The Framework provides guidance to sports bodies within the Olympic Movement on how to draft and implement eligibility criteria for men’s and women’s categories in competitive sport. Historically, the creation of gender categories has played an essential role in helping to break down the structural barriers that excluded and unfairly discriminated against women and prevented their equal participation in sport. At the same time, the design and implementation of eligibility criteria for these categories has led in some instances to significant human rights harms to individual women, in particular transgender women and women with sex variations.
The Framework seeks to safeguard the rights of all athletes, in particular, the rights of transgender athletes and women athletes with sex variations who have historically faced hostile sporting environments, including discrimination and abuse, and in some cases have experienced irreversible impacts on their health, privacy, safety and livelihoods.
Shift welcomes the progress made by the IOC through this Framework in:
Recognizing that eligibility criteria for sex-segregated sports may lead to harm to some athletes and calling on sports bodies to conduct due diligence to identify and prevent negative impacts on all athletes’ health and well-being.
Acknowledging and respecting the concept of gender autonomy in line with evolving international human rights standards, which recognizes that individuals should be able to define their own gender identity.
Seeking to prevent discriminatory assumptions (for example, based on an individual’s physical appearance) in the development and implementation of eligibility criteria, which have disproportionately affected transgender women and women of color from the Global South.
Confirming the rejection of invasive physical examinations and other scientifically unfounded “sex-testing” methods as ways to determine eligibility, which have in the past led to grave forms of abuse.
Aiming to prevent eligibility criteria from infringing on the right to bodily autonomy, including ensuring that such criteria do not directly or indirectly pressure athletes to undergo medically unnecessary treatment or procedures of any kind.
Strengthening the role of informed consent as a prerequisite for the collection and use of personally identifiable information, in order to protect the privacy and safety of all athletes.
Ensuring that eligibility criteria set by sports governing bodies are informed by the perspectives and lived experiences of affected stakeholders, as the development of the Framework was.
The success of this new Framework in ensuring respect for the rights of transgender and intersex athletes will depend heavily on how it is implemented by sports governing bodies. The IOC will need to play an active and ongoing role in this regard. Moreover, adoption of a forward-looking Framework does not, on its own, address harms that have occurred in the past, which sports bodies will also need to consider.
While this Framework marks an important change in the Olympic Movement’s approach to the issue of eligibility, it continues to be founded on a binary notion of gender; further work will be needed on the inclusion of athletes who are non-binary or have gender non-conforming identities.
Finally, the adoption of eligibility criteria that take greater account of human rights standards is only one element in meeting the broader responsibility of sports bodies to prevent and address all forms of abuse and harassment towards athletes and others participating in sport, particularly towards those who may be most vulnerable or marginalized.
“The rules set by sports bodies, and particularly by the IOC as the global steward of the Olympic Movement, can have an immense impact on the lives of athletes and also on the perceptions of everyone who follows competitive sport. When a sports body adopts rules that are grounded in inclusion and the prevention of harm, it is not only recognizing its human rights responsibilities; it is also sending a powerful social message about respecting the dignity of all athletes.”
Rachel Davis Shift Vice President and Co-Founder
“This is an unprecedented step in the world of sports. The IOC’s new Framework helps break the myth that fairness and inclusion are mutually exclusive; that eligibility has to be a zero-sum game between including trans athletes and protecting the female category. Rather, it is sending a strong message to the world of sports that eligibility rules cannot rely on placing unfair burdens on transgender and intersex athletes, which often lead to grave impacts on their health, careers and livelihoods.”
Daniel Berezowsky Shift Advisor who led Shift’s support to the IOC’s consultation and design process
For media inquiries regarding this statement, please contact communications [at] shiftproject [dot] org.
Boston, MA | These remarks were delivered by Caroline Rees at the memorial service held in honor of John Ruggie on November 20, 2021 at Memorial Church, Harvard University.
The Ruggie Principles, with a small ‘p’
The Ruggie Principles. That’s the name by which so many people around the world refer to the UN Guiding Principles on Business and Human Rights — one of the towering achievements of John’s career. After decades of bitter disagreement among governments about the responsibilities of companies toward society, John built, block by block, a critical consensus on the foundations of a simple proposition: that all companies have a responsibility to respect the human rights and dignity of people whose lives their business affects.
Yet the simplicity that the Guiding Principles represent is deceptive. John used to hearken back to the saying attributed to Oliver Wendell Holmes Senior that, ‘I give not a fig for the simplicity this side of complexity, but I’d give my arm for the simplicity that lies the other side.’ The simplicity of the propositions in the Guiding Principles was wrought by understanding, grappling with and mastering complex realities that cut across rule-making, markets, and societies.
John took a conversation that had long been about how companies may choose to spend their profits and made it squarely and firmly one about how they make their profits. An idea that seems almost ludicrously obvious today has become so in good part due to the fundamental changes in mindset and assumptions that the Guiding Principles first crystallized, and then normalized.
Yet those Ruggie Principles with a capital ‘P’ would not exist as they do, nor have had the impact they already have, were it not for some Ruggie principles with a small ‘p’. Those principles are not written down, nor were they ever spoken or discussed. But they were there in John’s everyday work and life as so many of us saw. They were as important to his achievement of the Guiding Principles as were his extraordinary intellect and academic credentials. Let me briefly share three of them with you.
Ruggie principle #1: Always assume there are as many great insights to be gained from the people who stand in the shadows of power and policy-making as there are from those who stand in their spotlight.
What John heard and learned from community leaders in the Peruvian Andes struggling with the effects of mining on their livelihoods and culture; what he heard from workers in Asia, and from union representatives in the US and Europe struggling with some of the harsh realities in factories and plantations — what he heard from all these people impressed him deeply.
He valued the distinct perspectives they brought, and which were so often missed or ignored or reframed by others to serve their own ends. They stayed with him and fundamentally shaped his thinking.
They can be found woven throughout the lines and the vision of the Guiding Principles.
Ruggie principle #2: Cherish the simple wonders of this life that reflect our common humanity.
Those of us on John’s UN mandate team used to look forward each summer to the photos that would arrive once he finally got to his summer break on Cape Cod with his beloved Mary. Photos of stunning sunsets, but which punctured the visual cliché and transmitted his personal delight by including his toes in the forefront of each shot.
John’s delight in his family was as evident as his delight in the natural world around him. Whenever he spoke of Mary or Andreas — and latterly of Leda, his new daughter-in-law — he would literally glow from head to toe.
He knew that these simple joys in our world and in our loved ones are what connect us as people, no matter how many other barriers and differences we strive to create.
Ruggie principle #3: Never take yourself too seriously.
John was a master of the emoji and the clown was his favorite. Pure John.
He never talked about the work of developing the Guiding Principles in the first person singular — always the first person plural. It was always about what ‘we’ — his team — achieved. He felt no need to claim it for himself alone.
And as the reach and impact of the Guiding Principles expanded, that ‘we’ expanded to include all the people around the world using them to make a difference. He reveled in their successes and championed their work wherever and however he could.
And while John was often received in his travels — his meetings with Presidents, Ministers, business leaders — with quite some pomp and ceremony, he was — albeit respectful and appreciative — also always slightly amused, even bemused, to find himself the center of such attention. After all, he was just John.
The Ruggie Principles with a capital ‘P’ will go on in the world and continue to shape the future of how business gets done and how that, in turn, shapes our societies. There is a veritable army of us on all continents who stand ready to make sure that they do so; an army John never had to stand up or call to arms. We just saw the Ruggie principles with a small ‘p’ in action, and we knew: this guy — what he stood for, and what he stood up for — was for real.
In spite of an upsurge in leading practice on business and human rights, compliance audits remain a common approach in supply chain human rights due diligence. However, more and more companies are recognizing the limitations of a pure compliance approach in engaging workers, uncovering meaningful issues and enabling sustained improvements. Instead, leading companies are moving towards using Worker-Centric Assessments (WCAs) as one in a range of more effective tools in their due diligence process.
What are Worker-Centric Assessments?
WCAs go beyond the completion of a compliance checklist, in order to devote more time to interviewing workers. They focus on their journeys and experiences as human beings, rather than as “labor” in a production process. Through stories and qualitative data, they bring workers “closer” to company decision-makers.
How do Worker-Centric Assessments help achieve outcomes for workers?
WCAs can better position companies to bring about positive outcomes for workers because they make it harder for the business to ignore negative impacts on people and easier for them to identify how to prioritize action and what types of practices, behaviors and indeed remedies are most important to those who may be affected.
Businesses that use WCAs can focus on a person’s individual journey, in order to understand the nuances and differences that exist across the unique experience of each worker. For example, the salary of two workers may be the same – let’s say, 600 USD per month. However, if one received accurate information during the recruitment process and accepted the salary, while the other was offered 1,000 USD and received forty percent less, their experience and sentiments may be vastly different.
WCAs can also help companies see the cumulative effects of different impacts on workers and how these build over time. These insights can help create greater empathy among decision-makers, and make it harder to rationalize impacts on people as a compliance statistic.
By offering a window into worker experience, WCAs make it easier for companies to understand where to prioritize their efforts. From my experience engaging with migrant workers in construction, workers often complain about the poor quality of accommodation and food, but rarely about their daily 12+ hour shifts. When you scratch beneath the surface, however, workers do not prioritize the issue of excessive working hours because they have nowhere to rest comfortably, so they may prefer to keep working and earn overtime pay. Experience shows that once the quality of accommodation improved, the issue of long working hours and days off becomes a higher priority.
WCAs can also help companies approach remedy holistically. Take a factory context, for example, where a company may have identified that workers are concerned about feeling mistreated. A decision-maker may be compelled to identify managers who yell at their direct reports and discipline them. But, that may serve little to no purpose if workers who complained were actually worried about other forms of ill-treatment. In a specific experience that I recall in a food manufacturing plant, the worry that was top of mind for many workers was that they were allocated lower quality personal protective equipment, or that they were required to wear a hairnet of a different color while on the production floor. A glance at the workers’ experience brings up contextual issues which discipline alone will not address.
Gaining buy-in for Worker-Centric Assessments
Human rights practitioners sometimes face internal resistance to incorporating WCAs into supply chain management processes. This resistance is often rooted in fears and misconceptions.
Fear of the unknown
Too often, managers fear that workers will make “impossible” demands in response to qualitative assessment questions. Managers frequently claim that workers don’t know what they want or that if something is not against the law then it is a matter of opinion. However, experience shows that workers’ feedback and requests are firmly rooted in their everyday realities. For example, not having to wear safety shoes drenched with sweat from the previous shift, or having better quality food at their accommodation. Neither seems impossible.
High burden of proof
Some impacts – particularly those related to treatment – don’t leave an auditable trail of documentary evidence. But documents are not the only credible source of information. Experience shows that the signs of abuse are often “written” on workers themselves: in what they say, their body language, their health or the stories they share. WCAs are an entry point to discover human rights impacts not included in the audit checklist, and a way to see the working conditions from the perspective of those who experience it every day.
For example, a bizarre question often asked in compliance audits is whether migrant workers have receipts for recruitment fees. Instead of focusing on the existence of receipts as documentary evidence, a worker-centric approach may consider recruitment fees to be endemic to migration for low-skill jobs, particularly in certain corridors. The WCA would turn the question on its head and ask: what evidence can the employer provide that the migrant workers didn’t pay recruitment fees?
Confusing “level of detail” with “level of credibility”
Capturing the breadth and depth of workers’ lived experiences is not without its challenges. It is important for WCAs to be conducted by assessors who have a similar background to the workers, speak the same language and have a high degree of empathy.
I have sometimes seen requests that findings be “downgraded to observation” because the report was not written in perfect English or does not answer every follow-up question a reader may have. When this happens, it is important to focus the attention on the information available, rather than what may be missing. WCAs are the beginning of what should be a longer-term engagement with workers and suppliers – one tool in due diligence activities. It is important to constantly bring the focus back to risk to people, which is core to the UN Guiding Principles. Does the request to “downgrade” a finding stem from the fact that it carries lower risk to people? Or is it because it entails lower risk to the business?
Towards more robust human rights due diligence
As investors, regulators and business partners move to scrutinize the quality of processes within companies’ human rights due diligence – rather than just the existence of certain compliance steps – WCAs can be an important tool to consider. They offer an avenue to strengthen stakeholder engagement, a critical feature of human rights due diligence. As workers are brought closer to company decision-makers it is more difficult to overlook negative impacts, and easier to understand where and how actions can be taken to deliver better outcomes for people.
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As the move towards mandatory due diligence measures gathers pace in Europe there are many important points being debated about how best to turn the expectations in the UN Guiding Principles on Business and Human Rights (UNGPs) into a binding corporate duty. An important point of contention concerns the relationship between requiring companies to carry out human rights due diligence (HRDD) processes and the outcome of those efforts in human rights terms.
HRDD is often characterized as an ‘obligation of means’ – meaning that it is the quality of the process that matters. This is often contrasted with an ‘obligation of result’ – meaning that it is whether or not you achieve a particular outcome that matters. Treating this as a strict binary, some stakeholders assert that results are therefore never relevant to an assessment of the quality of a company’s due diligence. Meanwhile, others argue that results should be definitive in such assessments. At Shift, we are committed to helping advance a constructive discussion about mandatory HRDD. We think both positions miss some critical nuance in how due diligence-based standards of conduct typically function in practice, and in how the concept of due diligence is used in the UNGPs. This matters if we want to ensure that new legislation is going to be as effective as possible.
The responsibility to respect human rights is a standard of conduct – a level of behavior that we expect companies to meet, reasonably adapted to the specific human rights risks connected to their operations and value chain relationships. The intent of this standard is to prevent and address harms to people; due diligence is the means through which the UNGPs expect companies to achieve that objective (as stated in the commentary to Guiding Principle 15
( Business enterprises need to know and show that they respect human rights. They cannot do so unless they have certain policies and processes in place. Principles 16 to 24 elaborate further on these. )
The UNGPs adopt a common sense understanding of the term due diligence and connect it to the objective of preventing and addressing harm. As the definition in OHCHR’s Interpretive Guide states:
In other words, HRDD is not just a set of processes disconnected from outcomes: HRDD aims to avoid specific harms and should be appropriately adapted to that task. It may not always succeed in doing so (as discussed further below), but that is its objective. It follows that the outcomes of due diligence will always be a relevant factor in assessing the reasonableness or adequacy of due diligence in any particular case.
This means that any legal definition of a new corporate duty should logically start with what the standard of expected behavior is intended to achieve – respect for human rights – and make clear that due diligence is the means through which that expectation should be met. It should also make clear that the ‘outcomes’ (or results) of human rights due diligence that are relevant are the outcomes for people. Developing a policy commitment is not a ‘result’ in and of itself, nor are carrying out audits or conducting training for staff. The fact that they may be more easily measurable should not lead to confusion about what they actually demonstrate. They are activities that can indicate that a company is seeking to meet the standard of conduct, but they are not, without more, evidence of outcomes for people.
In our work at Shift to support the development of effective due diligence requirements, we have found it helpful to highlight two ways in which the outcomes of HRDD are relevant to assessing the reasonableness of a company’s efforts. The first is about outcomes in a specific case; the second is about outcomes over time.
First, there are many legal standards that involve assessing the ‘reasonableness’ of a person’s conduct relative to a particular risk by considering both the objective of the standard and how a person seeks to meet it in practice. For example, consider how we would assess whether a person met the standard of ‘driving safely’ in a specific case. We would of course consider how a person drove the car, but our assessment of whether they were indeed driving ‘safely’ would not only depend on whether they checked their mirrors, stopped at red lights and wore their seatbelt, but also whether they had any accidents or broke the speed limit. In other words, we would consider both how they drove and the outcomes of their driving. If they had an accident, and we were trying to determine whether they caused or contributed to it, we would look at the overall quality of how they were driving, as well as any third party or contextual factors, to determine whether they failed to live up to the standard of expected conduct in those specific circumstances.
The second way in which outcomes are relevant concerns the nature of due diligence as an evolving standard of conduct. Legal standards that rely on an assessment of what is ‘reasonable’ behavior are designed to evolve over time; what is considered safe driving today will look different as our understanding of what is more or less effective in preventing road accidents also evolves. This is why tracking the effectiveness of a company’s human rights efforts is a vital step in due diligence: it helps ensure that due diligence is not reduced to endless cycles of the same processes that produce no meaningful change in outcomes for people over time. This is also why Guiding Principle 20
( In order to verify whether adverse human rights impacts are being addressed, business enterprises should track the effectiveness of their response. Tracking should: (a) Be based on appropriate qualitative and quantitative indicators; (b) Draw on feedback from both internal and external sources, including affected stakeholders. )
emphasizes the role of feedback from affected stakeholders, because a company’s understanding of the effectiveness of its due diligence efforts needs to be informed by the perspectives of those who are or may be impacted.
Clearly then, the outcomes of due diligence do matter in assessing its reasonableness or quality. However, there will be situations where due diligence is judged to be appropriate – it may even have been considerable and extensive – but impacts still occur. For example, a company may have a strong non-discrimination policy in place, supported by extensive training and awareness raising about the risks of gender, racial and other forms of bias; it may have and use accountability and disciplinary measures to incentivize compliance with and address breaches of the policy; it may have effective grievance mechanisms that are trusted by complainants; it may have leaders that are themselves diverse and demonstrate respect for others in practice; and yet it can still be that someone in the company sexually harasses another person or makes a hiring decision informed by racial prejudice. So due diligence must manifestly aim at achieving the outcome of no harms; however, the occurrence of a harm is not in itself sufficient evidence that the due diligence was inadequate.
But this becomes more challenging if harms recur or persist. While a due diligence standard allows that it can take time to achieve improved outcomes, particularly in complex cases involving multiple actors and systemic impacts, at some point it is not possible to maintain that a company’s due diligence processes are appropriate to the nature of a specific impact if the same harms continue to happen without any change in the company’s approach. In such cases, the severity of the harm will be a critical factor in determining what is a resonable timeframe for seeing progress.
In conclusion, focusing on a binary between a legal obligation of ‘means’ versus one of ‘results’ risks oversimplifying the relationship between process and outcomes in assessing the quality of a company’s HRDD. Instead, it may be more helpful to explore the various ways in which the outcomes of due diligence will be relevant to assessing its reasonableness in practice and how this can be appropriately reflected in legislation. This is a critical conversation to have if we want to design effective laws that will set the right incentives for business while ensuring that new corporate duties actually lead to improved outcomes for people in practice.
Today in 2021, there should be little need for a discussion on whether human rights and the environment are intrinsically connected. The question is rather, how can businesses best address risks to people and planet in a holistic way and how can the policy environment enable this transition?
Companies operating today can no longer treat their climate, other environmental and human rights risks in silos: there are too many interconnections between these areas for this approach to work. Rather, what we need is for companies to be empowered, equipped and incentivized to adopt a comprehensive sustainability approach to risks to people and to the planet. The upcoming EU legislation under the Sustainable Corporate Governance Initiative offers a golden opportunity to design a due diligence structure to do just that. And importantly, there are already examples of harmonized due diligence that can serve as a foundation on which new legislation can build.
Here we offer some key reflections that we believe can help inform a harmonized due diligence obligation.
We have applicable international frameworks already
The UN Guiding Principles on Business and Human Rights (‘UNGPs’) provide a clear and authoritative reference point for what is expected of companies when it comes to human rights due diligence. The OECD Guidelines for Multinational Enterprises (‘OECD Guidelines’) echo the UNGPs’ expectations on human rights and extend the due diligence framework set out in the UNGPs to environmental impacts and risks (as well as other relevant risks). An overarching 'sustainability due diligence'
(This term draws on a research-based concept of sustainable value creation within planetary boundaries, as described further in the SMART project’s reform proposals for EU company law and corporate governance.)
framework should clearly build on these soft law due diligence standards and methodologies, and create further connections and synergies between them.
Companies navigate the relationship between international expectations and national requirements in both areas
In the area of human rights, companies are expected (under the UNGPs and OECD Guidelines) to look at internationally recognized human rights standards set out in core UN and ILO instruments which inform their due diligence approach and define the baseline against which they assess their impacts on people.
National laws also regulate human rights: they may compel company actions in a range of areas, such as discrimination, labor arrangements and health and safety. However, if these standards fall below, or conflict, with international standards, companies are still expected to meet, or seek to meet, international standards. Notably, the UNGPs expand these expectations to the company’s business relationships, whereas applicable law typically focuses on the company’s own operations.
We find a similar picture when looking at the environmental side. Companies are expected under the OECD Guidelines to take due account of the need to protect the environment – referencing in turn principles and objectives contained in international agreements. Similarly, companies can rely on national environmental laws, but this is often insufficient on its own to meet international environmental expectations of business – and, again, may not extend beyond the company’s operations.
Of particular note, a recent court case in the Netherlands held an energy company (Royal Dutch Shell) to international climate standards (the 2015 Paris Agreement) rather than to national standards. The court also relied on international expectations contained in the UNGPs, rather than applicable national law, to conclude that the company had a responsibility for scope 3 emissions, beyond its own operations.
In both areas then, companies are increasingly accustomed to navigating international and national standards. On the environmental side however, and in contrast to the human rights side, there is no comprehensive body of international standards on the protection of the environment. This can be addressed by EU regulators defining the adverse environmental impacts that companies should be assessing as part of their due diligence and specifying the key principles of environmental law that companies should have regard to in carrying out their due diligence (such as the precautionary principle).
Growing convergence around the scope of responsibility
Companies are expected to take a full value chain approach to human rights due diligence under the UNGPs and the OECD Guidelines. (This full value chain approach is coupled with a specified method for prioritising impacts within the value chain, as further described below). The scope of due diligence extends to impacts that may be directly linked to their operations, products or services through their business relationships. For environmental due diligence, a similar full value chain approach is expected under the OECD Guidelines. Companies should incorporate both direct and indirect environmental impacts connected to their operations into their due diligence. There is also a growing consensus that individual methodologies used for specific environmental areas (such as water, greenhouse gas emissions and biodiversity) should cover impacts beyond a company’s direct operations and tier one suppliers. Taking a full value chain approach to sustainability due diligence is becoming the expectation.
Not only looking at risks to business – but also risks to people and planet
The risks companies will identify through their due diligence will look different – depending on whether they are viewed from the perspective of people, the planet, or the business.
In the human rights space, companies are expected to look at risks to people from the perspective of those who are or may be affected, using international human rights standards. Similarly, in the environmental space, companies are expected to look at risks to the environment from the planet’s perspective – meaning that they need to consider environmental impacts whether or not they also pose risks to the business. This is where new legislation can provide greater clarity for companies, in defining what would constitute an adverse environmental impact.
Beyond this, by bringing these areas together under one ‘sustainability due diligence’ umbrella, we have the opportunity of more clearly understanding the inter-connections between these impacts. For example: impacts on the environment and the climate that, over a longer timeframe, will manifest as impacts on human rights; or impacts on human rights that can be mitigated but in a way that harms the environment in the immediate term. This being said, we also need to ensure that bringing these areas together under one umbrella does not result in the dilution of environmental risks which do not have immediate human rights impacts.
Potential to take a longer term view of risk
One point to consider when looking at environmental and human rights risks together is that companies commonly use different timeframes and geographic locations for assessing them.
Looking at risks to people and planet today will yield a different result than looking at impacts that could occur in a year, in ten years or in a generation’s time. The timeframe for assessment of human rights impacts tends to be more immediate, with a focus on human rights impacts that could occur in the short- or medium-term. Due diligence can also include longer-term impacts (e.g. from the future decommissioning of a project or transitions to automation), however, capturing long-term human rights impacts can be a challenge because of limitations in predicting future activities and behaviours. When it comes to environmental impacts, the time horizon for assessing impacts tends to be longer and commonly relies on scientific projection data.
Furthermore, human rights due diligence will typically capture impacts on people close to the company’s site, or those impacted by its suppliers’ operations. Some environmental impacts also have localized impacts on a specific habitat or water source, while others have both cumulative impacts and ripple effects on the environment elsewhere, and/or are global in nature. Where environmental impacts are local, this could more visibly result in local human rights impacts (e.g. impacts on a community’s access to water or sanitation). In contrast, where the environmental impacts manifest elsewhere or are global, this could connect to human rights impacts elsewhere (e.g. communities’ livelihoods impacted by greenhouse gas emissions) – but it is more challenging to identify the specific groups of people affected.
In practice, we are seeing that companies are finding it easier to bring environmental and human rights considerations together under one broader umbrella when both sets of impacts are more localized in nature. New legislation can reflect the differing timelines and locations of where risks may manifest, and help ensure that due diligence enables capturing change over time, both to the risk and to the expected mitigation/action.
Whose views determine which risks to prioritize?
The human rights risks that companies are expected to prioritize for attention are those that pose the greatest potential harm to people. Since human rights risks should be understood from the perspective of those who are or may be affected, the most effective way to conduct due diligence is to conduct stakeholder engagement – with those who could be impacted or their legitimate representatives, or with credible proxies where direct engagement is not possible, as well as with human rights experts. In the environmental space, we are seeing a growing number of companies including elements of human rights-based stakeholder engagement as part of their environmental work – and this is also expected for environmental impacts that result in impacts on people (as evidenced for instance by the European Parliament’s 2020 proposal for an EU legal framework to halt and reverse deforestation).
The opportunity here is to support companies in conducting stakeholder engagement that can inform both their environmental and human rights due diligence, while recognizing where the objectives of, and audiences for, engagement may differ. Further, engaging on both human rights and environmental risks together can help companies see the interlinkages, develop more nuanced prioritization criteria and methodologies, and inform and explain their prioritization decisions.
What actions is a company expected to take?
The actions that a company is expected to take in response to a human rights impact differs depending on how the company is, or could be, involved with an impact. There are different expectations for action depending on whether a company has caused the impact, contributed to the impact, or whether the impact is directly linked to the company’s operations, products or services by a business relationship. Actions range from ceasing the impact, preventing the impact, building and using leverage (alone or with others) to prevent and/or mitigate the impact (or seeking to do so), and remedying the impact.
Cause and contribution as modes of involvement are also well-known in environmental due diligence. In particular, we often see companies talk about cumulative environmental impacts: how their actions alongside those of other parties can combine to create environmental impacts. This is akin to contribution in parallel, an accepted mode of involvement in the human rights space. The actions expected for instances of cause or contribution are similar to the human rights space: cease, prevent, and/or mitigate the impacts and remedy the contribution.
Although not necessarily framed as such, a number of environmental methodologies expect companies to build and exercise leverage. But there may be some areas of distinction to consider when it comes to remedy. A company’s responsibility to remedy a human rights impact seeks to restore the person to the situation they would have been in, had that impact not occurred, or as close to it as possible. Companies may also be expected to remediate their environmental impacts – with the appropriate remedy being defined by regulation or the applicable international framework. At the same time, when it comes to environmental harm, there may be broader repercussions where environmental degradation has had ripple effects and led to other forms of environmental harm. Where environmental harm results in impacts on people, the remedy expectations of companies are clear. When they have not (or have not yet), the remedy expectations are less clear.
A new corporate duty could reinforce the importance of companies using leverage to tackle risks, and articulate what can be reasonably expected of companies in terms of action depending on their mode of involvement with an impact, including what remedy can look like (and to whom it can be delivered) in the environmental space.
Conclusion: Embedding due diligence in governance
As the connections between the ‘E’ and the ‘HR’ of ‘HREDD’ grow, so too will the need for cross-functional structures and discussions that enable companies to take a holistic approach to due diligence. This extends to when companies are setting overarching targets, as well as how they set up their internal accountability and responsibility structures. Synergies should start to happen between functions, budget lines, programming and expertise on these areas within companies. And this in turn will start to inform business models that are viewed as sustainable for the long term – as well as those that are not. New EU regulation can play a pivotal role here in supporting companies to take a holistic approach to sustainability risks, which builds on and amplifies existing methodologies and standards, in a way that is embedded in appropriate governance structures.
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.
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.
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.
Professor John Ruggie writes to German Ministers to welcome move towards a national law on corporate human rights and environmental due diligence in supply chains, while also raising questions about elements in the draft law and the need to ensure alignment with the UN Guiding Principles.
These remarks were originally delivered on January 28, 2021 by Professor John Ruggie at the Corporate Due Diligence and Civil Liability Webinar, hosted by Nova Centre.
“Thank you, State Secretary, and thanks to all the sponsors and participants of this seminar series. I have been in this field for a while and I am so pleased by the fact that we are having discussions at levels of detail and possibilities that would have been hard to imagine just 10 years ago, when the Guiding Principles were adopted. I know we have a lot further to go, but every once in a while, I like to remind myself that we have already come a fair way that we can build on…”
In February 2021, Shift submitted responses to the European Commission’s Consultation Proposal for an Initiative on Sustainable Corporate Governance. The feedback provided through this questionnaire will be taken into consideration as the European Commission drafts its policy position.
Shift’s key points include:
EU legislation establishing a new corporate duty to conduct human rights and environmental due diligence (HREDD) has the potential to help level the playing field, ensure that Boards are aware of their responsibility to oversee the management of a company’s salient human rights and environmental risks, and drive a common understanding of what “quality” due diligence looks like. Importantly, it could also help ensure greater access to remedy through the inclusion of appropriate civil liability provisions.
Directors should be accountable for overseeing how a company prevents and addresses its negative impacts on people and planet. Even without the reform of directors’ duties, the introduction of a corporate duty to conduct HREDD would make a significant contribution to this objective by requiring directors to oversee appropriate due diligence systems.
February 2021 |
“Signals of Seriousness” for Human Rights Due Diligence
The due diligence process expectations set out in the UNGPs and in the OECD Guidelines should form the core requirements on business in any new regulation. But to ensure meaningful implementation, those enforcing this new duty will need to pay attention to key features of HRDD that are indicative of the seriousness of a company’s efforts. National regulators will need guidance on how to assess whether there is an authentic intent and effort within a company to both find and reduce risks to workers, communities and other affected stakeholders. We propose what some of these “Signals of Seriousness” could be for HRDD in a draft resource attached to our submission, informed by initial testing with business, government, and civil society stakeholders.
Any new duty needs to have improved outcomes for people as its ultimate goal. As such, it is important that HREDD is not conceived of as a “tick-box” exercise, but as one that necessarily involves the creative use of leverage beyond contractual terms or commercial leverage alone – including public advocacy where appropriate and partnership with industry peers and stakeholders to drive change – as well as meaningful engagement with affected stakeholders.
Any new legislation should have a wide scope, including both SMEs (with appropriate flexibility in implementation) and foreign companies operating in/into the single market.
To ensure a level playing field in practice, there need to be meaningful consequences for companies that clearly fail to meet a new duty, involving judicial and administrative measures. This should include:
creating or endowing national-level regulatory bodies with the capacity and expertise to carry out regular reviews of corporate disclosure and performance and hold companies accountable;
EU regulatory oversight through a new, fit for purpose entity with its own enforcement powers that brings together national regulatory bodies and expert stakeholders; and
civil liability for certain harms with a defense where companies can demonstrate that they undertook due diligence that was appropriate and proportionate to the relevant impacts. The mere fact of conducting some form of due diligence should not be considered as a complete defense to liability, or as a safe harbor against claims being brought.
A new corporate duty needs to be accompanied by a range of other EU policy measures to set the right incentives and help bridge the “accountability gap” between the likely scope of liability on the one hand and the full scope of HREDD in line with international standards on the other.
Shift joined Frank Bold in responding to the the consultation process on potential needs for changes to the governance and funding of the European Financial Reporting Advisory Group (EFRAG).
The submission comments on issues of due process, governance structures, representation of private sector and civil society; representation of Small and Medium Enterprises (SMEs); on cooperation with other standard setters and initiatives; on governance structure and funding.
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