ESG

Human Rights Due Diligence in Japan: Practical Steps for Supply-Chain Compliance

Japanese Attorney at Law - Bengoshi L.L.

• 8 min read
Slide highlighting Japan’s 2022 human-rights guidelines: policy, ongoing HRDD, supplier engagement and legal cautions under Subcontract and Antimonopoly Acts.

TL;DR

  • Japan issued non-binding 2022 guidelines aligning with the UN Guiding Principles; all companies in Japan are expected to run continuous human-rights due diligence (HRDD).
  • Key steps: adopt a board-approved policy, map and prioritise salient risks (overtime, foreign trainees, supplier labour), engage stakeholders, track and disclose progress.
  • Demands on suppliers must be fair—excessive pressure may breach the Subcontract Act or Antimonopoly Act.
  • US firms should embed HRDD into procurement, contracts and risk management to meet rising investor and partner scrutiny.

Table of Contents

  1. Context: Japan's Human Rights Guidelines
  2. Core Expectations: The Three Pillars of BHR
  3. Implementing HRDD in the Japanese Context
  4. Developing and Embedding a Human Rights Policy
  5. Transparency and Reporting
  6. Implications for US Businesses
  7. Conclusion

The global spotlight on Business and Human Rights (BHR) continues to intensify. Companies worldwide face increasing pressure from regulators, investors, consumers, and civil society to ensure their operations and supply chains respect human rights. Japan, a crucial hub in many global value chains, is aligning itself with these international expectations. In September 2022, the Japanese government issued its "Guidelines for Respecting Human Rights in Responsible Supply Chains," signaling a clear expectation for businesses operating within its sphere of influence.

While these guidelines are currently non-binding legally, they are heavily based on the authoritative UN Guiding Principles on Business and Human Rights (UNGPs) and represent a significant step. For US companies with operations, suppliers, or business partners in Japan, understanding and integrating the principles outlined in these guidelines is becoming not just a matter of ethical conduct, but a crucial aspect of risk management, compliance, and maintaining a social license to operate.

Context: Japan's Human Rights Guidelines

Issued by the Government of Japan, the "Guidelines for 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) aim to promote corporate action on human rights. Key aspects include:

  • Foundation: Explicitly based on international standards, primarily the UNGPs, but also referencing the OECD Guidelines for Multinational Enterprises and the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy.
  • Scope of Application: The guidelines apply to all business enterprises operating in Japan, irrespective of their size, industry, ownership structure, or location (domestic or foreign-based). This broad scope reflects the UNGP principle that the responsibility to respect human rights applies universally to all businesses.
  • Value Chain Responsibility: The responsibility extends beyond a company's own activities to encompass its entire value chain. This explicitly includes group companies, suppliers (both direct Tier 1 and potentially further upstream), and other business relationships like joint venture partners, franchisees, or even portfolio companies for financial institutions. Both "upstream" (sourcing, procurement) and "downstream" (sales, product use, disposal) impacts are relevant.

Core Expectations: The Three Pillars of BHR

Mirroring the UNGPs, the Japanese guidelines are structured around three core pillars of corporate human rights responsibility:

  1. Policy Commitment: Businesses are expected to formally adopt a human rights policy. This policy should:
    • Be approved at the most senior level (e.g., Board of Directors).
    • Be informed by relevant internal and external expertise.
    • Stipulate the company's human rights expectations for its personnel, business partners, and others linked to its operations, products, or services.
    • Be publicly available and communicated internally and externally.
    • Be embedded into operational policies and procedures.
  2. Human Rights Due Diligence (HRDD): This is the cornerstone of operationalizing the policy commitment. It's not a one-off audit but an ongoing risk management process designed to identify, prevent, mitigate, and account for how a company addresses its adverse human rights impacts. The key steps involve:
    • Identifying and Assessing: Proactively identifying actual and potential adverse human rights impacts connected to the company's operations, products, or services through its business relationships.
    • Integrating and Acting: Integrating the findings across relevant company functions and taking appropriate action to prevent or mitigate identified impacts. This involves using leverage over business partners and prioritizing actions based on severity.
    • Tracking Effectiveness: Monitoring the effectiveness of the actions taken to see if they are actually working to address the adverse impacts.
    • Communicating: Reporting externally on how the company is addressing its human rights impacts. This includes communicating with affected stakeholders.
  3. Remediation: Where a business identifies that it has caused or contributed to adverse human rights impacts, it should provide for or cooperate in their remediation through legitimate processes. This might involve establishing operational-level grievance mechanisms or working with state-based or other collaborative mechanisms.

Implementing Human Rights Due Diligence (HRDD) in the Japanese Context

While the principles are global, effective implementation requires understanding the specific context of Japan and its supply chains.

1. Identifying Salient Human Rights Risks:

HRDD starts with mapping operations and supply chains to identify areas where the most severe potential human rights risks (salient risks) might occur. While risks vary by industry, some areas frequently highlighted in the Japanese context include:

  • Working Hours and Overtime: Japan has long grappled with excessive working hours, sometimes leading to "karoshi" (death from overwork) or mental health issues like depression. While labor laws exist, ensuring compliance, especially further down supply chains or among vulnerable worker groups, requires diligence.
  • Foreign Workers / Technical Intern Trainees: Issues related to the recruitment, working conditions, wages, and treatment of foreign workers, including those under the Technical Intern Training Program (技能実習制度 - Ginō Jisshū Seido), have been frequently reported. Risks can include deceptive recruitment practices, excessive deductions, restrictions on movement, and poor working/living conditions.
  • Harassment: Various forms of harassment, including power harassment (workplace bullying by superiors), sexual harassment, and potentially "customer harassment" (kasu-hara), remain concerns in Japanese workplaces.
  • Supplier Working Conditions: Further down the supply chain (Tier 2 and beyond), risks common globally may appear, such as child labor, forced labor, inadequate health and safety, low wages, or suppression of freedom of association, particularly in sectors sourcing raw materials or components from regions with weaker governance.
  • Non-Discrimination: Ensuring equal treatment regardless of gender, age, nationality, disability, sexual orientation, or other characteristics is crucial.

Identifying these risks requires looking beyond Tier 1 suppliers and considering the entire value chain, using tools like supplier self-assessment questionnaires, audits (while recognizing their limitations), direct engagement, sector-specific risk reports, and insights from civil society organizations or unions.

2. Stakeholder Engagement:

The Japanese guidelines, like the UNGPs, emphasize the importance of meaningful consultation with potentially affected stakeholders – employees, supplier workers, local communities, vulnerable groups – as part of HRDD. This helps companies understand risks and impacts from the perspective of those experiencing them. Challenges in the Japanese context might include:

  • Cultural Nuances: Direct criticism or raising grievances openly might be less common than in some Western cultures. Building trust and utilizing confidential channels (like hotlines or third-party mechanisms) can be important.
  • Language Barriers: Especially when dealing with foreign workers or international supply chains.
  • Access: Reaching workers deep within complex supply chains can be difficult. Collaboration with suppliers and local partners may be necessary.
  • Role of Unions: While Japan has enterprise-based unions, their reach and focus can vary. Engaging with relevant unions or labor federations can be valuable.

Effective engagement requires sensitivity, appropriate methods (interviews, surveys, focus groups), and ensuring participants feel safe to speak freely without fear of reprisal.

3. Prioritization and Leverage:

Companies cannot realistically address every potential human rights impact simultaneously. The UNGPs and Japanese guidelines advise prioritizing action based on the severity of the potential or actual impact, considering its scale (number of people affected), scope (gravity of the impact), and irremediability (difficulty in restoring the victim to their prior state).

For impacts deep in the supply chain where the company has limited direct control, the focus shifts to using leverage. This might involve:

  • Including human rights clauses in supplier contracts.
  • Conducting training and capacity building with suppliers.
  • Creating incentives for good performance.
  • Collaborating with other buyers sourcing from the same supplier.
  • In severe cases where leverage is ineffective, reconsidering the business relationship as a last resort.

Critically, the Japanese guidelines caution companies against imposing unreasonable burdens on suppliers when requesting human rights efforts. Demands perceived as unfair could potentially violate Japan's Subcontract Act (下請法 - Shita'uke Hō), which protects subcontractors from unfair practices by larger contracting parties, or even the Antimonopoly Act's provisions against Abuse of Superior Bargaining Position. Collaborative approaches are generally preferred over purely top-down mandates.

4. Collaboration:

Addressing systemic human rights issues often requires collective action. The guidelines encourage collaboration, which could involve:

  • Joining industry initiatives focused on responsible sourcing or specific human rights issues.
  • Participating in multi-stakeholder initiatives involving companies, government, and civil society.
  • Sharing best practices and non-competitive information with peer companies (while being mindful of antitrust regulations – horizontal collaboration needs careful review but is often permissible for genuine sustainability goals).

Developing and Embedding a Human Rights Policy

A company's human rights policy serves as the public declaration and internal compass for its commitment. For operations involving Japan:

  • Content: The policy should explicitly state the commitment to respect internationally recognized human rights (referencing the International Bill of Human Rights and ILO Core Conventions). It should identify salient risks relevant to the company's Japanese context (e.g., working hours, foreign worker treatment). It must clearly articulate expectations for employees, subsidiaries, suppliers, and other business partners – often achieved through a linked Supplier Code of Conduct. It should also reference the company's HRDD process and commitment to remediation.
  • Approval & Governance: Secure approval from the highest level of management (Board of Directors) to signal seriousness and ensure resources. Establish clear internal responsibility for overseeing policy implementation.
  • Embedding: The policy must translate into action. This requires integrating human rights considerations into relevant business functions:
    • Procurement: Screening new suppliers, incorporating human rights clauses into contracts, assessing supplier performance on human rights metrics.
    • Human Resources: Ensuring fair labor practices internally, providing training on the policy and relevant risks, establishing grievance mechanisms for employees.
    • Risk Management: Including human rights risks in overall enterprise risk management (ERM) frameworks.
    • Operations: Implementing safe work practices, managing working hours effectively.
  • Dissemination: Communicate the policy widely – on the company website, in sustainability reports, through employee training, and to suppliers and business partners (potentially requiring translation into Japanese or other relevant languages).

Transparency and Reporting

The expectation to communicate publicly about human rights efforts is growing globally and is embedded in the UNGPs (Principle 21). While the Japanese guidelines themselves don't mandate specific reporting formats yet, companies operating internationally should be prepared to report on their HRDD processes and findings. This is increasingly expected by investors (ESG ratings agencies), customers, and required by regulations in other jurisdictions (e.g., EU's Corporate Sustainability Reporting Directive). Reporting should be honest about challenges faced as well as progress made.

Implications for US Businesses

The issuance of Japan's guidelines has several key implications for US companies:

  • Reinforces Global Standards: Japan is clearly signaling its adoption of the UNGP framework. Companies with existing global BHR programs can leverage these but must ensure they are effectively implemented and tailored to address specific risks within the Japanese context.
  • Increased Scrutiny: Expect greater attention from Japanese business partners, government agencies (potentially in public procurement), investors, and consumers regarding human rights performance in supply chains connected to Japan.
  • Supply Chain Diligence: The need for enhanced visibility into Japanese supply chains, including sub-tiers, is amplified. Understanding who your suppliers are and assessing their human rights risks is paramount.
  • Supplier Engagement: Moving beyond compliance audits towards more proactive engagement with Japanese suppliers will be necessary. This includes clear communication of expectations, capacity building, and potentially cost-sharing for improvements, while respecting fair dealing principles (Subcontract Act/AMA).
  • Integration is Key: Human rights considerations need to be integrated into core business processes – procurement, contracting, HR, risk management – not treated as a siloed CSR activity.
  • Legal & Reputational Risk: Failure to adequately address human rights issues can lead to reputational damage, loss of business, investor divestment, and potential legal challenges (even if direct liability under the guidelines is currently limited, related claims under tort or contract law might arise).

Conclusion

Japan's "Guidelines for Respecting Human Rights in Responsible Supply Chains" represent an important development, aligning the country more closely with international BHR standards. For US businesses engaged with Japan, these guidelines solidify the expectation that respecting human rights is an integral part of responsible business conduct. This requires more than just a policy statement; it demands an ongoing commitment from the highest levels, the implementation of robust human rights due diligence processes tailored to the specific risks of the Japanese context, meaningful engagement with stakeholders throughout the value chain, and transparency about efforts undertaken. Proactively integrating these principles is not only about mitigating risk but also about building more resilient, sustainable, and ethical business relationships in one of the world's most significant economies.