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Human Rights Due Diligence in Law and Practice: Good Practices and Challenges for Business Enterprises §

  • Robert McCORQUODALE, Lise SMIT, Stuart NEELY and Robin BROOKS
Abstract
Abstract

This article considers the practices of companies worldwide in attempting to implement human rights due diligence (HRDD) as envisaged by the Guiding Principles on Business and Human Rights. Based on empirical research conducted through surveys and interviews, it analyses corporate practices in this area. It examines the responses of companies with reference to the core elements of implementing HRDD: identifying actual or potential human rights impacts; taking action to address these impacts; and tracking or monitoring the effectiveness of actions. In addition, the article places these practices in the context of the legal developments in the field of HRDD. The research shows the difference that dedicated HRDD – in comparison with non-human rights specific processes – can make in terms of identifying adverse human rights impacts of both the company as well as of those which are part of its business relationships.

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§

This article is an outcome of an applied research project on business and human rights due diligence conducted by the British Institute of International and Comparative Law (BIICL) and the Business Ethics & Anti-Corruption Group of the global law firm Norton Rose Fulbright LLP. The authors are particularly grateful for the valuable support of Business Ethics & Anti-Corruption Group members Milana Chamberlain, Sam Eastwood, Gal Levin and Dan Jarman. The authors also wish to thank BIICL volunteer researchers Freya Dinshaw, Ciara Dowd, Anneloes Hoff, Claire Jervis, Liliane Mouan, Marie Pillon and Norton Rose Fulbright’s Rachel Godfrey.

*

Director of the British Institute of International and Comparative Law (BIICL), Professor of International Law and Human Rights at the University of Nottingham, and a barrister at Brick Court Chambers in London.

**

Research Fellow in Business and Human Rights at BIICL.

***

Associate at Norton Rose Fulbright LLP, based in London, and is a member of their Business Ethics & Anti-Corruption Group.

****

Partner at Norton Rose Fulbright LLP, based in London, and is a corporate finance and governance member of their Business Ethics & Anti-Corruption Group.

Footnotes
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1 Human Rights Council, ‘Guiding Principles on Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework’ (Guiding Principles), A/HRC/17/31 (21 March 2011).

2 Human Rights Council, ‘Protect, Respect and Remedy: A Framework for Business and Human Rights’ (Framework) A/HRC/8/5 (7 April 2008), para 56. See also Guiding Principles, ibid, Principle 15.

3 The GPs refer to ‘business enterprises’ to include all forms of business enterprise, regardless of their legal formats. This article will use ‘company/companies’ unless the context requires otherwise.

4 Principle 17 provides: ‘In order to identify, prevent, mitigate and account for how they address their adverse human rights impacts, business enterprises should carry out human rights due diligence. The process should include assessing actual and potential human rights impacts, integrating and acting upon the findings, tracking responses, and communicating how impacts are addressed.’ (emphasis added).

5 See, for example, Hofmann Hannes, Schleper Martin and Blome Constantin, ‘Conflict Minerals and Supply Chain Due Diligence: An Exploratory Study of Multi-tier Supply Chains’ (2015) Journal of Business Ethics doi: 10.1007/s10551-015-2963-z; and Danish Institute of Human Rights (DIHR), Talking the Human Rights Walk: Nestlé’s Experience (2014).

6 Respondents operate in the following regions: 70.95 per cent Western Europe, 66.22 per cent Asia, 60.81 per cent USA and Canada, 56.76 per cent China, 55.41 per cent Australia, New Zealand and Pacific, 50.68 per cent India, 47.3 per cent Latin America (including Mexico), 45.95 per cent Middle East and North Africa, 44.59 per cent Eastern Europe (including Russia), 43.92 per cent Sub-Saharan Africa. This survey has been reported at http://www.biicl.org/duediligence and http://human-rights-due-diligence.nortonrosefulbright.online/ (accessed 21 February 2017).

7 Western Europe: 54.05 per cent; Asia: 25.68 per cent (4.73 per cent based in China, 0.68 per cent in India and 20.27 per cent in the rest of Asia); and USA and Canada: 24.32 per cent.

8 Australia, New Zealand and the Pacific: 6.76 per cent; Sub-Saharan Africa: 5.41 per cent; Latin America (including Mexico: 2.03 per cent) and the Middle East and North Africa: 0.68 per cent.

9 13.61 per cent.

10 12.24 per cent.

11 10.20 per cent. These terms were not defined in the survey as it was left to the respondents to self-identify.

12 These sectors were represented in the survey: 32.24 per cent extractives (16.45 per cent energy and 15.79 per cent mining); 28.29 per cent financial services; 5.92 per cent technology; and 5.26 per cent pharmaceuticals. There were a few respondents from other sectors.

13 Office of the UN High Commissioner for Human Rights, The Corporate Responsibility to Respect Human Rights: An Interpretive Guide (OHCHR, 2012) 4.

14 See Cees Dam Van, ‘Tort Law and Human Rights: Brothers in Arms – On the Role of Tort Law in the Area of Business and Human Rights’ (2011) Journal of European Tort Law 221 . The term originally arises from Roman law: see Zimmerman Reinhard, The Law of Obligations: Roman Foundations of the Civilian Tradition (Oxford: Oxford University Press, 1996) 10081009 .

15 See, for example, Muchlinski Peter, ‘Operationalising the UN Business and Human Rights Framework: The Corporate Responsibility to Respect Human Rights and Due Diligence’ in Sarianna Lundan (ed.), Transnational Corporations and Transnational Governance (Basingstoke: Palgrave Macmillan, 2014) 325 .

16 See, for example, Mares Radu, ‘Responsibility to Respect: Why the Core Company Should Act When Affiliate Infringe Human Rights’ in Radu Mares (ed.), Siege or Cavalry Charge? The UN Mandate on Business and Human Rights (The Hague: Martinus Nijhoff, 2012), and McPhail Ken and Adams Carol, ‘Corporate Respect for Human Rights: Meaning, Scope, and the Shifting Order of Discourse’ (2016) 29 Accounting, Auditing & Accountability Journal 650 .

17 See, for example, Cassel Doug, ‘Outlining the Case for a Common Law Duty of Care of Business to Exercise Human Rights Due Diligence’ (2016) 1 Business and Human Rights Journal 179 .

18 While ‘human rights impacts’ is not defined in the GPs, it does seem to be equated there with human rights violations under international law. The Commentary on Principle 12 makes clear that ‘business enterprises can have an impact on virtually the entire spectrum of internationally recognized human rights’, with the examples given of these rights being the major global human rights treaties and instruments. On using the term ‘violations’ for actions by companies rather than ‘abuses’, see Clapham Andrew, ‘Human Rights Obligations for Non-State-Actors: Where Are We Now?’ in Fannie Lafontaine and François Larocque (eds.), Doing Peace the Rights Way: Essays in International Law and Relations in Honour of Louise Arbour (Cambridge: Intersentia, 2015), https://ssrn.com/abstract=2641390 (accessed 21 February 2017).

19 Commentary on Principle 12: ‘The responsibility of business enterprises to respect human rights is distinct from issues of legal liability and enforcement, which remain defined largely by national law provisions in relevant jurisdictions’.

20 Commentary on Principle 17: ‘Business enterprises conducting such due diligence should not assume that, by itself, this will automatically and fully absolve them from liability for causing or contributing to human rights abuses.’ See also Nolan Justine, ‘The Corporate Responsibility to Respect Human Rights: Soft Law or No Law?’ in Surya Deva and David Bilchitz (eds.), Human Rights Obligations of Business: Beyond a Corporate Responsibility to Respect? (Cambridge: Cambridge University Press, 2013) 138 .

21 Commentary on Principle 14: ‘[the] severity of impacts will be judged by their scale, scope and irremediable character.’

22 Principle 17(b): ‘[HRDD] will vary in complexity with the size of the business enterprise, the risk of severe human rights impacts, and the nature and context of its operations’.

23 Principle 17(c): ‘[HRDD] should be ongoing, recognizing that the human rights risks may change over time as the business enterprise’s operations and operating context evolve’.

24 See generally Bonnitcha Jonathan and McCorquodale Robert, ‘The Concept of “Due Diligence” in the UN Guiding Principles on Business and Human Rights’ (2017) European Journal of International Law (forthcoming).

25 Principle 13: ‘The responsibility to respect human rights requires that business enterprises: (a) Avoid causing or contributing to adverse human rights impacts through their own activities, and address such impacts when they occur; (b) Seek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or services by their business relationships, even if they have not contributed to those impacts’ (emphasis added).

26 Commentary on Principle 13.

27 Principle 24.

28 OHCHR, Interpretive Guide, note 13, 9: ‘The most salient human rights for a business enterprise are those that stand out as being most at risk. This will typically vary according to its sector and operating context. The GPs make clear that an enterprise should not focus exclusively on the most salient human rights issues and ignore others that might arise. But the most salient rights will logically be the ones on which it concentrates its primary efforts’.

29 Rees Caroline and Davis Rachel, ‘Salient Human Rights Issues: When Severe Risks to People Intersect with Risks to Business’ in Dorothée Baumann-Pauly and Justine Nolan (eds.), Business and Human Rights: From Principles to Practice (Abingdon: Routledge, 2016) 103, 104 .

30 Van Dam, note 14, 244 states that companies are likely to be responsible for those human rights impacts of which they had knowledge, as well as for those they ‘ought to have known’, had they been diligent, such as use of relevant information on the internet and from international and human rights organizations and government bodies.

31 See OHCHR Response to the Chair of OECD Working Party on Responsible Business Conduct, 27 November 2013, http://www.ohchr.org/Documents/Issues/Business/LetterOECD.pdf (accessed 21 February 2017), paras 13–14.

32 Principle 17(c).

33 Also chosen frequently were, in order, ‘the right thing to do’ (54.55 per cent), good corporate governance (53.03 per cent) and avoidance of operational risk (46.97 per cent).

34 Section 54 of the UK Modern Slavery Act 2015. Section 2 of the Modern Slavery (Transparency in Supply Chains) Bill (HL Bill 6), which is pending a third reading in the UK House of Lords, would amend the Public Contracts Regulations 2015 to require contracting authorities to exclude an economic operator from participation in a procurement procedure where they have established that that operator has not produced a slavery and human trafficking statement pursuant to Section 54.

35 Section 54(2)(b) read with Regulation 2 of the Modern Slavery Act (Transparency in Supply Chains) Regulations 2015.

36 Senate Bill No. 657, chapter 556, 30 September 2010.

37 Section 2(2)(A) of Executive Order 13627, which came into effect in March 2015.

38 31 US Code §§ 3729–3733.

39 EU Directive 2013/50/EU.

40 US Dodd–Frank Wall Street Reform and Consumer Protection Act (2010) 12 USC 5301. US President Trump has, however, ordered a review which may result in repeal of this law. BBC, ‘Trump orders review that could relax Dodd–Frank bank rules’ (3 February 2017), http://www.bbc.co.uk/news/business-38858009 (accessed 28 February 2017).

41 Illegal Logging Prohibition Act 2012 (Australia).

42 On the developments towards a treaty in this area, see Human Rights Council , ‘Elaboration of an international legally binding instrument on transnational corporations and other business enterprises with respect to human rights,’ A/HRC/26/L.22/Rev.1 (24 June 2014); and McCorquodale Robert and Smit Lise, ‘Human Rights, Responsibilities and Due Diligence: Key Issues for a Treaty’ in Surya Deva and David Bilchitz (eds.), Building a Treaty on Business and Human Rights: Context and Contours (Cambridge: Cambridge University Press, forthcoming in 2017).

43 European Coalition for Corporate Justice, ‘France adopts corporate duty of vigilance law: a first historic step towards better human rights and environmental protection’ (21 February 2017), http://corporatejustice.org/news/393-france-adopts-corporate-duty-of-vigilance-law-a-first-historic-step-towards-better-human-rights-and-environmental-protection (accessed 28 February 2017). Similar laws are being considered in other jurisdictions such as Switzerland and the Netherlands.

44 Ibid.

45 Choc v Hudbay Inc. (2013), ONSC 1414, para 27.

46 Ibid, para 26.

47 Chandler v Cape PLC [2012] EWCA (Civ) 525.

48 Norton Rose Fulbright (NRF), ‘Recent Trends Related to Human Rights Statements’ (10 February 2016) http://www.nortonrosefulbright.com/knowledge/publications/136366/recent-trends-related-to-human-rights-statements (accessed 18 August 2016).

49 Ibid.

50 See Araya v Nevsun Resources Ltd (2016), BCSC 1856, Supreme Court of British Columbia, and Lungowe v Vedanta Resources PLC and Konkola Copper Mines PLC [2016] EWHC 975 (UK). In Kaliňa and Lokono Peoples v Suriname, Inter-American Court of Human Rights (2015) No. 134, 224, the Court referred to the GPs.

51 Sud v Costco Wholesale Corp., 15-cv-03783, US District Court, Northern District of California (San Francisco); Barber v Nestle USA Inc., 15-cv-01364, US District Court, Central District of California (Los Angeles).

52 Similarly, cases are being brought in Canada and France against multinational garment companies for losses suffered in the collapse of the Rana Plaza factory in 2013: see NRF, note 48.

53 See also the Norwegian National Contact Point for the OECD Guidelines for Multinational Enterprises, Complaint from Lok Shakti Abhiyan, Korean Transnational Corporations Watch, Fair Green and Global Alliance and Forum For Environment and Development v Posco (South Korea), Abp/Apg (Netherlands) and Nbim (Norway), Final Statement, 27 May 2013; and UK OECD National Contact Point Review Committee ‘Separate Policy Note on Due Diligence’ in Specific Instance under the OECD Guidelines for Multi-national Enterprises, January 2014, 6–7.

54 Corporations Act 2001 (Australia), sec 731; Federal Securities Act of 1933 sec 11(b)(3)(A); Financial Markets Conduct Act 2013 (NZ) sec 499; Consolidated Financial Services Act (Italy), art 94(8).

55 UK Bribery Act 2010 (UK), sec 7(2); Clean Companies Act (Brazil), Ch III art 7.

56 Environment Protection Act 1970 (Vic), sec 66B(1A)(b) and (c); Forest and Range Practices Act 2014 (Canada), sec 72.

57 Work Health and Safety Act 2011 (NSW), sec 27; Food Safety Act 1993 (UK), sec 21; Aviation Act (Wet Luchtvaart, NL), art 1.3.

58 Spanish Criminal Code, art 33; Law no. 190 (2012) Italian Criminal Corporate Law (Legislative Decree No. 231 of 2001, ‘Law 231’), art 6. Canada and the Netherlands both have a common law due diligence defence available for strict liability crimes (R v Sault Ste. Marie [1978], 2 S.C.R. 1299; see also Meyer Bram, van Roomen Tessa and Sikkema Eelke, ‘Corporate Criminal Liability for Corruption Offences and the Due Diligence Defence: A Comparison of the Dutch and English Legal Frameworks’ (2014) 10 Utrecht Law Review 47 .

59 The industry peer comparisons are confirmed by Arni Liselotte et al., ‘UBS and the Integration of Human Rights Due Diligence Under the United Nations (UN) Protect, Respect and Remedy Framework for Business and Human Rights’ in Karen Wendt (ed.), Responsible Investment Banking (Heidelberg: Springer, 2015) 205 . See also Hemphill Thomas and White George, ‘The World Economic Forum and Nike: Emerging “Shared Responsibility” and Institutional Control Models for Achieving a Socially Responsible Global Supply Chain’ (2016) 1 Business and Human Rights Journal 307 .

60 Vilca v Xstrata Limited and Compania Minera Antapaccay S.A. [2016] EWHC 389 (UK), para 25.

61 Ibid, paras 90–91.

62 49.12 per cent.

63 49.12 per cent.

64 57.45 per cent of the group that had not done dedicated HRDD.

65 51.06 per cent of this group.

66 38.30 per cent of this group.

67 29.79 per cent of this group.

68 72.23 per cent.

69 71.43 per cent.

70 47.37 per cent.

71 The only other category of human rights considered that was external to the employees was in relation to indigenous people, which in certain jurisdictions or sectors (such as mining) there is some regulation.

72 One telecommunications representative interviewed stated that the company undertakes analyses with its external stakeholders every two years by online survey and interviews, in order to test whether the human rights issues on which they focus are still relevant.

73 Guiding Principle 17(c).

74 60 per cent of survey respondents in the ‘dedicated HRDD’ group.

75 51.72 per cent of survey respondents in the ‘non-specific HRDD’ group.

76 Business for Social Responsibility (BSR), ‘Applying the Guiding Principles on Business and Human Rights to the ICT industry, version 2.0: Ten Lessons Learned’ (September 2012) 5, 14.

77 BSR and Centre for Democracy and Technology, ‘Legitimate and Meaningful, Stakeholder Engagement in Human Rights Due Diligence: Challenges and Solutions for ICT Companies’ (September 2014) 5 .

78 See also OHCHR Response to OECD, note 31; de Felice Damiano, ‘Banks and Human Rights Due Diligence: A critical analysis of the Thun Group’s discussion paper on the UN Guiding Principles on Business and Human Rights’ (2015) 19 International Journal of Human Rights 8 ; and Amnesty International, ‘Obstacle Course: How the UK’s National Contact Point handles human rights complaints under the OECD Guidelines for Multinational Enterprises’ (2016) 6 and 41.

79 Guiding Principles, note 1, Principle 24.

80 LeBaron Genevieve and Lister Jane, ‘Ethical Audits and the Supply Chains of Global Corporations’, Sheffield Political Economy Research Institute (2016) Global Political Economy Brief No. 1, 1 .

81 Re Caremark International Inc. Derivative Litigation 698 A.2d 959 (Del. 1996).

82 NRF, ‘The board’s role in managing business ethics risks’, Business Ethics and Anti-Corruption World, issue 1 August 2013, http://www.nortonrosefulbright.com/files/business-ethics-and-anti-corruption-world-issue-1-102968.pdf , 6 (accessed 18 August 2016).

83 Eversheds, ‘On the Rights Path: Human Rights at Work’ (May 2016).

84 In the ‘dedicated HRDD’ group, only 15.56 per cent selected the chief executive officer (CEO) and only 13.33 per cent selected the board or non-executive directors as being responsible for the identification of human rights impacts.

85 Guiding Principle 19.

86 Guiding Principle 19(a)(i).

87 47.06 per cent.

88 32.35 per cent.

89 29.41 per cent. In the ‘dedicated HRDD’ group, only 5.88 per cent selected the CEO and only 2.94 per cent selected the board or non-executive directors as being responsible for the implementation of actions aimed at human rights impacts.

90 37.50 per cent each.

91 20.83 per cent.

92 Guiding Principles, note 1, Principle 19(a)(ii).

93 See BIICL and Hogan Lovells, ‘Risk and Return: Foreign Direct Investment and the Rule of Law’ (May 2015), in which 88 per cent percent of senior executives surveyed regarded corporate codes of conduct on human rights and labour as either ‘very effective’ (40 per cent of survey respondents) or ‘somewhat effective’ (48 per cent of survey respondents) in ‘improving the legal environment in host countries.’ http://www.biicl.org/documents/625_d4_fdi_main_report.pdf, 11 (accessed 18 August 2016).

94 Guiding Principles, note 1, Commentary on Principle 19.

95 This question (being shown as a graph about levels of leverage) was optional and was not completed by all survey respondents from the relevant sector.

96 See OHCHR Response, note 31, para 28.

97 Guiding Principles, note 1, Principle 20.

98 Global Reporting Initiative, https://www.globalreporting.org (accessed 18 August 2016).

99 Danish Institute of Human Rights, Compliance Assessment Tool: https://hrca2.humanrightsbusiness.org/ (accessed 18 August 2016).

100 32.26 per cent.

101 22.58 per cent.

102 33.33 per cent.

103 29.17 per cent.

104 Guiding Principles, note 1, Principle 20(a).

105 Danish Institute of Human Rights, ‘Human Rights Indicators for Business platform’, http://business-humanrights.org/en/platform-for-human-rights-indicators-for-business-hrib (accessed 18 August 2016).

106 ‘Corporate Human Rights Benchmark’, http://business-humanrights.org/en/corporate-human-rights-benchmark (accessed 18 August 2016).

107 ‘Access to Medicines Index’, http://www.accesstomedicineindex.org/what-index (accessed 18 August 2016).

108 ‘Higg Index’, http://apparelcoalition.org/the-higg-index/ (accessed 18 August 2016).

109 56 per cent.

110 68.97 per cent compared with 38.10 per cent in the non-specific HRDD group.

111 44.83 per cent compared with 5.00 per cent in the non-specific HRDD group.

112 Mazars and Shift, ‘The UN Guiding Principles Reporting Framework’ (2015), http://www.ungpreporting.org/ (accessed 18 August 2016).

113 Guiding Principles, note 1, Principle 29.

114 Ibid, Principle 31.

115 Ibid, Commentary on Principle 31.

116 In addition to the interviews, we convened a roundtable discussion. See section II: Methodology.

117 Genevieve LeBaron and Jane Lister, note 80, comment that one reason for the ineffectiveness of audits for detecting and addressing environmental and labour concerns is that most audits tend to focus on tier 1 suppliers.

118 Human Rights Council Framework, note 2, para 22: ‘Governments should not assume they are helping business by failing to provide adequate guidance for, or regulation of, the human rights impact of corporate activities. On the contrary, the less governments do, the more they increase reputational and other risks to business’.

119 The correlation between higher rates of due diligence and regulation has been evidenced in South Africa in relation to black economic empowerment: Hamman Ralph et al., ‘Business and Human Rights in South Africa: An Analysis of Antecedents of Human Rights Due Diligence’ (2009) 87 Journal of Business Ethics 453 .

§ This article is an outcome of an applied research project on business and human rights due diligence conducted by the British Institute of International and Comparative Law (BIICL) and the Business Ethics & Anti-Corruption Group of the global law firm Norton Rose Fulbright LLP. The authors are particularly grateful for the valuable support of Business Ethics & Anti-Corruption Group members Milana Chamberlain, Sam Eastwood, Gal Levin and Dan Jarman. The authors also wish to thank BIICL volunteer researchers Freya Dinshaw, Ciara Dowd, Anneloes Hoff, Claire Jervis, Liliane Mouan, Marie Pillon and Norton Rose Fulbright’s Rachel Godfrey.

* Director of the British Institute of International and Comparative Law (BIICL), Professor of International Law and Human Rights at the University of Nottingham, and a barrister at Brick Court Chambers in London.

** Research Fellow in Business and Human Rights at BIICL.

*** Associate at Norton Rose Fulbright LLP, based in London, and is a member of their Business Ethics & Anti-Corruption Group.

**** Partner at Norton Rose Fulbright LLP, based in London, and is a corporate finance and governance member of their Business Ethics & Anti-Corruption Group.

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