Japan’s New Human Rights Due Diligence Guidelines - Another Reminder of ESG Compliance Push

In September, the Japanese government published Guidelines on Respecting Human Rights in Responsible Supply Chains, which apply to all businesses operating in the country, not just those incorporated there.

While covering all internationally recognized human rights, the guidelines specifically highlight risks in the areas of forced labor and child labor, collective bargaining, freedom of association, freedom of movement and residence, and discrimination. In addition, the document notes that a company’s human rights responsibilities extend far beyond just the company, and include entities in the corporate group, joint enterprise partners, service providers and suppliers, both upstream and downstream. The guide also urges companies to conduct due diligence which includes third-party audits.

The announcement of the guidelines earned praise from Asako Okai, UN Assistant Secretary-General and Director for the UNDP Crisis Bureau, who applauded “the scope of these guidelines which underscore the importance of heightened human rights due diligence in conflict-affected context”. She also noted that “policy directions of this nature are crucial to encouraging positive, transformative change with impact beyond the country from which they originate”.

The International Labor Organization (ILO) also welcomed the move, with Chihoko Asada-Miyakawa, ILO Assistant Director-General and Regional Director for Asia and the Pacific calling on Japanese enterprises to “give effect to these new Guidelines and put in place concrete measures to conduct due diligence and meaningful stakeholder engagement to improve their labor practices and contribute to making the entire supply and value chains sustainable and resilient”.

Understandably, unions also applauded the new guidelines. IndustriALL vice president and IndustriALL Global Union Japan Liaison Council (JLC) president Akira Takakura noted the role that unions can play in helping companies achieve compliance. “Unions in Japan and abroad should exchange information and cooperate with companies to realize their human rights policy. Companies must see unions as a social partner in handling grievances, providing remedies and eradicate rights violations in the global supply chain,” he said.

Analysts point out that while not legally binding, the Japanese guidelines once again bring to the forefront the debate around ESG compliance and the increasing pressure on companies operating around the world, noting that they mirror existing international standards, including the UN Guiding Principles on Business and Human Rights (UNGPs) and the Organization for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises (OECD Guidelines). Companies are urged to “take stock of their global operations, and identify areas in those operations where there is a high risk of human rights violations, including forced labor and other modern slavery practices”.

However, not everyone is entirely enthusiastic with global regulatory efforts in ESG compliance. A survey commissioned by the Chinese Chamber of Commerce to the EU (CCCEU) revealed that “an increasing number of Chinese companies in Europe are concerned over the due diligence proposal currently negotiated at the EU level to make businesses accountable for human rights violations throughout their value chain”. It stands to reason that similar efforts in Japan would be just as concerning to the Chinese producers.

Echoing the concerns in China, ESG-driven investing has long been blamed for taking a one-sided approach that compounds the problem, leaving emerging markets without resources, instead of working together to solve issues. But experts argue that with more data, companies can truly help improve the global climate and human rights situation, while keeping clients and investors happy. “Two-fifths of [Moral Money] survey respondents cited affordable analysis services focused on emerging markets as something that would encourage them to allocate more funds to these markets,” the Financial Times reported, suggesting that with enough data and criteria customized for each region’s specific market realities, companies could find a way to invest in emerging countries, while staying true to the ESG principals.

While Japan may be starting with a softer, recommendation-based approach, it appears to be just one in a long list of countries taking steps towards more decisive legislation on the matter of ESG compliance throughout the supply chains. Corporations should take note and act accordingly, setting in place due diligence processes well before they are forced to do so in a hurry.