Renewable energy projects need human rights due diligence, too
Our key takeaway: The rapid trajectory of climate change is sparking a rush towards investment and deployment of new renewable energy projects. But investors, developers and governments need to make sure that the benefits of a renewable energy transition don’t come at the expense of the human rights of indigenous peoples and other local communities. Avoiding human rights risks (as well as legal, financial, and reputational risks) requires renewable energy companies to undertake robust human rights due diligence, consult effectively with impacted stakeholders and commit to remedy adverse impacts, among other imperatives.
The Columbia Center on Sustainable Investment (CCSI) and Advancing Land-based Investment Governance (ALIGN) published two complementary resources (a business guide and a legal primer) on human rights risks to communities linked to wind and solar project deployment:
- Human rights risks to communities: The business guide notes that an uptick in adverse human rights impacts on indigenous peoples, human rights and environmental defenders and other project-affected people has been driven by “a lack of robust human rights programs that address community-related human rights impacts.” This is evident from data collected by the Business & Human Rights Resource Centre, cited by the report: “Of all allegations associated with renewable energy projects recorded by the Resource Center from 2010 to 2020, 61% occurred in Latin America. […] Further, five of the seven countries forecast to attract the most wind energy projects – China, India, Brazil, Turkey, and Mexico – score ‘high’ or ‘extreme’ on risk indices related to Indigenous Peoples’ rights, land rights, and violations by security personnel.” Harm to people can occur across the project lifecycle, from raw material extraction, to manufacturing, to transport and logistics, to project decommissioning. However, indigenous peoples and other local communities face significant risks at the deployment stage of land-intensive solar and wind projects.
- Risks to companies: The legal primer emphasizes that companies likewise face risks from failing to adequately mitigate and remedy their human rights impacts. These range from liability and penalties under the ever-expanding landscape of mandatory due diligence regimes across Europe and beyond, as well as from “home and host government laws, community litigators, financiers, and power purchase agreements [PPAs].” For example, companies may lose project finance, risk breach of contract with financiers, or face legal consequences from PPA partners. There are also certain factors that contribute to higher levels of legal risk for companies, including: “Complex financing arrangements with multi-layered governance structures; The prevalence of projects siting in locations with political instability, organized crime, institutional corruption, or weak rule of law; Reliance on government permits and approvals; Frequent interaction with government officials; and Use of third-party agents and brokers to navigate local business contexts.” Besides legal risks, companies can face operational, financial and reputational risks resulting from poorly managed human rights impacts. This damage is easily quantifiable, per research cited by the business guide: “Companies that rate poorly on Indigenous Peoples’ rights management alone can experience up to 66 times more material credit events (such as halts to operations, regulator inquiries, enforcement actions, and lawsuits) than companies with good human rights management in this area. The cost of these kinds of events for a company can amount to 24-37% of the net present value (NPV) of project investments. By contrast, the cost of implementing measures to mitigate adverse human rights impacts are estimated at only 2% of project costs (~10% of the NPV).”
- Managing human rights risks: CCSI and ALIGN outline core actions for companies to take in line with their human rights responsibilities in line with the UNGPs and share good practice examples. Some of the most interesting examples are highlighted here: GE Renewable Energy established a human rights governance framework that “includes the GE Group Global Human Rights Counsel, business-level human rights champions, and a cross-functional Steering Committee, with oversight by the Governance & Public Affairs Committee of the Board of Directors.” In terms of policy-setting, “Ørsted’s stand-alone Local Community Engagement Policy sets out the guidelines for local community engagement that apply to all projects” and “PepsiCo’s Land Policy defines the components of FPIC and commits to ensure FPIC of all communities (Indigenous or otherwise) in all land acquisitions.” Engie outlines its HRDD process in line with obligations under the French Duty of Vigilance Law and “incorporates additional vigilance in its HRDD processes in high-risk areas (conflict zones or countries with weak governance) which are identified based on a country risk rating tool.” Where companies have caused, contributed or are directly linked to adverse impacts, they are expected to respond appropriately and establish effective grievance mechanisms. For example, “Acciona commits to remediate its adverse human rights impacts, and also to use its influence to encourage commercial partners to do the same” and “TVI Resource Development used existing traditional community structures and localized customary procedures as the basis for its grievance mechanism.” Crucially, companies need to partner with others—including business partners and communities—to prevent or mitigate human rights impacts. For instance, “Ørsted has adopted a Code of Conduct for Business Partners as a ‘foundation for continuous engagement’ and dialogue with business partners (including suppliers and JV partners) on human rights issues” and “BKW Energie has added an opt-out clause to its contracts with business partners that allows BKW to withdraw if human rights violations are identified and not addressed.” Other companies seek to partner with project-affected people: “In Canada, several renewable energy companies have partnered with First Nations, Inuit and Métis communities using models that allow the communities to both participate in projects and retain a share of the ownership and/or profits.114 For example, in British Columbia the Saik’uz First Nation formed a 50-50 joint venture with Innergex to develop a wind farm, and the T’Sou-ke Nation entered into a $750 million wind farm partnership with Timberwest and EDP Renewables.”