based due diligence was introduced by a 2011 update of the OECD Guidelines for Multinational Enterprises ^[22]. The Guidelines are recommendations from OECD and other adherent states to companies operating in or out of those countries. The 2011 revision adopted the UNGPs’ due diligence definition and steps, extending the focus beyond human rights to other areas such as the environment. Like human rights due diligence, risk-based due diligence takes an outward direction from the perspective of the company, aiming to identify and handle risks to society or the environment.

In recent years, regulatory developments seeking to implement the risk-based due diligence expectations and turn them into legally binding obligations have emerged in several jurisdictions. Spearheaded by France, several other–mainly European–countries have introduced mandatory due diligence for certain companies and pertaining to certain societal and/or environmental and climate change risks. The French law, introduced in 2017, requires large companies domiciled in that country to have in place a ‘vigilance’ plan identify and prevent the risks of severe violations of human rights and fundamental freedoms, health and safety and the environment, including climate change, which result from their own activities or the ones of companies under their control as well as the activities of subcontractors or suppliers with whom they have an established commercial relationship ^[23]. Adopted in 2021, the German Value Chain Due Diligence Act requires companies to exercise due diligence with regard to human rights and certain environmental standards in their own activities and in their value chain. The process must include all products and services of a company and all production steps in Germany and abroad which are necessary for the production or performance of service, from the raw material extraction to the delivery of the product to the end-user. The obligation took effect on 1 January 2023 for very large companies (more than 3,000 employees) that have their central administration, principal place of business, administrative headquarters, statutory seat or branch office in Germany and will apply to large companies (more than 1,000 employees in Germany) on 1 January 2024 ^[24]. Norway also in 2021 adopted legislation creating a corporate duty for large and medium-sized companies domiciled in Norway as well as foreign companies selling products and services in Norway, to conduct due diligence in relation to human rights and decent work throughout all their supply chain, and to provide or cooperate to ensure remedy ^[25]. In 2019, the Netherlands introduced requirements on companies selling goods or providing services to the Dutch Market to exercise human rights due diligence in relation to child labour ^[26].

The laws adopted so far do not include companies’ direct climate change impacts through their GHG emissions. Through their focus on human rights the laws do, at least, mean that companies involved in climate change mitigation, such as energy provision or transition minerals mining, should consider the impacts that they may be involved in through those activities.

At the time of writing, the European Union (EU) is expected to adopt legislation requiring large companies domiciled in the EU as well as foreign companies selling products and services in the EU to exercise human rights and environmental due diligence, collectively referred to as ‘corporate sustainability due diligence’. The current, advanced, draft Corporate Sustainability Due Diligence Directive (CSDDD) proposes due diligence obligations for companies regarding actual and potential adverse impacts for human rights and/or the environment, with respect to their own operations, the operations of their subsidiaries, and those carried out by their business partners in companies’ chains of activities; as well as liability for violations of those obligations ^[27]. The due diligence obligations do not actually extend to climate change and will therefore not directly apply to companies’ direct impacts on climate change through GHG emissions. Instead, the (draft) CSDDD contains a dedicated article on ‘combating climate change’ requiring very large companies to adopt a plan ‘to ensure that the business model and strategy of the company are compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5°C in line with the Paris Agreement’. However, since the due diligence obligations do cover human rights and environmental impacts, companies will also need to assess and respond to the human rights or environmental impacts that relate to their climate change mitigation activities.

Human rights and environmental due diligence expectations have also been incorporated by the IFC’s performance standards which inform the Equator Principles ^[28]. This is relevant in the current context, because the transition to low-emission energy is recognized to require large amounts of financial capital, much of which is expected to be provided by financial institutions and institutional investors ^[29]. Moreover, the EU Disclosure Regulation requires financial product providers to disclose information on certain sustainability factors, specifically environmental, social and human resource issues and issues related to human rights and the fight against corruption and bribery ^[30]. This must include information on due diligence on harmful impacts on human rights or the environment, i.e., a risk-based due diligence approach.

The uptake of human rights due diligence by the IFC and other international financial institutions as well as in the EU’s Disclosure Regulation highlights the importance institutional investors to understand and apply risk-based due diligence, taking into account both human rights and environmental impacts in a climate change context. Statements from national contact points (NCPs) for the OECD Guidelines have clarified that finance providers are expected to conduct due diligence of their own activities and those of their business relations, such as financed companies, even if the finance provider is a minority investor ^[31]. Other companies that need access to finance are expected (or required by lending institutions) to do so with regard to their own activities or those of their business relations.

4. Conclusions

Climate change is recognized to constitute one of the greatest threats to people and the planet. Its impacts affect virtually the entire spectrum of internationally recognised human rights as well as the environment in and of itself. In relation to human rights, there is a growing consensus that companies should exercise risk-based corporate sustainability due diligence in order to identify and prevent their actual and potential adverse impacts. In some places, this is being spelled out into legally binding requirements passed by states; in others, the expectation is based on social norms and the existence soft-law guiding instruments, in particular the UNGPs, the OECD Guidelines, and their normative influence within a society.

The connection between climate change, human rights, and corporate influence on GHG emissions underscores the significance of companies having processes in place to identify their actual or potential harmful impacts. This applies whether impacts are directly related to climate change and indirectly to human rights, through GHG emissions that spur and may extend climate change and its adverse human rights impacts; or whether their impacts are directly related to human rights through human rights risks to workers and communities affected by climate change mitigation.

Human Rights due diligence and wider risk-based and corporate sustainability due diligence offers companies a management process to identify, assess, address, and account for harmful impacts related to climate change for at least some of their activities. Neither the UNGPs’ human rights due diligence or the OECD Guidelines (at the time of writing, when a new update is being discussed) explicitly address business impacts on climate change through their own GHG emissions. However, through their focus on human rights they also, at least, mean that companies involved in climate change mitigation, such as energy provision or transition minerals mining, should consider the impacts that they may be involved in through those activities. This applies to operational companies as well as institutional investors and other finance companies that provide capital for the operational activities.

So far, due diligence obligations adopted in national law or proposed by the EU also do not actually extend to climate change and therefore do not directly apply to companies’ direct impacts on climate change through GHG emissions. However, as a result of their focus on human rights– and in some cases the environment–companies involved in climate change mitigation or investment for such activities should consider the impacts that they may be involved in through those activities.