At the Council: ESG and ADR

CPR Speaks,

By Asmar Ismayilova & Paulina Jedrzejowski

A CPR Council meeting earlier this month took on the weighty topic of business’s responsibility and impact on human rights with a presentation by a leading international advocate for peace and conflict resolution.

The Feb. 8 meeting of the Council, the CPR Institute’s governance body, presented Owen Pell on how neutrals can unlock ESG—environmental, social & governance—investment and financial value in a session titled, “Preventing Human Rights Violations and Other Atrocities through an ESG Lens: How is Your Company Doing?”

Pell is president of the board of the Auschwitz Institute for the Prevention of Genocide and Mass Atrocities, a New York-based nonprofit, and a board member at the International Peace Institute, also a New York nonprofit education organization.

Pell is a retired partner of White & Case, and has worked on human rights cases, including World War II and the Holocaust; apartheid-era South Africa, and African slavery in the United States.

Pell delivered a presentation about ESGs as a framework for sustainable business growth. The program was inspired by recent European Union legislation which, he suggested, can be considered a breakthrough. 

The program presented background information on mass atrocities, existing prevention strategies, and the role of business in both. Pell talked about how ESGs can create business value and help prevent conflicts, and the important role neutrals can play in this process.

Pell began the presentation by providing background about mass atrocities, which he defined as genocides, crimes against humanity, and war crimes. He said, “If you ask a man on the street how to prevent mass atrocities, the man will say to send in U.N. troops to stop the killings.” Yet, when mass killings have already begun, Pell said, conflict prevention has failed.

Mass atrocities, he explained, can be prevented based on data analysis. This data is identifiable through early warning signs and risk factors. For instance, in 2011, the Atrocities Prevention Board was created by President Obama in the U.S. State Department to “foresee, prevent, and respond to genocide and mass atrocities,” according to an archive version of the board’s website.

Prevention strategies, Pell explained, are divided into three stages. In the upstream, businesses analyze risk factors and try to reduce the risk. Midstream prevention strategies include real-time interference measures. And downstream strategies, might contain taking further steps to avoid recurrence.

Pell then explained that businesses may play an integral part in atrocities. Specifically, businesses may cause, contribute, or be directly linked to genocides through business relationships to human rights violations even though, according to the 2011 United Nations Guiding Principles on Business and Human Rights, they have a responsibility to respect human rights.

The main idea of ESGs is to demand from businesses that they fulfill their responsibilities to protect human rights, prevent mass atrocities and remedy/mitigate harm caused by their business activity. Pell pointed to ESG principles, specifically the European ESG framework, as an important mechanism to ensure businesses respect human rights.

This framework, which mandates diligence and disclosures, affects companies that are in or doing substantial business in the European Union, lenders, investors, insurers, and rating agencies. For example, the EU Social and Governance Objectives mandate that companies respect human rights by managing impacts on workers and consumers, and following minimum safeguards like creating decent employment and promoting peaceful and inclusive societies.

Thus, companies operating in areas of armed conflict or widespread violence are expected to conduct heightened human rights diligence by identifying atrocity risk factors, understanding the conflict and the company’s impact in the conflict, considering and formulating an exit strategy, and assessing and implementing grievance mechanisms for victims.

Complying with the EU Social and Governance Objectives poses challenges for business that are unfamiliar or not trusted within communities. Companies need to engage with non-commercial parties, non-contractual parties, and non-shareholders to assess long-term, non-financial, and/or currently non-material risks..

And, Pell explained, even though the EU has not elaborated on how neutrals can assist businesses in their ESG guidelines, using neutrals that might have more credibility within the community and who do not bear the company’s name can enhance atrocity prevention and ESG value.

Neutrals can assist companies in understanding host communities better by investigating and reporting on ESG issues and requirements, advising on responsible business practices, including hiring strategies and long-term environmental impacts on communities, and assessing ESG design or implementation. They can also assess gaps in scientific or socio-economic data needed for ESG analysis and implementation, create forums for community engagement, and participate in designing exit strategies.

Owen Pell concluded the session by stating that the EU ESG framework presents a need for real engagement with neutrals that hasn’t been seen before.

* * *

The authors are CPR Spring 2023 interns.  Ismayilova, of Baku, Azerbaijan, is a legal manager at the Alat Free Economic Zone Authority, a government agency, and a recent LLM graduate from the University of Missouri-Columbia School of Law. Jedrzejowski is a second-year Brooklyn Law School student in New York.