Month: June 2021

Covid inequalities highlight the pressing need for social reporting

Posted on by admin_shift

This post was also published by CDSB.

The pandemic has accentuated the important interconnections between our social and environmental systems, and the deep inequalities that exist across society.

As researchers have emphasised, the likelihood of diseases like Covid-19 increases with environmental degradation and climate change, factors which are driven in large part by an unsustainable and extractive model of growth.

There are an estimated 500 million smallholder farming households globally, these people comprise a large proportion of the world’s poor living on less than $2 a day. These farmers produce 30% of the world’s food supply and are forced to adopt unsustainable farming practices to make ends meet. As health impacts and climate change continue, those communities least resilient and least able to adapt are also the most socially and economically vulnerable.

Inequalities have been highlighted and exacerbated by the pandemic. In the UK and the USA, the data is clear that the impact of the virus has been far from indiscriminate, following lines of race, class and social deprivation. The huge social movement for Black Lives Matter and calls of racial equality on either side of the Atlantic can be seen as an indirect result of this stark inequality. The pandemic also highlighted the undervalued and precariously employed workers in healthcare, education, transportation and logistics, while the global vaccine rollout has exacerbated the already significant divide between the developed and developing world.

However, the pandemic has also created a greater openness to change. This reality is being recognised by a growing number of corporate leaders. There is a burgeoning understanding not only of the contribution of businesses to these glaring social problems, but also, of the benefits that such transformation might bring to companies, their investors and wider stakeholders.

Progress, though, is hard for companies to demonstrate – and even harder for investors, regulators and others to measure and reward. We need clarity on what constitutes quality information on companies’ social performance, which is comparable and consistent.

Progress, though, is hard for companies to demonstrate – and even harder for investors, regulators and others to measure and reward. We need clarity on what constitutes quality information on companies’ social performance, which is comparable and consistent.

Development is clear when it comes to the mainstream reporting of environmental information. The international support and uptake of the Task Force for Climate-related Financial Disclosures (TCFD) Recommendations is evidence of this, as is the climate-first approach of the IFRS’s recently announced International Sustainability Standards Board. The same, however, cannot be said for corporate reporting on social issues, nor the connections between the ‘E’ and ‘S’ of ESG, which are largely absent from present mainstream reporting practices. This makes it hard to reach effective and impactful decisions on capital allocations towards social sustainability.

As a starting point, it is important to recognise that the categories of ‘social’ issues usually considered in ESG reporting are largely about human rights impacts: that is, impacts on people that reach the level of affecting their basic dignity and equality. For instance, diversity and inclusion addresses discrimination, while health and safety and privacy are themselves human rights. Too often the centrality of human rights issues to companies’ ‘social’ risks and opportunities is neglected to the detriment of reporting quality, being lumped together with philanthropic projects and staff volunteering, which distract from focus on how the business is run.

Indeed, the problems we encounter are not a lack of reporting on ‘social’ issues, but the limited usefulness of the most common corporate disclosures. Reporting is still frequently focused on case studies designed to cast companies in a positive light or boilerplate statements about human rights policies and processes. The social metrics reported by companies are often detached from the risks and issues identified elsewhere in their reporting. They focus largely on inputs, activities and near-term outputs, while offering little insight into how well the issues are managed and what results are achieved – for the people affected and for the business. Such disclosure appears more as a tick-box exercise than an important means of monitoring key business concerns and communicating with investors.

Investors need coherent and meaningful insight into a company’s identification, management and monitoring of social risks, as set out in the kind of human rights due diligence process that has appeared in international standards for nearly ten years, and which looks set to appear in major new EU regulations within the next two or three years. They need to know whether a company has the business model, strategy, leadership mindset and risk management processes necessary for it to get ahead of the kinds of risks to people that could end up being tied to their business – risking reputation, resilience and revenues – if they don’t pay attention.

The responsibility for the quality of the information available in

mainstream social reporting does not lie solely with companies. It is also that of regulators who have yet to set clear expectations for companies to meet, and of mainstream investors, who have themselves lacked clarity on what they need from corporate reporting on these issues. And, importantly, responsibility lies with standard setters and framework providers as well: the present ecosystem of guidance has to date not provided companies with sufficient support to deliver effective mainstream reporting.

Yet there is hope in what we are starting to see through developments in reporting regulations such as in the EU with the evolution of corporate sustainability reporting and the US with the SEC’s rules on human capital reporting and larger market actors driving in the same directions, as seen in BlackRock’s most recent letter to CEOs, which highlighted some priorities for social reporting, alongside expectations for climate disclosures.

In its upcoming position paper, CDSB will set out a roadmap for the inclusion of social issues into its mainstream financial reporting framework and technical work. Building on CDSB’s TCFD-aligned reporting framework and will respond to issues noted above. The inclusion of social issues will offer companies a framework for reporting comprehensively on financially material sustainability risks and opportunities.

As the the leading center of expertise on the UN Guiding Principles on Business and Human Rights, Shift’s primary focus is on the materiality of a company’s impacts on people. However CDSB and Shift recognise the critical value to be offered by a robust framework for assessing and reporting on financially material social issues. Indeed, CDSB and Shift believe this will help companies in understanding the increasingly dynamic relationship between these two concepts of materiality, as well as the crucial links between environmental and social risks and how companies respond to them. Building these connections will provide decision makers with important information on social, environmental and climate issues, necessary for the transformation to a just and sustainable future.

Statement on the 10th Anniversary of the UN Guiding Principles

Posted on by Daniel Berezowsky

New York, NY

The 10th Anniversary of the UN Guiding Principles on Business and Human Rights – the global standard on the business responsibility to respect human rights unanimously endorsed by the United Nations Human Rights Council on 16 June 2011 – is a milestone for everyone working to achieve a world in which business gets done with respect for people’s dignity.

At Shift, we are reflecting on a decade of engagement with the UN Guiding Principles by governments, companies and civil society; the progress made translating the spirit and purpose of the UN Guiding Principles into practice; and the important work ahead of us. Below, we highlight some of our thinking  and priorities, and link to commentary by our expert team working to challenge assumptions, push boundaries and redefine practice by business enterprises, standard-setters and financial institutions.

  • The UN Guiding Principles have changed the debate. Before 2011, the very idea that companies had human rights responsibilities was widely contested by companies and many governments, the concepts of human rights and due diligence had no relationship, and companies’ risk management systems were focused solely on risks to their own success.
  • The UN Guiding Principles continue to be “quietly radical.” The power of the UN Guiding Principles is often underestimated: promoting and supporting human rights are both integral elements of the responsibility to respect, the use of leverage to mitigate risks linked to the business is a creative and innovative enterprise, and the most reliable pathway to transformative positive impact on people’s lives lies precisely through tackling the greatest risks faced by people affected by business activities.
  • To achieve business respect for human rights at scale, we need to embed the UN Guiding Principles in the rules that shape markets. Emerging regulation of corporate human rights due diligence and reporting should be designed to create incentives for genuine progress and provide for effective enforcement; to drive accountability into boardrooms, executive leadership and corporate cultures; and to support a deeper understanding of how different businesses can play their role in an effective remedy ecosystem for human rights harms.

Shift is committed to continuing its mission-driven work alongside allies and partners in the decade to come and help build a world where business gets done with respect to people’s rights.

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Shift is the leading center of expertise on the UN GUIDING PRINCIPLES ON BUSINESS AND HUMAN RIGHTS. Our global team of experts works across all continents and sectors to challenge assumptions, push boundaries and redefine corporate practice in order to build a world where business gets done with respect for people’s dignity. Shift is a non-profit, mission-driven organization headquartered in New York City.

The Quiet Radicalism of the Responsibility to Respect

Posted on by Daniel Berezowsky

Since their unanimous endorsement by the UN Human Rights Council ten years ago, the UN Guiding Principles have been simultaneously lauded for their impact, underestimated by critics and limited by misunderstanding. What is often missed in such analyses is the inherent radicalism of the UNGPs. This revolution in our expectations of the role of business in an increasingly unequal globalized economy has been reflected in norms of behavior, law and practice. It is worth returning to that quiet radicalism as we take stock of successes and look to the potential to drive further change over the next decade of post-pandemic recovery and beyond.

PROGRESS

Too infrequently do we cast our minds back to the world of corporate accountability prior to the UNGPs, when the absence of an agreed standard of conduct meant endless (and often futile) dialogue to secure acknowledgement that a business had any responsibility in relation to a human rights impact. Without a cross-cutting expectation of business behavior, every issue and incident was subject to relitigation of what standards were relevant and arguments over what action was “reasonable.” The mere existence of a single, accepted standard of conduct allows a shared understanding of responsibility and a starting point for accountability.

The mere existence of a single, accepted standard of conduct allows a shared understanding of responsibility and a starting point for accountability.

Transforming a business to focus on risks to people’s human rights and not just risks to the business, remains arguably the single most radical idea within the Guiding Principles; yet it is still the hardest thing for businesses to embrace to its full extent. Standard practices such as prioritizing action within the company’s own operations, focusing supply chain risk management on branded products, and cutting relationships with business partners shown to have bad practices, all flowed from the notion that the ultimate responsibility of a company was to protect the business. Introducing the lens of risks to people into decision-making highlighted a need to rewire swathes of processes, scrutinize core business models and strategy, build empathetic leadership and more open and reflective corporate cultures.

Critical to operationalize that focus on risks to people is a willingness to listen to those people with the least power to influence, and the most to lose from, the impacts of business activity. While the term “engaging affected stakeholders” may sound anodyne, the intent is no less than to drive empathy for the disenfranchised to the heart of the company. The humanization of those in precarious situations – viewing them not as economic units, but as individuals the equal of executives – ought not to have been such a profound departure for business decision-makers. That said, we already see a growing number of companies deploying approaches from Global Framework Agreements, to worker voice tools, to joint fact-finding missions and dialogue tables, as ways to harness the perspectives of people who are distanced from company boardrooms. This focus on the interests of affected stakeholders, rather than those who have most influence, offers the key for the emergent concept of stakeholder capitalism to be more than a shift in rhetoric.

The UNGPs expect companies to look for risks to people across their entire value chain while recognizing differentiated responsibilities for where they cause or contribute to an impact, or where the impact is directly linked to their operations, products or services. This combination of a wide scope with nuanced implications for action, provides the incentive structure for businesses to dig into issues deeply embedded in their supply chains where the harms may be most severe. A company’s “control” over human rights risks and outcomes no longer drives the logic for action. In situations beyond its sole control, companies are challenged to build and use their leverage to change the behavior of others. This pushes companies beyond compliance thinking, necessitating creativity and innovative partnerships, and attention to the root cause of the problem. Today’s reality of companies collaborating on issues such as gender-based violence, child labor and living wages that are intertwined with social norms, power structures and hierarchies shows the folly of seeing the UNGPs as a “do no harm” framework.

Today’s reality of companies collaborating on issues such as gender-based violence, child labor and living wages that are intertwined with social norms, power structures and hierarchies shows the folly of seeing the UNGPs as a “do no harm” framework.

At the same time, the UNGPs have required companies to address their own contribution to these impacts, rather than seeing them as the “fault” of others. This brings penetrating questions of business model, product/service design and purchasing practices into any evaluation of a company’s involvement with impacts far down the value chain. While many businesses still struggle to address their own contribution, some of the most interesting initiatives at play are those that attempt to focus on contribution at an industry level while harnessing the collective leverage of those involved to influence external actors at the same time.

untapped potential

When the radicalism of the UNGPs has not been fully understood, sub-par implementation has followed. There is huge untapped potential to drive change for those that need it most if businesses can grasp the full implications of their responsibility.

Too often we hear that businesses “have done their due diligence” when in reality they have simply assessed risks, sometimes ineffectively, and frequently without engaging those at risk of negative impact. This approach is typically seen in a traditional social audit model that monitors performance and expects conditions to improve. At the heart of this ineffectual risk assessment is a focus on business risk – with some companies wanting to retain the comfort blanket of pointing to activity, rather than effective action, in the event of reputational damage. From time to time, this type of approach may lead to the removal of certain suppliers (and indeed there may be calls from various quarters to do so).  But human rights due diligence is not just about assessment and nor is it about de-risking value chains. We need to see more businesses decide not just to cut suppliers, but to genuinely engage with the greater complexity of addressing the problem.

An associated challenge in implementation of the UNGPs has been the reduction of “leverage” to contractual or commercial clout. But effective leverage requires a root cause analysis of a human rights impact to work out who needs influencing and involves a great deal of creativity in coming up with different approaches to that end. In fact, the best form of leverage in some instances may well be to advocate towards governments to make sure that they have the right laws and policy framework in place to protect people. The reason that some companies have started to use their leverage in this way is in recognition that many human rights issues are systemic and can’t be dealt with by individual companies trying to root out the problem in their specific supply chains.

Recognizing an impact as systemic and structural does not diminish a company’s responsibility to prevent and address their role in these impacts. #MeToo, the Black Lives Matter movement and ongoing campaigns for LGBTQI people have underlined the structural discrimination that millions continue to face globally. But the business and human rights community has been slow to join the dots between these events and the corporate responsibility to respect human rights. The UNGPs should in fact lead companies to assess their connections to underlying structural discrimination, to articulate these and the company’s alignment with broader goals to tackle the root causes of racism, sexism and trans- and homophobia, amongst other forms of discrimination.

Once we recognize the company’s responsibility to address connections to contextual risks and structural issues of this kind – and that advocacy, voice and influence can be a legitimate and necessary route to exercise leverage – it stands to reason that businesses should consider taking this sort of action, pre-emptively. To take the example of human rights defenders, if companies do not conduct an early analysis of the political situation where they operate, source or sell and seek to stymie any encroachment on broader civic freedoms – they are only ever likely to be on the back foot when a human rights defender connected to the business is attacked or threatened. This logic applies more broadly to high-risk contexts where state actors may be the source of human rights risks. Companies must seek to not only assess the risk of market entry, but to build future leverage pathways in the event that the worst-case scenario transpires.

But what this can’t mean is an expectation on companies to take pre-emptive action on all social issues, everywhere, all the time. There must be a connection to the business, its products or services. Not to apply such rigor would dissolve the consensus behind the expected standard of conduct and obstruct attempts to hold companies accountable for their actions against that framework.

That the full potential of the UNGPs has not yet been unleashed, certainly makes the case for emerging regulations to scale quality human rights due diligence and demand serious implementation of the UNGPs rather than partial actions that do them lip-service. That must include more proactive and deliberate actions on remedy from companies – another area where the potential of the UNGPs has not been reflected in practice. Effective implementation of the UNGPs has to be underpinned by the embedding of human rights into boardroom discussions, leadership action and organizational culture. These areas will be priorities for Shift as we continue to work with all stakeholders to help realize a world in which business gets done with respect for people’s rights.

But the Guiding Principles will not cease to be relevant when remedy is provided as a matter of course, when investors are using precise human rights data to rewire capital markets, or when mandatory measures allow for companies to be held legally liable for serious harms to people’s human rights. By their very nature as “guiding principles” they have the flexibility to be relevant to new realities. As respect for human rights is based on an assessment of “reasonableness,” the actions that are expected to meet the standard will always evolve: as leading practice develops and crystallizes, these practices become a baseline expectation of all.

The UNGPs will continue to adapt to future challenges, stretch ambition, and ultimately provide a framework for us to understand the role of business in our complex, post-pandemic world. This is the quiet radicalism of the UNGPs.

As such, the UNGPs will continue to adapt to future challenges, stretch ambition, and ultimately provide a framework for us to understand the role of business in our complex, post-pandemic world. This is the quiet radicalism of the UNGPs.