The next five to ten years will see fossil fuel companies exiting projects around the world – projects that are no longer seen as economically viable in the context of the climate crisis and the transition to renewable energy. Amongst civil society actors there is growing disquiet about the way some companies are approaching this disengagement.
SOMO has worked on the issue of responsible disengagement for several years, examining a range of contexts, from companies ending a business relationship in their supply chain, to multinationals pulling out of a country. Most recently, we have looked at business disengagement in the context of the Covid-19 pandemic and coal mining in the Cesar region in Colombia. We also supported a complaint made by hundreds of civil society groups against Norwegian telecoms company, Telenor, over the way it has decided to exit its operations in Myanmar. As IHRB’s Salil Tripathi, John Morrison and Vicky Bowman pointed out in their excellent blog last week, in all of these situations it is clear that companies must take a human rights-led approach and be guided by internationally recognised principles and standards, including the United Nations Guiding Principles on Business and Human Rights (UNGPs) and OECD Guidelines for Multinational Enterprises (OECD Guidelines).
Companies may need to disengage from business relationships or exit their operations for a variety of human-rights-related reasons, for example: a business partner’s engagement in serious human rights abuses; violence near their operations which is putting staff at risk; or demands from an authoritarian government that would require the company to act in a way that contributes to human rights abuses. Depending on the situation, disengagement may be a necessary course of action and may even be the most responsible choice. But there may also be reasons – including the welfare of local staff – to remain, and a need to carefully weigh the issues. And, while in some situations it may be irresponsible not to disengage, equally, cutting and running does not conform with responsible business conduct expectations.
Protecting people’s safety and human rights is, of course, not the only reason companies exit business operations. In many contexts the decision to leave is based largely or purely on economic considerations. We saw this in the garment sector when big brands ended contracts across their supply chains due to Covid-19, leading to job loses for many low-paid, mostly female, workers.
Why companies disengage is important, but how they do so is the critical issue. In either case, international standards are clear – companies should enter and exit business operations and relationships responsibly. The UNGPs and OECD Guidelines provide a framework for responsible disengagement.
- Apply due diligence to any proposed disengagement: In many ways, the decision to disengage is no different from any other business decision – companies are expected to conduct human rights due diligence. Due diligence covers impacts the business may have caused or to which it contributed. The action of exiting or disengaging can contribute to a range of adverse human rights impacts. Ending contracts in supply chains has led to workers going unpaid for work already done. Selling off business operations to unethical actors has left workers and local communities facing abuse and intimidation. The fact that a business may cause harm by remaining does not mean it can ignore harms caused by the way in which it exits.
- ‘On the hook’ for remediating abuses: Importantly, responsible disengagement means the exiting company must remediate previous adverse impacts it caused or to which it contributed. This applies even if the company disengages from the business relationship through which it contributed to the impact. Businesses are not ‘off the hook’ as soon as they disengage but continue to have responsibilities to remediate harms in accordance with the principles and standards laid out in the UNGPs and OECD Guidelines. Efforts to sell off or fudge liability and responsibility for past harms is incompatible with respect for human rights, and historical abuse is increasingly the focus of litigation and official complaints procedures.
- Communicate and consult – and make it meaningful and timely: Both the UNGPs and OECD Guidelines underscore the importance of communicating and consulting as clearly as possible with relevant stakeholders. Consultation is vital to any meaningful due diligence, and to helping companies clarify their responsibilities and identify the right course of actions.
- Ask for advice: As the UNGPs make clear, in complex contexts, business enterprises should ensure that they do not exacerbate the situation. In assessing how best to respond, they will often “be well advised […] to consult externally with credible, independent experts, including from Governments, civil society, national human rights institutions and relevant multi-stakeholder initiatives.”
Failures to carry out due diligence, consult, and seek advice characterise many of the cases SOMO has examined.
Complaint filed against company’s planned exit from Myanmar
The Telenor case, mentioned earlier, underscores the problem of exiting to address one human rights problem, but potentially contributing to creating another.
In July 2021, SOMO worked with 474 Myanmar-based civil society organisations to submit a complaint to Norway’s National Contact Point (NCP) under the OECD Guidelines against telecoms company, Telenor ASA. Telenor is a majority Norwegian state-owned company that has operated in Myanmar through its wholly-owned subsidiary since 2014.
The complaint concerns Telenor’s decision to sell its Myanmar subsidiary to an entity known as M1 Group, a Lebanese investment holding company. Publicly available material about M1 Group and some of its business associates reveals allegations of links to state and non-state actors accused of grave human rights violations. In August 2019, M1 Group was named in the United Nations Independent International Fact Finding Mission on Myanmar because of its investment in a company “with contractual or commercial ties” to the Myanmar military, including military mobile operator Mytel. M1 Group continues to be in a commercial relationship with Mytel.
Telenor’s justifications for its exit from Myanmar included the deteriorating situation in the country and the increasingly challenging security, regulatory and compliance context. The military junta has forced telecommunications providers – including Telenor Myanmar – to install intercept spyware, giving them the power to listen in on calls, view text messages and emails, as well as track the location of users without the assistance of telecommunications and internet companies. However, Telenor selling its telecoms business to M1 Group has given rise to serious concerns that Telenor’s former telecommunications infrastructure will now be used to support violations of the right to privacy, with no effort to protect customers. Underscoring its lack of respect for international standards for human rights and meaningful engagement with stakeholders, M1 Group’s Executive Director has called civil society’s concerns about potential negative human rights violations “completely irrelevant”.
SOMO and the other complainants allege that Telenor failed to adequately consult or engage with potentially impacted rights-holders about the decision to sell to M1 Group and that the company’s due diligence should have identified that the sale would likely result in severe human rights risks for its Myanmar customers and other users contacted by those customers. The National Unity Government, the democratic government established after the military’s attempted coup, has called on Telenor to halt the sale of its telecoms business and data to M1 Group. Telenor should urgently seek to find a more responsible buyer. If this is not possible, Telenor should at the very least not profit from the sale, and should donate any proceeds to the Myanmar strike fund. Telenor should seek to protect its employees and user data, even if this means losing money. In line with its responsibility to prevent and remediate adverse human rights impacts from its disengagement, Telenor should also establish a fund to assist (former) customers who may be targeted by the regime using Telenor’s user data.
Companies exiting fossil fuels should take note
The OECD complaint against Telenor is a cautionary tale for fossil fuel companies. In the context of the climate emergency, oil, gas and mining companies are increasingly urged to develop ambitious plans to responsibly disengage from fossil fuels. But the urgency of disengaging cannot justify irresponsible exits; nor can the need for a responsible exit be used to justify continuing to extract. Moving fast and acting justly are not mutually exclusive.
Fossil fuel companies have been on notice for years – the energy transition has been gaining pace. There is no excuse for not planning for a responsible exit. Companies have invested in planning for stranded economic assets and the risks to their future profitability. But the OECD Guidelines make clear that companies’ responsibilities go “beyond simply identifying and managing material risks to the enterprise itself to include the risks to rights-holders.”
Due diligence will expose predictable risks to rights-holders. Job losses, and local economic impacts must be taken into account. If a company’s operations over years or decades have engendered local economic dependency then the impact of exiting must take account of this.
Due diligence in the fossil fuel sector must pay particular attention to the question of remedy, given the sector’s well-documented history of social and environmental harms. This is, perhaps, one of the most significant challenges for fossil fuel companies: there is no version of a just energy transition that includes a legacy of unremedied human rights and environmental abuses around former oil, gas and mining projects. Nor can offloading un-economic extractive projects onto governments or state-owned companies form any part of a just transition or responsible business conduct.
Disengagement decision-making is complex. But when companies disengage, they must do so responsibly. If they do not, they should be prepared for the legal, political, and social consequences of their decisions.
This op-ed was first published by the Institute for Human Rights and Business.