Compliance

Business & Human Rights Compliance in Japan: How to Meet Rising Global Expectations

Japanese Attorney at Law - Bengoshi L.L.

• 9 min read
Summary slide: key Business & Human Rights compliance steps in Japan—policy commitment, risk-based HRDD, stakeholder engagement, grievance mechanism.

TL;DR

  • Japan relies on soft-law guidance such as the 2022 METI/MOFA Guidelines, yet global investors, buyers and regulators increasingly expect robust human-rights due diligence (HRDD).
  • Aligning with UNGPs, companies should embed a policy commitment, map and prioritise risks, implement HRDD, engage stakeholders and ensure grievance mechanisms.
  • Ignoring BHR exposes firms to reputational damage, contract loss, investor divestment and potential tort, contract or consumer-law liability.

Table of Contents

  1. Introduction: The Global Rise of BHR and Japan's Position
  2. The Foundation: International Principles and Japan's Framework
  3. Key Domestic Guidance: The METI/MOFA Guidelines (September 2022)
  4. Other Relevant Regulations and Initiatives in Japan
  5. The Enforcement Gap and Emerging Risks
  6. Practical Steps for BHR Compliance and Risk Management
  7. Future Outlook: Towards Mandatory Measures?
  8. Conclusion

Introduction: The Global Rise of BHR and Japan's Position

The expectation that corporations proactively identify, prevent, mitigate, and account for their impacts on human rights throughout their operations and supply chains—often referred to as Business and Human Rights (BHR) or Human Rights Due Diligence (HRDD)—has become a defining feature of the global corporate responsibility landscape. Driven by international standards like the UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises, this expectation is increasingly being translated into hard law in various jurisdictions. Mandatory HRDD legislation, requiring companies to conduct due diligence and report on their efforts, has emerged in Europe (e.g., the EU's Corporate Sustainability Due Diligence Directive (CSDDD), the German Supply Chain Act, the French Duty of Vigilance Law) and influenced import regulations in the United States (e.g., the Uyghur Forced Labor Prevention Act - UFLPA).

Where does Japan stand amidst this global trend? Currently, Japan favors a "soft law" approach, relying primarily on government guidelines and stakeholder pressure rather than enacting comprehensive, cross-sectoral mandatory HRDD legislation. However, this does not mean BHR considerations are irrelevant for companies operating in Japan or those with significant links to Japanese supply chains. Expectations from international markets, investors, consumers, and civil society are rising, and the Japanese government itself strongly encourages businesses to align with international BHR standards.

For US-based legal and business professionals dealing with Japan, understanding this nuanced landscape is crucial. While direct legal mandates for HRDD may be limited compared to Europe, ignoring BHR principles carries significant reputational, operational, and potentially indirect legal risks. This article outlines the current BHR framework in Japan, examines key government guidance, discusses emerging risks, and suggests practical steps for companies to meet growing expectations.

The Foundation: International Principles and Japan's Framework

Japan's approach to BHR is anchored in its endorsement of key international standards:

  • UN Guiding Principles on Business and Human Rights (UNGPs): Adopted by the UN Human Rights Council in 2011, the UNGPs provide the authoritative global framework. They rest on three pillars:
    1. The State Duty to Protect human rights against abuses by third parties, including businesses.
    2. The Corporate Responsibility to Respect human rights, meaning businesses should act with due diligence to avoid infringing on rights and address adverse impacts they cause or contribute to.
    3. The need for greater Access to Remedy for victims of business-related abuses.
      The "Corporate Responsibility to Respect" (Pillar II) is the core expectation placed on all businesses, regardless of size or location. It involves implementing HRDD.
  • OECD Guidelines for Multinational Enterprises: These government-backed recommendations provide principles for responsible business conduct, including a dedicated chapter on human rights largely aligned with the UNGPs. They feature a unique grievance mechanism through National Contact Points (NCPs) established in adhering countries, including Japan, where individuals or groups can raise concerns about alleged non-observance of the Guidelines by multinational enterprises.

Japan has publicly endorsed both the UNGPs and the OECD Guidelines. To promote their implementation, the Japanese government developed its first National Action Plan (NAP) on Business and Human Rights (2020-2025). While the first NAP focused heavily on awareness-raising and promoting voluntary efforts, work is underway to develop the next NAP, which may reflect the evolving global landscape and potentially stronger domestic measures.

Key Domestic Guidance: The METI/MOFA Guidelines (September 2022)

The most significant piece of domestic guidance is the "Guidelines on Respecting Human Rights in Responsible Supply Chains" (責任あるサプライチェーン等における人権尊重のためのガイドライン), issued jointly by the Ministry of Economy, Trade and Industry (METI) and the Ministry of Foreign Affairs (MOFA) in September 2022.

  • Nature and Scope: These Guidelines are non-binding ("soft law"). However, they represent the clear expectation of the Japanese government regarding corporate BHR practices and are explicitly based on the UNGPs and other international standards. They apply to all companies conducting business activities in Japan, irrespective of their size or industry sector, encouraging even SMEs to make efforts appropriate to their scale and context.
  • Core Expectations: The Guidelines essentially translate the UNGP's HRDD process into practical steps for companies:
    1. Policy Commitment: Develop a corporate policy recognizing the responsibility to respect human rights, approved at the most senior level, and communicate it internally and externally.
    2. Human Rights Due Diligence (HRDD): Implement an ongoing process to:
      • Identify and Assess Impacts: Identify actual and potential adverse human rights impacts connected to the company's operations, products/services, and business relationships (including supply chains). This requires understanding the context and prioritizing salient risks.
      • Prevent and Mitigate Impacts: Take appropriate action to cease activities causing or contributing to negative impacts, and implement measures to prevent or mitigate potential future impacts. This involves using leverage in business relationships.
      • Track Effectiveness: Monitor the implementation and effectiveness of measures taken to address impacts.
      • Communicate: Report externally on how the company is addressing its human rights impacts.
    3. Remediation: Establish or participate in effective operational-level grievance mechanisms for individuals and communities who may be adversely impacted. Cooperate with state-based or other legitimate non-state mechanisms (like OECD NCPs).

The Guidelines emphasize that HRDD is not a one-off exercise but a continuous process, proportionate to the company's size, sector, operational context, and the severity of its potential human rights impacts. While not legally mandatory, alignment with these Guidelines is increasingly seen as a baseline expectation for responsible business conduct in Japan.

Other Relevant Regulations and Initiatives in Japan

While the METI/MOFA Guidelines are central, other elements contribute to the BHR landscape:

  • Corporate Governance Code: Japan's Corporate Governance Code, applicable to listed companies, includes principles related to fulfilling social responsibilities and engaging with stakeholders (including employees, customers, business partners, and local communities). Principle 2.3 emphasizes addressing sustainability issues, which implicitly includes social and human rights aspects. While not explicitly mandating HRDD, it encourages boards to consider these factors as part of sustainable value creation and risk management.
  • Stewardship Code: Japan's Stewardship Code urges institutional investors to engage with investee companies on ESG issues, including social factors. This investor focus is a significant driver for companies to improve their BHR performance and transparency. Major investors, including Japan's Government Pension Investment Fund (GPIF), are increasingly incorporating human rights considerations into their investment analysis and engagement strategies.
  • Sector-Specific Expectations: While no general HRDD law exists, some sectors might face specific pressures or initiatives. For example, concerns about the treatment of workers in the construction industry ahead of major events or regarding foreign technical interns have led to targeted government actions and industry discussions.
  • Government Procurement: While perhaps not yet widespread, there are discussions about potentially integrating human rights considerations into public procurement criteria, following trends in other countries.

The Enforcement Gap and Emerging Risks

Despite the clear government guidance and growing stakeholder expectations, the primary challenge remains the lack of a general, cross-sectoral mandatory HREDD law in Japan that imposes direct legal consequences for failing to conduct adequate due diligence or address identified harms. This contrasts sharply with the direction taken by the EU and several European nations.

Consequently, BHR compliance in Japan is currently driven more by "soft" enforcement mechanisms and indirect risks:

  • Market and Supply Chain Pressure: Increasingly, Japanese companies face requirements from international customers (especially those based in the EU or US) to demonstrate robust HRDD processes as a condition of doing business. Failure to meet these standards can lead to loss of contracts.
  • Investor Expectations: As noted, institutional investors are incorporating BHR into their ESG assessments, potentially impacting capital access and valuation for companies perceived as lagging.
  • Stakeholder Activism: NGOs, labor unions, and media play a crucial role in monitoring corporate conduct, investigating supply chains, and publicizing alleged abuses. Campaigns can lead to significant reputational damage. OECD NCP cases, while non-judicial, can also generate negative publicity.
  • Reputational Risk: In an era of high transparency, failure to address human rights issues responsibly can severely damage a company's brand image and consumer trust, both in Japan and internationally.

While direct liability under a specific HRDD statute is currently absent, potential indirect legal risks exist:

  • Tort Law: Although challenging, particularly regarding extraterritorial conduct or complex supply chains, failure by a company to act upon credible knowledge of severe human rights abuses directly linked to its operations could potentially form the basis for a tort claim under general negligence principles in Japanese courts. Establishing duty of care and causation remains a high hurdle.
  • Contract Law: Companies may face breach of contract claims if they fail to meet human rights or ethical sourcing clauses included in agreements with business partners or customers.
  • Consumer Protection / Advertising Law: Making misleading claims about the ethical nature of products or supply chains ("human rights washing" or "bluewashing") could potentially violate laws against misrepresentation, such as the Act against Unjustifiable Premiums and Misleading Representations (景品表示法, Keihin Hyōji Hō).
  • Antitrust Law: As discussed in legal commentary, collaborative BHR initiatives, if poorly designed, could raise concerns. For example, an agreement among competitors to boycott a supplier based on human rights concerns, without careful justification and process, might be challenged as an illegal concerted refusal to deal under the AMA.
  • Director Liability: Directors have duties of care and loyalty to the company. If a board demonstrably fails to oversee or address significant, foreseeable BHR risks that subsequently cause substantial reputational or financial damage to the corporation, there is a theoretical possibility of shareholder derivative suits alleging breach of duty, although such cases specifically focused on BHR are rare in Japan thus far.

Practical Steps for BHR Compliance and Risk Management

Given this landscape, a proactive approach aligned with international standards and the Japanese government's Guidelines is the most prudent strategy for companies operating in or sourcing from Japan. Key steps include:

  1. Embed Policy Commitment: Develop a clear, board-approved human rights policy aligned with the UNGPs. Integrate this commitment into corporate values, codes of conduct, and relevant business processes (e.g., procurement, M&A).
  2. Implement HRDD: Establish an ongoing, risk-based HRDD process:
    • Map Operations and Supply Chains: Understand the company's footprint and key business relationships.
    • Identify and Prioritize Risks: Assess potential and actual adverse human rights impacts associated with the company's sector, geographic locations, specific suppliers, workforce composition, and business activities. Focus on "salient" risks (most severe potential impacts).
    • Assess and Investigate: Use appropriate methods (e.g., supplier self-assessment questionnaires, independent audits, direct engagement, desktop research) to assess prioritized risks.
    • Prevent, Mitigate, and Remediate: Develop and implement action plans to address identified risks. This involves using leverage with business partners, potentially building supplier capacity, adjusting sourcing practices, or, as a last resort, responsibly disengaging. Ensure access to remedy for affected stakeholders.
    • Track Performance: Monitor the effectiveness of actions taken and update risk assessments periodically.
  3. Engage Stakeholders: Meaningfully engage with potentially affected stakeholders, including workers (through unions or directly), local communities, suppliers, and relevant NGOs, to understand concerns and inform the HRDD process.
  4. Establish Grievance Mechanisms: Ensure accessible and effective channels are available for workers and external parties to raise concerns or complaints related to human rights impacts without fear of retaliation.
  5. Promote Transparency: Communicate publicly about human rights policies, due diligence processes, identified risks, and actions taken. This is often done through sustainability reports or dedicated human rights reports, ideally aligning with international reporting frameworks.
  6. Strengthen Contracts: Incorporate human rights clauses into supplier contracts, outlining expectations, potentially requiring supplier self-assessments or cooperation with audits, and defining consequences for non-compliance.
  7. Provide Training: Ensure relevant employees (especially in procurement, supply chain management, legal, compliance, and HR) are trained on the company's human rights policy and their roles in the HRDD process.

Future Outlook: Towards Mandatory Measures?

While Japan currently relies on guidelines, the debate surrounding mandatory HREDD legislation continues. Influential voices, including some business groups, legal associations, and Diet members, have called for Japan to consider introducing such laws to level the playing field, enhance corporate competitiveness in markets with mandatory requirements (like the EU), and provide greater legal certainty.

The trajectory of international developments, particularly the implementation of the EU's CSDDD, will undoubtedly influence discussions in Japan. While a timeline for potential mandatory legislation remains uncertain, the direction of travel is clear: expectations for robust corporate human rights performance and due diligence are intensifying globally and within Japan.

Conclusion

The landscape for Business and Human Rights in Japan is characterized by strong government encouragement aligned with international standards, significant stakeholder pressure, and growing market expectations, yet currently lacks a comprehensive mandatory HREDD law imposing direct legal liability. For US companies, this means navigating a complex environment where compliance is driven as much by reputational and market factors as by direct legal mandates.

Proactively implementing a robust HRDD process, consistent with the UNGPs and the Japanese government's 2022 Guidelines, is no longer just best practice but increasingly a strategic necessity. It helps mitigate reputational damage, meet investor and customer demands, manage supply chain risks, and positions the company favorably should Japan eventually move towards mandatory HREDD legislation. Addressing BHR effectively is fundamental to responsible and sustainable business operations in the modern Japanese and global economy.