Consumer backlash threatens investors who ignore land rights

by Kizito Makoye
Thursday, 27 March 2014 14:37 GMT

A Zimbabwean farm worker prepares the morning meal for his family at a camp for displaced people after homes and the land where they worked were seized in a land redistribution programme. June 27, 2002. REUTERS/Howard Burditt

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Foreign investors are finding that their land activities in developing countries increasingly are under scrutiny from consumers, putting pressure on business to take more responsibility for human rights.

WASHINGTON (Thomson Reuters Foundation) - Foreign investors are finding that their land activities in developing countries increasingly are under scrutiny from consumers, putting pressure on business to take more responsibility for human rights.

Land experts, lawyers and investors meeting in Washington this week during the World Bank conference on land and poverty agreed that ignoring the local impact of business activities can result in huge damage to a company’s reputation as well as hitting its bottom line.

“We have seen a lot of conflicts that have resonated in western countries, consumers’ perceptions of products coming from areas where ethics are compromised. People simply don’t buy such products,” said Arvind Khare, executive director of the Rights and Resources Initiative.

Coca Cola Co. and PepsiCo are the latest example of major international companies that have announced policies to address human rights concerns.  Coke last November said it will cut off sugar suppliers that do not follow guidelines to protect local communities who lose their land to plantations, and Pepsi joined this month after Oxfam exposed land grabs.

For companies, however, it can be a complex legal environment to navigate. Difficulties frequently arise when they strike commercial deals with governments for agri-business, logging, mining and other activities, and leave it to the government to care for the wellbeing its citizens, without checking whether human rights are being violated.

Laurence Shore, partner in international arbitration at the law firm Herbert Smith Freehills, said the legal term is that a company might have a “legitimate expectation” that it has taken all the necessary steps to conduct business in a foreign country. But what if it knowingly contracts with a corrupt government, one that regularly fails to care for its citizens’ welfare, and fails to check on the impact its business activities have on the local people? What responsibility does an international corporation have?

“This is getting into a very unclear legal area,” Shore told a forum on business responsibility and foreign investment sponsored by Thomson Reuters and held on the sidelines of the World Bank conference.

“It is a very, very complicated area and unsettled,” he said.

Given the evolving state of international law, companies should check their supply chains carefully by conducting due diligence audits for human rights abuses, he and other experts said.    

As large-scale business investment and land acquisitions accelerate across the developing world, the voice of marginalised communities more and more is starting to be heard, experts said.

 “I don’t think it is sufficient for the investors only to check that their supply chains are clean, they should also ensure that property rights are respected,” Khare said.

The United Nations voluntary guidelines on land tenure was drawn up in May 2012 to provide a benchmark for how governments can protect the rights of people to own and access land, including compensating people who were forcibly evicted from their land. Khare said governments are more likely to comply if civil society exerts pressure to have these rights respected.

“These guidelines just open up a little bit of room. But can we use this to make a real change and convert it into legislation?” he said.

He cited the example of Liberia where a Malaysian palm oil company gained access through the government to swathes of land without taking into account the rights of the indigenous communities. The company has faced legal problems battling with the local people whose rights were ignored by the government.

International treaties on trade and investment also can present challenges for resolving these conflicts, Shore said.  Governments may feel trapped because if they stand by the rights of their people, it may effectively mean they are violating the terms of these commercial treaties.

However, experts agreed that it was too narrow a view for companies to think just about their rights, which are enshrined in law, and leave social issues to the state.

“The concern is not only about the rights of an investor but also what human rights the investor might be violating,” Shore said. “Even if an investor wishes to bury his head on human rights, it’s still possible to remind him about the broad norms.”

Pranab Choudhury, an expert on natural resources’ management, has seen the problems in India, where he said commercial interests of foreign investors are exacerbating food insecurity among poor communities which have farmed their land for generations but then find their traditional land rights are not protected. .

“In India when common land is diverted for investment, people don’t get any compensation,” he said. Legal frameworks need strengthening to protect customary land rights of local people, he said.

Gabriel Thoumi, senior analyst at the socially responsible fund company Calvert Investments with $13 billion under management, said he uses his influence as an investor to call companies on questionable human rights issues.  Companies in turn have a number of ways they can assess and minimise the risks they are exposed to – and still make a profit, he said.

“No system is perfect. We find that companies that have better pre-defined risks generally outperform their peers,” he said.

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