New Canadian foreign investment promotion and protection model expands responsible business conduct provisions

In recent years it has become increasingly important for companies to be cognizant of human rights issues, particularly when operating abroad. Companies that fail to do business ethically in accordance with human rights norms and legislation may face not only regulatory exposure but also civil exposure and significant reputational and business risk. Most recently, Canada has released its new model Foreign Investment Promotion and Protection Agreement (the 2021 Model FIPA) which includes significant additional obligations pertaining to human rights.

On May 13, 2021, Global Affairs Canada released the 2021 Model FIPA, a model agreement which will serve as the basis for future foreign investment negotiations. The updated model – which was informed by public consultations – incorporates recent developments in free trade agreements, investment treaty law and investor-state dispute resolution, and reflects the Government of Canada’s policy objective of ensuring the benefits of trade and investment are more widely shared.

Notably, the 2021 Model FIPA significantly expands on previous provisions regarding responsible business conduct (formerly called corporate social responsibility), and includes the promotion of internationally recognized standards that investors are encouraged to incorporate. In particular, parties who adopt the model:

• reaffirm that investors and their investments must comply with domestic laws and regulations of the host state, including human rights, the rights of Indigenous peoples, gender equality, environmental protection and labour
• reaffirm the importance of internationally recognized standards of responsible business conduct, including the OECD Guidelines for Multinational Enterprises and the United Nations Guiding Principles on Business and Human Rights
• must encourage investors to voluntarily incorporate such standards into business practices and internal policies
• should encourage investors to undertake engagement and dialogue with Indigenous peoples and local communities; and
• must cooperate on and facilitate joint initiatives to promote responsible business conduct.

Human rights and Canadian businesses

This expansion is consistent with domestic and global trends in support of internationally responsible conduct on the part of businesses. Canadian entities are subject to human rights obligations through both federal and provincial legislation as well as customary international law such as the United Nations (UN) Universal Declaration of Human Rights (the UDHR). In addition to the Canadian Charter of Rights and Freedoms (the Charter) – which principally governs government institutions but may apply to entities under routine or regular control, including e.g. hospitals, universities or transit authorities – all provinces and territories have human rights laws applicable to private actors, such as the Ontario Human Rights Code (the Code). When operating a business or subsidiary abroad, companies also must consider the potentially applicable human rights laws of the host jurisdiction. The government has also proposed modern slavery legislation, currently before the Senate, that would impose an obligation on certain entities to report on the measures taken to prevent and reduce the risk of forced or child labour.

While it has not yet been adopted, on October 29, 2020, Bill S-216, (the Bill) was introduced in the Senate. The Bill has now received two readings. In its current form, this Bill would mean businesses captured by its criteria will be subject to its reporting requirements.

In addition, international and domestic best practices have been published including by the U.N. and the government of Canada. For instance, under the Ten Principles of the United Nations Global Compact businesses should support and respect the protection of internationally proclaimed human rights and ensure that they are not complicit in human rights abuses. Similarly, Canada’s enhanced Corporate Social Responsibility (CSR) Strategy provides best practices for Canadian companies operating abroad to promote high ethical standards. Global Affairs Canada also maintains the Canadian Ombudsperson for Responsible Enterprise which receives and reviews claims of alleged human rights abuses arising from the operations of Canadian companies abroad in particular sectors.

Civil liability for human rights violations

Notably, Canadian corporations may face civil claims for human rights violations committed overseas. As we have written previously, the Supreme Court of Canada held in March 2020 that corporations can be sued in Canada for breaches of customary international law including when committed abroad. On this issue, the Court held that customary international law automatically forms part of Canadian common law absent conflicting legislation – and this may result in liability for private parties. This decision means that transnational corporations can be held accountable in Canada for human rights violations committed abroad.

Courts in other jurisdictions such as the UK have recently taken a similar proactive approach to hold companies accountable for activities, including the activities of subsidiaries overseas. This decision also coincides with the second revised draft of the Legally Binding Instrument to Regulate, in International Human Rights Law, the Activities of Transnational Corporations and Other Business Enterprises [PDF], which is currently in negotiations. Under this treaty, transnational corporations would be legally liable for human rights violations or abuses in the context of business activities pursuant to the domestic laws of state parties.

European Union human rights sanctions regime

On December 7, 2020, the Council of the EU announced the introduction of a new global human rights sanctions regime (the EU Sanctions). This new framework allows the EU to target both state and non-state actors including individuals, entities and bodies involved in serious human rights abuses and violations worldwide, no matter where they have occurred.

Individuals and entities will be captured by this framework when crimes against humanity or other serious human rights violations or abuses are committed. This includes violations and abuses such as genocide, torture, slavery, extrajudicial killings, arbitrary arrests or detentions. According to the Council of the European Union’s press release, other human rights violations or abuses may also be captured by this regime when they are “widespread, systematic or are otherwise of serious concern” with regards to foreign and security policy. The restrictions associated with such sanctions for individuals include travel bans. For both individuals and entities, the potential sanctions include asset freezes. Individuals and entities in the EU can also be forbidden from making funds available either directly or indirectly to those listed.

Notably, this new EU regime comes after the U.K. independently established a sanctions regime for human rights violations and abuses on July 6, 2020. These new regimes mark a shift toward sanctions for individuals and entities rather than targeting states, a change highly applicable to businesses globally.

Implications for Canadian companies

Liability for businesses and transnational corporations for human rights violations is an area that is evolving both domestically and internationally. Recent developments on human rights and responsible business conduct, particularly in respect of overseas activities, should be top of mind for Canadian businesses operating abroad. More specifically:

• Companies must ensure neither they nor any subsidiaries or overseas operations are engaged in human rights violations or abuses.
• Businesses should design and implement compliance policies that are in line with global standards for responsible business conduct. The 2021 Model FIPA as well as the new EU regime create a heightened need to ensure controls and compliance programs are established and maintained.
• Canadian companies must ensure they do not conduct any prohibited business with any individuals or entities listed under the EU Sanctions, which apply worldwide. Consulting appropriate sanctions lists is a critical part of an effective compliance program.
• Canadian companies should also conduct appropriate sanctions diligence when engaged in any significant M&A activity or transactions involving other jurisdictions.

As with other evolving international norms, such as anti-money laundering and foreign corruption compliance concerns (as we have previously written: Is Canada rising to the challenge?,  FINTRAC announces flexible compliance approach for upcoming Canadian anti-money laundering changes, and World bank debars German company for thirteen months), businesses need to stay on top of domestic and international developments to best ensure a full understanding of their legal and ethical obligations.