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With transparency on human rights lagging climate change in corporate reporting, Mike Scott looks at the rising reputational, legal and brand risks, and some of the companies that are leading the way
When it comes to reporting on non-financial issues, human rights are low on companies’ agendas. And yet, human rights issues are vitally important to business. This is highlighted by examples ranging from the recent $5bn lawsuit filed against BHP Billiton related to the collapse of the Mariana dam at a mine in Brazil in 2015, to the use of forced labour in Uzbek cotton fields and the campaign by investors against gun manufacturers in the wake of school shootings in the US.
Sectors with particular human rights issues include food and beverages, apparel, ICT, extractives, construction, hotels and tourism, pharmaceuticals and automotive.
There are also new risks emerging all the time, such as new issues around data and privacy, which will affect not just tech companies but also retailers, automotive companies and banks that hold customers’ data.
There is no Science Based Target or Paris Agreement for human rights
“It’s almost a question of which sectors don’t have significant issues,” says Caroline Rees, president of Shift, a non-profit organisation that works with companies as well as governments, investors and civil society to embed respect for human rights in business practices.
Since the introduction of the United Nations Guiding Principles on Business and Human Rights (UNGPs) in 2011, which highlight companies’ responsibility to respect human rights, corporate activity on human rights has increased, but it is still very limited, says Dan Neale, programme director of the Corporate Human Rights Benchmark (CHRB).
“There is no Science Based Target or Paris Agreement for human rights, which can pull down lots of issues into one or two numbers, like there is for climate change,” he says.
“There is no way for pension funds to exclude companies that don’t do human rights due diligence.”
Neale adds: “Disclosure and transparency is worse than for other sustainability issues. Partly that is because this is a relatively new area for business. The environment has a 30-year history of action. Social issues don’t have that yet.”
Attention has recently, quite understandably, been focused on environmental-related reporting, especially in the field of carbon emissions, says Hilde Blomme, deputy CEO of Accountancy Europe. “However, concentrating solely on environmental matters can have hugely negative consequences on social matters, especially at a local level [such as the loss of jobs when a polluting factory is shut down]. Businesses must pay more attention at integrating both environmental and social matters into a holistic plan for the future, and part of this will be the development of better metrics for social matters, which have been somewhat neglected to date.”
There are gross inequalities that reflect how companies have externalised costs onto people
Historically, human rights reporting was mostly focused on philanthropic activity, not how business is done, says Rees. The UNGPs “moved us from an era where human rights was seen as closely akin to corporate social responsibility. It was seen as voluntary and not really an expectation of business,” she adds. “Now there is a self-standing standard of conduct for business when it comes to human rights and it is very rare for people to say that businesses don’t have responsibilities.”
Business is there for a purpose beyond just making money, and there is a parallel between human rights and climate change, she points out. “There are gross inequalities that reflect how companies have externalised costs onto people, just as climate change results from the externalisation of costs onto our planet. Treating people with dignity is part of what it takes to have sustainable societies.”
The risks to human rights are converging with tangible risks to business and it is becoming more obvious inside companies why they need to take them into account, Rees says. Human rights risks, like many others, are being amplified by the greater speed of communication social media has created and the increased expectations of consumers, business customers and regulators. This is creating reputational, legal and brand risks.
Neale at the CHRB agrees. “We’re encouraging people to be transparent because human rights issues are likely to be material to the company in the long run,” Neale continues. “Doing it well will help companies to get ahead of the legislative framework and laws such as the UK’s Modern Slavery Act. Facebook saw $100bn wiped off its market value, partly because it didn’t understand the consequences of its operations. Shareholder resolutions are increasing, calling for companies to introduce human rights policies, with investors like Aviva integrating human rights scores into their voting practices.”
Human rights reports are important because they allow companies to create a narrative around issues that are not always easy to explain or quantify. “Having a narrative is a concrete way for stakeholders to understand what we do and follow up any issues,” says Lauren Muusse, who is responsible for human rights reporting at ING. “It also creates a powerful platform for increasing accountability externally and for tracking and driving progress internally.”
Investors are increasingly demanding information on companies’ human rights risks, says Anna Pot, responsible investments manager at APG Asset Management. “These issues clearly have an impact on the bottom line. Investors want to see companies joining the dots. When we know how the company thinks about and addresses these issues, we can make better, more conscious investment decisions.”
Reporting on human rights 'forces a set of conversations inside the company – ‘Do we know about this? What are we doing about it?'
Rees says the process of reporting on human rights has a catalysing effect because “it forces a set of conversations inside the company – ‘Do we know about this? What are we doing about it?’ It forces people to think about what their impacts are and what their peers are doing, so it is really important as a wheel of change.”
While there has been an increase in disclosure, especially by European companies, there is still a lack of transparency and data, says Neale, whose organisation ranks companies annually on their performance on human rights and reporting. “The best-performing company in the 2018 assessment, Adidas, scored 87%, but a quarter of companies in the benchmark scored less than 10%. US companies score, on average, half what European companies do, but their scores are still double those of some Russian and Chinese companies.”
The problem is that companies feel no pressure to report on human rights, and while the Guiding Principles push disclosure, there is often no legal obligation to do so. “Those companies that don’t disclose don’t have to – there’s no legislation that makes them,” Neale says. “Nor have they had enough pressure from investors to do so.”
Rees points out that a lot of human rights reporting lacks substance. “There is still a lot of talk about the language of commitment – ‘we have a policy, we do a human rights assessment and there is a process’. There is very little about outcomes for people or assessment of whether what companies are doing leads to improvements.”
The CHRB seeks to tap into the competitive nature of the market to improve disclosure, Neale says. “Coca-Cola, for example, was not very happy with its score in our first benchmark and decided to become more transparent as a result.”
The CHRB plays a vital role in highlighting how poor disclosure is at the moment, says Pot. “If you look at the data, there has been some improvement, but scores are still alarmingly low.”
We can’t have a reasonable debate around performance until the disclosure playing field has been levelled
The CHRB focuses on the apparel, agriculture, extractives and ICT manufacturing sectors. It assesses the company’s management approach to human rights (commitments, processes and resourcing) and how it deals with specific issues (like forced labour, living wages and allegations of human rights abuses), and provides a framework for companies to understand gaps and how to improve.
The impact of much engagement on human rights is diluted, in part because specific investors and other stakeholders, including consumers, are focused on single issues, from the impacts of artificial intelligence to the #MeToo movement to gun control. Another problem is that there are many issues that people care about but don’t realise they are human rights, or get nervous or confused around human rights.
“The vast majority of companies need to increase their transparency and align their reporting around public expectations so that everyone has the same understanding of what should be disclosed,” Neale says. “We can’t have a reasonable debate around performance until the disclosure playing field has been levelled.”
Shift looks for three things in company reports on human rights, says Rees. “Firstly, they should talk about the challenges because no one company has this nailed, and many issues are not caused by an individual company. Second, they need to give specific examples, tell us what they found and how they are addressing the key issues. And third, they need to be forward-focused – tell us what their targets are and what they will be doing next to make progress.”
She cites companies such as consumer goods group Unilever, oil major Total, apparel retailers H&M and Marks & Spencer, miners Anglo American, Newmont Goldcorp and Rio Tinto, automakers Ford and Daimler, and Dutch bank ABN Amro, as well as Citi, as producing some of the better human rights reporting.
But Pot adds that while things are moving in the right direction, there is still a long way to go. It is clear what companies need to do, she says. “Companies that have not done anything should introduce human rights policies and do due diligence. Write a policy, publish it and implement it. Companies that already have policies should do better.”
JLL’s three-pronged approach to human rights reporting
Real estate and property services company JLL came to human rights reporting through the UK Modern Slavery Act, which requires companies to create a modern slavery statement.
Richard Batten, JLL’s, global chief corporate responsibility officer, says: “The difficulty is in translating your statement into improving what is going on out there. People are far less engaged on human rights than climate change or plastic, and for clients, there is a cost to this that they have to consider.”
His company tackles the issue in three ways. “We do a risk segmentation, looking at risks by sector, business line and geography, so building workers in Qatar in the run-up to the World Cup may be categorised as being at risk, for example,” he points out. Once the risks are identified, the company uses a pre-qualification process, where suppliers commit to abide by JLL’s vendor code of conduct and not engage in human rights abuses.
At a time when business is becoming ever-more global, many countries are becoming more inward looking and standards can be quite variable
Education is the second strand. “We educate our people and our suppliers in a process of continuous improvement,” Batten stresses. He highlights how policy can evolve, citing the example of a security company in Vietnam that JLL dropped because its staff worked double shifts. “That was probably not the right way to do it – it was some time ago. Now we go through a far longer education process. You’re often dealing with cultural issues where, for example, people want to work double shifts.”
The third approach is through partnership with other global corporations. “At a time when business is becoming ever-more global, many countries are becoming more inward looking and standards can be quite variable. Governments are not providing ‘the glue’ on this issue. We look to develop deeper relationships with clients and work on this together. There is an additional cost, but it’s a way forward.”
Mike Scott is a former Financial Times journalist who is now a freelance writer specialising in business and sustainability. He has written for The Guardian, the Daily Telegraph, The Times, Forbes, Fortune and Bloomberg.
This article is part of the in-depth Human Rights briefing. See also:
BHP Billiton Uzbek cotton UNGP CHRB Human rights modern slavery