The Importance of Human Rights Due Diligence in the Renewable Energy Transition

February 22nd, 2022 | Rosa van den Beemt

Getting to global net zero by 2050 will require a significant increase in renewable energy deployment, including solar power, by 2030. The International Energy Agency (IEA) reports that for solar power, this is equivalent to “installing the world’s current largest solar park roughly every day.

Currently the main renewable energy sources globally are hydropower, wind, solar and other renewables such as biomass, waste and geothermal, with hydropower the largest renewable source accounting for over 60% of global energy generation, contributing 7% of global energy in 2019. The IEA forecasts renewables to account for close to 95% of the increase in global power capacity throughout 2026, with solar providing over half.

With such predictions and the world trying to solve for climate change risks, it is not a surprise that clean energy has done exceptionally well on financial markets, not only outperforming fossil fuel companies but also public equity market indices. Corporate funding for solar projects, including venture capital funding, public markets and debt financing, was US$13.5 billion in the first half of 2021 compared to $4.6 billion in the first half of 2020.

While this is encouraging, the forecasted exponential growth in renewables comes paired with a different suite of ESG concerns: negative impacts on human rights, from forced labour to land grabbing and indigenous rights violations, occurring at various levels of the supply chain, spanning from the mineral extraction phase to manufacturing, to the project level.

Human rights in the renewable energy industry

Between 2010 and 2021, the Business and Human Rights Resource Centre (BHRRC) received over 200 allegations of human rights violations linked to the renewable energy sector. These include land right disputes in Chile and Ethiopia, killings of activists protesting a hydroelectric power plant in Guatemala, underpaid migrant workers in offshore wind farms in Scotland and violations of Free, Prior and Informed Consent (FPIC) with indigenous peoples in Kenya and other countries.

In November 2021 the second iteration of the BHRRC’s Renewable Energy Benchmark was released, which ranks the world’s largest renewable energy companies on their implementation of core human rights approaches as set out by the UN Guiding Principles for Business and Human Rights (UNGPs). The report raises alarm bells, with the average score of only 22%. The benchmark found that while there were a few emerging leading companies, there remained a significant deficit in corporate policies related to land rights, Indigenous rights, land tenure, community rights and respect for human rights defenders. Among the poor scores are companies in our Canadian and U.S. backyards.

There are also significant human rights and forced labour concerns connected to the solar industry, in particular. Solar panels require polysilicon, and close to 50% of the world’s supply of polysilicon is sourced from the Xinjiang Uyghur Autonomous Region in China (“Xinjiang”). The Canadian government, the US, UK and The Netherlands have declared that China has committed genocide and crimes against humanity in its treatment of Uyghurs and other Muslim-majority peoples in Xinjiang and are amongst the countries that have imposed sanctions in response to these violations. Research by the Sheffield Hallam University that traced major solar supply chains from raw materials to panel production, found significant forced labour concerns linked to the region for 90 Chinese and international companies.

The importance of human rights due diligence

Unfortunately, the latest Corporate Human Rights Benchmark (CHRB) reports that 79 companies across different sectors still fail to score any points on the benchmark’s human rights due diligence indicator.

Human rights due diligence is a key core component to fulfilling corporate responsibility to protect human rights under the UNGPs. It leads companies to identify, assess and act upon its human rights risks. The BHRRC’s 2021 Renewable Energy Benchmark report noted that some renewables companies seem to be confusing human rights due diligence with audits, which is not an uncommon mistake – however, while audits are useful tools to assess compliance with certain policies, they are not designed to identify human rights harms.

This is a crucial takeaway for investors engaging companies on human rights and supply chain risks as well: the need to go beyond asking companies to conduct and report on audits of suppliers, for example, and towards expecting companies to have a robust human rights due diligence process in place.

What can investors do?

Robust due diligence, rather than auditing, has been a consistent ask from investors of companies engaged through the collaborative investor initiative on Xinjiang.1

The Investor Alliance for Human Rights is coordinating collective investor engagement with companies linked to or implicated through their value chains to human rights abuses across sectors, and also coordinates an engagement stream with solar panel companies. The Alliance also published Investor Guidance on the Human Rights Crisis in the Xinjiang Uyghur Autonomous Region that provides guidance to investors on how to engage with portfolio companies and other stakeholders to address human rights violations.

At BMO GAM we have prioritized engagement on human rights due diligence across global holdings by supporting the Corporate Human Rights Benchmark (CHRB) and integrating its findings in updates to our voting policy and approach. In 2021 we were part of a group of investors who sent letters to companies scoring low or zero on the CHRB’s indicator on human rights due diligence to urge them to improve, and we will continue to use our leverage with investee companies to encourage adoption of better policies, practices and disclosures.

There is more that investors can do beyond company engagement, including advocating for strong human rights regulations and standards globally and in key markets. Sustainable finance, green bond standards, carbon offsetting projects and carbon credit markets all require more robust integration of human rights standards. And as recommended by the Investor Toolkit on Human Rights, investors themselves can also commit to conducting human rights due diligence on investment portfolios to flag adverse human rights impacts.

Investments in renewables undoubtedly will continue to grow, and it is in investors’ favour for this growth to be sustainable and good – rather than harmful – to people. Our industry should collectively make preventing and mitigating human rights abuses an equal priority to preventing and mitigating harmful effects from climate change.


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Author

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Rosa van den Beemt

VP, Stewardship, Responsible Investment
BMO Global Asset Management

Rosa is a corporate engagement practitioner with over 6 years’ experience in the responsible investment industry and joined BMO GAM’s Responsible Investment team in early 2020 where she focuses on engagement and voting of the North American market on corporate governance, human rights and climate change. She also serves on the Steering Committee for the Investor Alliance for Human Rights aimed at integration of the investor responsibility to respect human rights through the investment process. Previously, Rosa was Senior ESG Manager at NEI Investments, the asset management arm of Canadian wealth firm Aviso Wealth, where she led the proxy voting program as well as various corporate engagement initiatives on ESG topics. She holds a BA in Political Science and an MSc in International Development Studies from the University of Amsterdam.