Law departments need a ‘shift in mindset’ to address ESG
Following the release of HRLC’s modern slavery report, this lawyer said that for legal departments in particular, a shift away from traditional mindsets is needed to adequately address human rights and ESG concerns.
Freya Dinshaw is a senior lawyer at the Human Rights Law Centre (HRLC), which recently released its report, Broken Promises, which covers two years of corporate reporting under Australia’s Modern Slavery Act.
To continue reading the rest of this article, please log in.
Create free account to get unlimited news articles and more!
While environmental, social and governance (ESG) is a key headline issue for general counsel across the country, the findings of the report indicate a slight disconnect.
“Modern slavery is one of those issues, and human rights more broadly, where it has to be a cross-functional response to the issue. And if it’s sitting in legal alone or sitting just with another department, you’re not going to necessarily make any real difference because basically the response is on paper and it’s not actually in those commercial negotiations and the way you do your marketing and pricing and all the rest of it,” Ms Dinshaw outlined.
“Some of the most sophisticated companies have cross-functional working groups where maybe the lawyers lead or maybe there’s a lead across the organisation in terms of the human rights response, but it’s making sure that all of the senior people from those departments are looped into the conversation and are actually reporting the issues that they see.
“It informs legal on how to respond, but it also informs people doing the commercial work as to why they need to really seriously take into account ESG considerations and not just traditional commercial considerations.”
Broken Promises is the second report the HRLC has published on the effectiveness of the Modern Slavery Act, which first came into force in early 2019. It follows Paper Promises, which found that 77 per cent of companies were failing to even meet the basic reporting requirements of the Modern Slavery Act.
To address human rights risks in a more general sense requires a “really big shift in mindset”, according to Ms Dinshaw, who said that legal departments need to increasingly engage with varying business functions to drive ESG and modern slavery initiatives.
“In this space, traditionally, the lawyers are looking to protect their company from exposure. They’re trying to minimise risk; they’re trying to shift risk to other partners and other people that the company’s working with to protect the company’s interest. But this is really where we want to see the opposite of that traditional mindset.
“Companies shouldn’t be pushing responsibility down the supply chain and putting warranties and representation in their supplier contract so that they’re shifting the responsibility for managing these risks to smaller suppliers that don’t necessarily have the capacity to deal with these issues alone,” she added.
“They should be taking more responsibility, working with suppliers to build up their capacity to ensure that their people are being treated in a right, respectful way and actually looking at their own operations and way in which they do the work to try and to take ownership and responsibility for their modern slavery response. And I think that’s the shift that we’d like to see in legal departments, which is very different from the traditional way of doing things.”
In terms of how Ms Dinshaw sees this shift actually playing out for legal departments, she said it’s “not a one-size-fits-all response”.
“Taking into account a company’s resources, their risk profile and all of those considerations are really important for nuancing a basic response on these issues.
“But at the base level, I think there needs to be a recognition within companies, that this perhaps comes down to a code of conduct or a human rights policy or something like that, that where there are competing considerations, respect for human rights is the leading value that a company places on its decision making and that there is a zero tolerance for modern slavery practices occurring or human rights violations occurring within the operations or supply chain or their business activities,” she added.
“And once there’s that expectation at the top levels of the organisation that people will make decisions in a way that never condones exploitation or treating people poorly that are linked to their business activities, then I think that’s what starts to change the conversation and allow people the space to go with their gut and not permit exploitation or abuse of people where they see that being connected to their business activities.”
And while there is a wide range of ESG and modern slavery issues for legal departments to be focusing on, Ms Dinshaw said that an “overarching framework” could help bring all considerations under one umbrella — but that this remains extremely important work for GCs.
“General counsel and others working within companies are really a very important part of the framework for the protection of people that companies touch upon. And using your ability and influence within a company to use the law and the Modern Slavery Act and the UN Guiding Principles on Human Rights, which are another really foundational document for how companies should be doing business,” she said.
“Using those as a basis for driving your company to do better on these issues, to take it seriously and understand the legal and reputational risks that can come from failing to take these things seriously is such an important aspect of what lawyers can do to use their ability to make their companies make the world better place.”
The transcript of this podcast episode was slightly edited for publishing purposes. To listen to the full conversation with Freya Dinshaw, click below: