COVER STORY • 4

Human Rights as Foundation of Stakeholder
Capitalism – Policy Measures to Promote
Corporate Responsibility to Respect Human Rights

By Miwa Yamada

Introduction
The executive chairman of the World Economic Forum has called
Covid-19 a litmus test for stakeholder capitalism. As the pandemic
brings about drastic changes in society, companies are being
expected to fulfil an even greater social responsibility. With
globalization spreading in both scope and degree, the impact ofcorporate activity is extending beyond national borders, to places
where businesses operate overseas and to the people involved insupply chains. Risks to the human rights of people are appearing as
actual issues, so how should companies identify and address theseissues?
In a statement issued in April 2020, the UN Working Group on
Business and Human Rights noted, “While masks may bedisposable, workers are not,” and added “The pandemic will
eventually pass. States and business actors must use this moment to
not revert to business as usual, but to forge a new normal based
upon the globally agreed standard provided by the Guiding
Principles.”This article looks at business and human rights, an issue that iscurrently emerging as a greater concern in society, and examines
how companies are addressing the issue, and what government
policy measures should guide these companies efforts. It will also
discuss what policies are needed in Japan to ensure that Japanesecompanies fulfill their responsibility to respect human rights.

Guiding Principles Require a “Smart Mix”
The UN Guiding Principles on Business and Human Rights
reaffirm in unequivocable terms the duty of national governments toprotect human rights, and define corporate responsibility to respecthuman rights. Since being unanimously endorsed by the UN Human
Rights Council in 2011, leading companies have been working tofulfill their responsibility to respect human rights by formulating
policies on human rights as their social responsibility, and carrying
out human rights due diligence by adopting processes to identify,
prevent, mitigate, and account for the adverse impacts of theircorporate activities on people’s rights. At the same time, various
countries have been searching for effective policies measures andregulations to promote companies’ respect for human rights.
The Guiding Principles stipulate, in meeting their duties, national
governments should implement the following policy measures to
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Author Miwa Yamada

ensure that companies meet their responsibility to respect humanrights:(a) Enforce laws that are aimed at, or have the effect of, requiring
business enterprises to respect human rights, and periodicallyto assess the adequacy of such laws and address any gaps;(b) Ensure that other laws and policies governing the creation andongoing operation of business enterprises, such as corporate
law, do not constrain but enable business respect for humanrights;(c) Provide effective guidance to business enterprises on how torespect human rights throughout their operations;(d) Encourage, and where appropriate require, businessenterprises to communicate how they address their humanrights impacts.
The Guiding Principles note that national governments should notassume that companies prefer or benefit from government inaction,and governments should consider a smart mix of measures –domestic and international, mandatory and voluntary – to foster
companies’ respect for human rights. What is the appropriate mix of“hard” and “soft” measures to foster a company’s responsibility torespect human rights? The combination of policy options to use
legal regulation and to leave to companies’ voluntary initiatives to doso, needs to be developed as a smart mix within the context of eachcountry.

Making Human Rights Due Diligence Mandatory
This year marks the 10th year since the unanimous endorsementof the Guiding Principles, and Europe is rapidly pushing forward interms of hard measures. To date, European countries including theUnited Kingdom, France, and the Netherlands have introduced theirown laws regarding human rights due diligence. With increasing
interest among citizens, organizations, and policymakers in having
companies bear greater social responsibility, the European Union
saw the need for a more coherent and strategic direction, and in
December 2019 the government of Finland, which held thepresidency of the Council of the EU at the time, called for theformulation of a common EU framework for human rights due
diligence. Based on the European Green Deal announced in thespring of 2020 and the Commission’s Communications on the Covid19 Recovery Plan, a new initiative was launched for sustainablecorporate governance that includes mandatory due diligence forhttps://www.jef.or.jp/journal/

fostering companies’ responsibility to respect human rights –including workers’ rights – across entire value chains throughout allof Europe, and social responsibility.
The objectives of this legislation are to make companies focus on
the creation of long-term sustainable value, rather than short-term
profit, to align the interests of companies, shareholders, managers,
stakeholders and society, and to help companies to manage
sustainability-related matters such as social rights, human rights,
climate change and the environment in their operations across value
chains. The new EU trade strategy announced in February 2021 also
clearly states that mandatory environment, human rights and labor
due diligence is an important element in ensuring sustainable andresponsible supply chains. Legislation of mandatory due diligence isalso being tied into revision of the non-financial reporting directives.
The Guiding Principles explains that laws and policies like
corporate and securities laws, which govern the creation andongoing operations of companies and directly shape businessbehavior, should provide sufficient guidance to enable companies torespect human rights, with due regard to the role of existing
governance structure like the board of directors. The EU’s move tomandatory due diligence in corporate law is indeed the embodimentof the Guiding Principles. With the period for public consultation
having ended in February 2021, the legal proposals are scheduled forsubmission around the time that this article is to be published. In
March in Germany, the government adopted a draft bill which obliges
German companies to ensure observing human rights throughout
their supply chain in response to the result that the target for thevoluntary implementation of human rights due diligence bycompanies set in the 2016 National Action Plan on Business andHuman Rights was not achieved. Making due diligence mandatory inEurope can be seen as a way in which the development of a smart
mix of policies has crystallized.

Banning Products Tainted by “Forced Labor”
Enacting laws prohibiting the importation of products tainted byforced labor and other human rights violations is one policy measurefor promoting human rights due diligence at companies. Companies
in countries with laws that explicitly prohibit the importation offorced labor-produced goods into its markets are guided by whatkinds of actions they should take.
In the United States, Section 307 of the Tariff Act of 1930 prohibits

the importation of goods made by forced labor or indentured labor.
The 2015 revision to this code repealed the “consumptive demand”
exception. This makes companies responsible for ensuring that they
do not import goods made by forced labor, and the Department ofLabor has issued guidance for companies supply chain management.
In the summer of 2020, the Department of State, Department of theTreasury, Department of Commerce, and Department of Homeland
Security issued an advisory to businesses and individuals regarding
reputational, economic, and legal risks related to the infringement of
the human rights in Xinjiang.
With the implementation of the Canada-United States-Mexico
Agreement (CUSMA), Canada has also revised its Customs Tariff Act
to prohibit the importation of goods made by forced labor. Global
Affairs Canada and the Trade Commissioner Service are advising
Canadian companies and their stakeholders about the legal andreputational risks posed to companies whose supply chains engage
with entities possibly implicated in forced labor. Canadian companies
active abroad are expected to act responsibly in accordance with the
Guiding Principles and the OECD Guidelines for Multinational
Enterprises, and in cases where there is a lack of good-faithcooperation with the National Contact Point (NCP: the dispute
resolution mechanism under the OECD Guidelines) or the CanadianOmbudsperson for Responsible Enterprise, they can be found to bein violation of the Export and Import Permits Act and have trade
advocacy support withdrawn, and future financial support from
Export Development Canada frozen. Exports are also assessed withrespect to human rights based on how the product, service, or
technology will be used. This sends a clear signal that it is essential
for a company to conduct thorough due diligence to address
inherent risks.
The strong policy reasons for sending a coherent and consistentmessage to companies include ensuring predictability for companies
and preserving the government’s own reputation. Unless they havetheir own firm policies in place, companies that do not receive clear
policies and messages from their government are subject to being
swayed by policy measures of other countries.

Policy Coherence in Business & Human Rights
According to the Questionnaire Survey on the Implementation of
Keidanren’s Charter of Corporate Behavior in the Covid-19 Era
carried out by Keidanren in the summer of 2020, while 36% of theJapan SPOTLIGHT • May / June 2021

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289 responding companies replied that they are implementing
programs based on the Guiding Principles, 31% also replied thatthey had not begun carrying out human rights due diligence. In
Chapter 3 of Japan’s National Action Plan on Business and Human
Rights, which was launched in October 2020, it is stated that the
government expects Japanese companies, regardless of their size,
industry, etc., to respect internationally recognized human rights andthe principles related to the fundamental rights set forth in the ILO
Declaration on Fundamental Principles and Rights at Work, and to
introduce processes for human rights due diligence based on the
Guiding Principles and related international standards, and engage indialogue with their stakeholders including in their supply chains. The
government actions planned to promote companies’ initiatives indomestic and overseas supply chains and human rights due
diligence based on the Guiding Principles is limited to disseminating
the Action Plan and awareness raising about human rights due
diligence. In contrast with the EU’s move to make due diligencemandatory, Japan is leaving it to the voluntary initiative ofcompanies.
How should we create an enabling environment for companies torespect human rights? Making human rights due diligencemandatory is one method, for example, but it is meaningless if such
legislation ends with setting another check-box list or a format. The
Japanese government needs to create an environment and build
frameworks that will enable companies to fulfil their social
responsibility and respect human rights. This requires a common
understanding and coordinated action by governmental departments
and agencies that shape business practices, in areas including
corporate law, securities law, investment, export credit, insurance,
trade, and labor. In particular, the removal of systemic risks thatcannot be alleviated or eliminated by individual companies needs tobe carried out by the government, and this requires cooperation withother countries. An example of this would be policy measures that
ensure that labor laws in trading partner countries meet international
standards. This will help to ensure Japanese companies are not
involved in human rights infringement through transactions withcounterparts in trading partner countries. The sustainability clausesin the EU’s free trade agreements call for engagement with partnercountries, and Japan is one of those partner countries. A coherent
policy approach in commerce and trade, foreign affairs, and labor
policies is needed, which will lead to enhancing companies’
competitiveness, resilience, and sustainability by fulfilling their social
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responsibility.

Japan’s Role as Leader for
Responsible Supply Chains in Asia
Joint research carried out by the Institute of Developing
Economies of the Japan External Trade Organization (IDE-JETRO)and the International Labour Organization (ILO) in 2020 analyzed
Japanese automotive parts manufacturers in Thailand as an example
of a responsible supply chain. It was observed that these Japanesecompanies respect local culture, emphasize dialogue and attach ahigh value to management-labor communication, and that a highlevel of quality, cost, delivery (QCD) is achieved by building trust
between these companies and their suppliers. It was found thatJapanese companies are in a position to respect human rights,
especially workers’ rights, to promote decent work, and to contributeto the sustainable development goals (SDGs) in both their own
business operations and in their supply chains.
Supporting and strengthening suppliers and business
relationships in terms of operational practices of respecting humanrights, management transparency, accountability, and constructive
management-labor relations leads to their own resilience,sustainability, and the enhancement of corporate value throughout
the supply chain. Responsible business conduct brings aboutsustainable and inclusive growth over the long term in the place
where the business operates.
Japanese companies have a significant role to play in countries
where human rights are not fully guaranteed, especially in Asia.
Japanese companies are able to go beyond simply observing local
laws and regulations, to increase management transparency andaccountability, and to share good practices of strengthening
corporate governance, and constructive management-labor
relationships with their business partners in the region.
Accountability, transparency, the rule of law, and human rights are
elements that form a foundation from which to achieve responsible
business operations. Rules related to economic activity must be
rules that maintain a foundation for responsible businesses. The
Japanese government and Japanese companies should be actively
involved in the formation of those rules.

Corporate Social Responsibility
Called into Question – Myanmar
The extreme turmoil in Myanmar that followed the military coupon Feb. 1, 2021, has raised questions regarding the social
responsibility of companies operating in the country. The national
action plans on businesses and human rights adopted by countries
like the UK (2013, revised in 2016), the Netherlands (2013), and theUS (2016) list Myanmar as a country where their companies have to
be sensitized to the importance of human rights impacts. Countries
like Myanmar, as a Special Rapporteur on the situation of humanrights in Myanmar has been appointed, do not have adequate
frameworks for the protection of human rights, and are places wherecompanies are particularly prone to be linked to adverse impacts onhuman rights, which is why European governments and the US
government have advised their own companies to be responsible.
The Myanmar Centre for Responsible Business (MCRB) wasestablished in 2013 in Yangon, with funding from the governmentsof the UK, the Netherlands, Denmark, Norway, and Switzerland, topromote responsible business conduct.
Under this current situation, companies operating in Myanmar
have posted a statement on the MCRB website expressing theirconcern and calling for a resolution based on dialogue andreconciliation. The statement notes, “As investors, we inhabit a‘shared space’ with the people of Myanmar, including civil society
organisations, in which we all benefit from respect for human rights,
democracy and fundamental freedoms – including freedom of
expression and association – and the rule of law. The rule of law,respect for human rights, and the unrestricted flow of information allcontribute to a stable business environment.” Companies are
expected to avoid contributing or being linked to human rights
violations and to play a role in cultivating a society where humanrights are protected, not only in their own country but also inoverseas countries where they operate or procure parts andmaterials. They have a responsibility to embody the fact that respectfor human rights and the rule of law are indispensable for thecreation of a stable, prosperous business environment over the longterm. What is being called into question in this case is not acompany’s legal responsibility, but rather its social responsibility
exactly.

Conclusion – What Do Stakeholders Desire?
Why do companies respect human rights? Why do we need todesign institutions that promote respect for human rights? It isaffirmed that the role of government policy measures is to create alevel playing field that maintains fair competitive conditions and to
guide the cultivation of markets in which companies that respecthuman rights are successful. At this point, companies need toreconfirm that the significance of respecting human rights is tomaintain markets and a society in which they continue to exist as
subjects, rather than as objects of regulation. The responsibility not
to infringe human rights and to respect human rights is not only outof concern for vulnerable persons in a supply chain or of addressing
the risk to the company of being implicated in association with theuse of forced labor or child labor. The company itself enjoys thebenefits of a society where human rights are respected. The fact thatthese values are shared is what gives meaning to various policy
measures that legally mandate things like due diligence as a concrete
action for respecting human rights. If these values are not shared,
why do companies respect human rights in the first place?
A company’s sustainability and growth are inseparable from theinterest of its stakeholders including employees, suppliers,
customers, and the communities in which it operates, meaning thatsocial responsibility, fairness, and a long-term perspective to create
value are needed. Maintaining a free, open society is essential formeaningful engagement with stakeholders. Respect for human rights
enhances a company’s competitiveness and corporate value, while atthe same time intrinsically underpinning a sustainable society thatmakes the company’s existence itself possible. It should be
remembered that the SDGs seek to realize the human rights of all
people as stated in its Preamble of the Agenda 2030 for Sustainable
Development.

Miwa Yamada is director of the Law and Institution Studies Group, Interdisciplinary Studies Center, IDE-JETRO, where she organizes business andhuman rights research project. She served as a rapporteur at the 2016 UN Asia
Regional Forum on Business and Human Rights.

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