Author: admin_shift

As the reach of the UN Guiding Principles on Business and Human Rights extends across ever more corporate sectors and regions, we see increasing numbers of companies putting time, thought and resources into understanding what respect for human rights should mean for their business. We see human rights policies being launched, innovative practices to manage human rights risks emerging, and collaborative initiatives to address collective challenges strengthen and grow. This in turn is helping to change the debate about what is possible.

Yet barriers to better practice remain. There are a number of contradictions or inconsistencies in company approaches to the issue of respect for human rights that I come across repeatedly and which are stumbling blocks on the path to progress. They can become a considerable distraction from the honest and pragmatic search for solutions that is needed.

I offer four examples here for reflection.

1. Help me tick a box, but don’t put me in a box

The first, and perhaps the most common inconsistency I hear from company staff – often within the same conversation – is a request for a simple checklist for meeting the responsibility to respect human rights, and the observation that no one size fits all: their industry is distinctive and within the industry their company is distinctive.

The latter is surely true. But how, then, can there be single checklist of action points for delivering respect for human rights?

Clearly different actions are required to ensure respect for human rights if you are the head of operations at a mine, a sales team at a communications technology company, the procurement team for a clothes retailer or an institutional investor. That much is obvious.

But even at the industry level, standardized checklists have their limits. They can be useful as a tool for verification or for tracking performance, but they still require thoughtful adaptation and application within a company’s cultural and operational realities if they are to succeed.

Fifteen years of labor rights audits in factories and farms have brought us sufficient evidence of this point. Conducting audits against standard labor rights protocols has done little to improve respect for labor rights over time. As one company representative commented in a workshop, “you don’t fatten a pig by continually weighing it.”

At Rana Plaza over 1,100 workers were killed in 2013 in the collapsed rubble of the building where they worked. The audit protocols of brands and retailers sourcing from factories in the building had included plenty of checks for fire safety: exits unlocked and unblocked, fire extinguishers present and working, workers trained. But the audits largely ignored the underlying issue of unsafe building structures, even though it was widely known. Only a handful of companies deliberately avoided sourcing from Rana Plaza and other residential buildings that today house factories. They had their own processes to understand evolving risks on the ground and then changed their sourcing decisions to meet that reality.

Respecting human rights is not at root the stuff of checklists, tick-the-box exercises or compliance tools. It is first and foremost a culture and a way of thinking that needs to be part of each company’s DNA. Checklists can then play a supporting role, tailored to meet the need. They are not the starting point.

Human rights due diligence is not that complicated. But it requires awareness, reflection, engagement, and adaptation. Because one size cannot fit all.

2. Levers of change

The second inconsistency arises less often within a company, but often in industry-level discussions. It arises from the error of connecting responsibility with influence.

On the one hand, large companies will argue that they should not be seen to have more responsibility for human rights just because their size may give them particular leverage with a government or another company. That’s quite right as a point of general principle. It could lead ultimately to the view that the largest companies should become a major actor in defining state policies and practices in small or weak states – hardly a democratic, rule of law ideal.

Yet companies cannot then assert – as they too often do – that just because they have little or no influence to reduce certain human rights abuses linked to their products or services, they therefore have no responsibility.

Just as having great influence should not dictate great responsibility; so little or no influence cannot mean there is little or no responsibility. A company cannot ignore the abuse of workers who make its products just because it doesn’t source much product from the factories where they work; an investor can’t ignore grave human rights abuses by companies it invests in on the grounds that the investment stake is small.

The Guiding Principles are clear on this point: responsibility is a function of impact, not influence. If a company’s operations, products or services are linked to harm to human rights, it has a responsibility to seek to prevent them.

What the company can reasonably do in meeting its responsibility is, however, tied to its influence – or its leverage in the language of the Guiding Principles. But that in turn requires attention to how the company can increase its leverage. Companies that grasp this fundamental point have demonstrated that far more options exist for creating and using leverage than at first meet the eye.

3. Limits to learning?

The third inconsistency I see frequently is a healthy desire to identify and learn from so-called “best practices” of other companies (I prefer the more relative term of “leading practices”), yet a quick assumption that there is little or nothing to be learned from their failings and crises.

Doubtless theories of optimism bias can in part explain this: we just assume certain bad things are less likely to happen to us than to others. Or perhaps companies ascribe the reasons for a crisis to unusual factors – a particular operating context or singular decision – rather than looking for deeper root causes that might more closely mirror their own experience.

As a result of this bias, the lessons to be learned often go ignored. There is a growing library of cases in which companies have hit trouble from paying too little attention to the origins of the land they acquire, ignoring arbitrary dispossessions and displacement of communities in the past to make way for mining, agriculture or construction. Yet despite this evidence, other companies readily assume that that was “there not here;” “then, not now;” “them, not us.” So the cases continue to stack up and the evidence of costs incurred by the companies concerned – let alone the communities harmed – does too.

Research into land tenure risk has found that companies that ignored pre-existing or customary local land rights in their acquisition process experienced financial damage that ranged from a 29 fold increase in operating costs to the outright abandonment of operations. Separate research co-authored by Shift’s Rachel Davis shows similarly striking results in terms of the costs to companies of company-community conflict in the extractive sector.

Clearly companies can learn plenty from the leading practices of others, and such lessons should be gleaned where they can. Yet there may be even greater value – figuratively and literally – in learning from repeated bad practices. However, this requires that companies start from the assumption that they are not immune to such failings themselves.

4. The blame game

This brings me to the fourth and last contradiction. Companies are quick – and justified – to point to government failings to meet their own duty to protect human rights. Where governments fall short, they make it far harder for companies to respect human rights: labor rights standards are not enforced, indigenous peoples’ rights are not recognized, land title of poor farmers is somewhere between ambiguous and non-existent, migrant workers are left open to exploitation.

States have obligations under international human rights law to respect, protect and fulfill the human rights of people under their jurisdiction. It is no mistake that state duties are the focus of the first pillar of the Guiding Principles.

But here’s the problem. Companies are not always just passive victims of government failures to protect human rights. Too often, they are contributors to, or conscious beneficiaries of, those government failures.

After all, why have many apparel companies shifted a large portion of their supply chains from China to Bangladesh or Cambodia? Primarily because labor is cheaper. And where labor is so very, very cheap, there have to be underlying reasons – usually because the government is not ensuring a living wage and a host of other labor rights.

It is not simply an economic choice to move supply chains based primarily on labor costs. It is a choice with human consequences that must be recognized and assessed on those terms.

In other industries, such as extractives or construction, companies may bemoan the government’s inability to meet communities’ basic needs for water, electricity, schooling and healthcare – all clearly the primary duty of the state. This creates growing pressure on companies to become proxies for the state and provide for ever more of those goods through social investment.

Yet too few companies examine their often energetic practices of negotiating with those same governments to minimize tax payments, royalties and such revenues that are the essential means for governments to provide basic services to their citizens.

In another example, a company surely foregoes the right to complain that governments don’t do their job of protecting human rights through their laws and enforcement mechanisms, if the company actively lobbies to undermine such protections for human rights, or stands behind business associations that do so on their behalf.

So what should a company do?

These, then, are some of the common contradictions I hear from companies about practicing respect for human right. So what’s a company to do that wants to move past these stumbling blocks and take effective action?

1. First, focus energies on building a corporate culture – a way of thinking and working – that integrates respect for human rights. Rather than just imposing demands on colleagues across the business or thrusting checklists into their hands, look first to build their understanding of why respecting rights is relevant, important and feasible for them. Compliance tools can then come later, or at least find their rightful place as a tool that supports good practice, not as the definition of good practice.
2. Second, recognize responsibility even when the negative impact on people is far removed from your control. If your products or services are linked to abusive behavior, you have a responsibility. Whether the abuse was of someone working in your warehouse or of someone who put buttons on the shirts that were then stitched, packaged and shipped to your warehouse affects at most the nature of your responsibility, not the fact of it. Once you face up to the need to do something to stop this situation from persisting, the creative possibilities for how to do so open up. Sometimes there is truly too little leverage to bring meaningful change; often there is just the illusion of little leverage, and change is in fact very possible.
3. Learn by examining peer companies’ failings – and their root causes – and find connections to your own business that might suggest similar risks. There is usually at least a nugget of learning that can be captured. Doing so will make your company wiser and stronger in its efforts to respect human rights. And it’s a lot cheaper than waiting for your own crisis to come along.
4. Work to ensure that the company’s business choices don’t take advantage of governments’ failures to protect people’s rights. States have their own duty to respect human rights, and there is no question that where they fail to meet that duty, it is harder for companies to respect human rights. But there can be no excuse for supporting or helping to perpetuate those failings. So connect internal assessments of human rights risks to core business choices: lobbying priorities, contract negotiation objectives, decisions on the terms for entering new markets. Respect for human rights starts at the core of how you do business, not as an afterthought.

Update: The draft guidance referred to in this Viewpoint was issued in final form by the IBA in June 2016.

Lawyers can play a critical role in helping their clients respect human rights – including their corporate clients.

Many lawyers from leading international law firms and in-house legal departments are already supporting their corporate clients’ efforts to implement the UN Guiding Principles on Business and Human Rights. Unfortunately, some lawyers remain unconvinced for a variety of reasons, including a lack of understanding about what the Guiding Principles mean and how they can apply to legal services. 

Now, three years after the endorsement of the Guiding Principles by the UN Human Rights Council, the global voice of the legal profession, the International Bar Association, has issued draft guidance for legal professionals on the meaning and implementation of the Guiding Principles. The guidance:

• Outlines the content of the Guiding Principles; 
• Describes its implications for bar associations worldwide; 
• Explores the ways in which the Guiding Principles may be relevant to the advice and other services lawyers provide to their business clients;
• Recognizes the relevance of the Guiding Principles for law firms as business enterprises with their own responsibilities to respect human rights. 

The guidance was developed by the IBA’s Business and Human Rights Working Group, of which I’m proud to be the chair. 

So why should business lawyers read the guidance issued by the IBA? Six Reasons

1. Risk management: A company’s failure to manage its human rights risks can have serious risks for the company itself, including legal risks. These risks include:
   • Failure by the company’s board to meet its oversight and monitoring responsibilities for human rights risks;
   • Failure by a company to honor its human rights commitments in a policy, code of conduct or in its contractual obligations;
   • Difficulties to respond appropriately to changing judicial interpretations of the appropriate standard of care for managing human rights risks;
   • Need to respond to potential enactment of more stringent legislation following severe human rights violations in a sector or country.
2. Sustainability: Leading companies increasingly see the management of human rights risks as important to their sustainability objectives. They expect their most valued lawyers – both inside and outside counsel – to advise them on human rights as part of their broader management of legal risks.
3. Changing law: The law is dynamic, not static. Laws requiring companies to respect human rights are increasing global, as seen most recently in legislation requiring reporting on human rights risks in the UK, EU and US, and criminal and civil lawsuits filed against companies worldwide. Non-governmental organizations also increasingly use the Guiding Principles for their advocacy in and out of the courtroom. This trend toward increasing use of the Guiding Principles in legal settings is expected to continue. 
4. Compliance and national law: Lawyers can play a critical role in helping companies comply with national law that protects human rights. Lawyers can also provide key advice to help clients understand and address potential tensions between national law and human rights.
5. Prevention of human rights harm: There are many areas of legal practice where business lawyers have the ability to help a company to prevent or mitigate human rights problems, e.g., by shaping how a company selects, contracts with, monitors the performance of and terminates or renews its relationship with third parties who may have the potential to involve the company in human rights problems. 
6. Legal ethics: The Guiding Principles do not trump professional legal codes of conduct. The Guiding Principles were created with the expectation that lawyers should act in the best interests of their clients, and recognize that their role in upholding the rule of law is fundamental to the business’ responsibility to respect human rights. They do not disturb the confidential nature of attorney client communications. In fact, a number of legal codes explicitly mention human rights as a component of ethical lawyering. Furthermore, providing candid advice on the human rights risks of a legal transaction provides important context that can make the lawyer’s advice more valuable to the client. This is a key reason why the American Bar Association endorsed the Guiding Principles in 2012.

This new IBA guidance provides a systematic and balanced guide for business lawyers and bar associations worldwide on the implications of the Guiding Principles for their work. The guidance has been released in draft form in order to encourage comments and feedback through mid-2015. It will also be piloted by a number of national bar associations.

The guidance is a significant step forward in the discussion about the implications of the Guiding Principles for business lawyers. In order to serve the best interests of their clients, lawyers should pay close attention.

This Viewpoint was originally published in CSRWire.

In 2004, I was representing the UK Government in the United Nations Human Rights Commission (predecessor to today’s Human Rights Council) when the subject of business and human rights hit its agenda. The proposition was a set of draft human rights “Norms,” supposedly binding on business.

Companies were furious: this looked like an attempt to foist onto them states’ international human rights obligations, which too many governments continued to fail to meet. Civil society was equally exercised: too long had companies sought to argue that human rights had nothing to do with them, when all the evidence spoke to the contrary.

For many, a treaty seemed the only way forward.

Avoiding a Treaty

That argument helped focus some government minds. The Commission asked Kofi Annan, then UN Secretary-General, to appoint a representative to chart a way forward. Professor John Ruggie was the appointed man. Over six years he ran a careful process of research, consultation and pilot work that led to the UN Guiding Principles on Business and Human Rights. This document set out the baseline expectations of both governments and business for ensuring that companies do not harm people’s fundamental human rights. It generated sufficient consensus among the previously warring factions for governments to endorse them in 2011 without changing a word.

Wind forward 10 years and one has a sense of déjà vu.

Human Rights: A Treaty

Last month, the Human Rights Council adopted a resolution (albeit with only 20 positive votes of a possible 47) that will see the establishment of an intergovernmental process to develop a broad-ranging treaty on business and human rights.

So has nothing changed? Are we back where we started? 

Quite the contrary. The current conversation bears little relation to that of 2004. The reality far less. 

No business associations or companies in the Geneva debate would today claim that human rights are not relevant for business. To suggest such has become ridiculous. Instead, the number and range of companies introducing human rights policies and due diligence processes, conducting and commissioning impact assessments, scrutinizing their business partners and product lines for human rights concerns is burgeoning.

But these are just symptoms of a new reality. 

Today, the UN is not the main attraction when it comes to generating change in business practices with regard to human rights. Nor should it be. The UN was needed to break past stale assumptions and catalyze a step change in thinking. It was smart to do so through an unusual process – outsourced in order to both include but also reach beyond the realm of international human rights law – resulting in the Guiding Principles.

Implementing the UN Business and Human Rights Principles

Today, besides ever more hundreds of companies starting to implement the Guiding Principles, and now numerous governments developing action plans with the same aim, we have law societies discussing how corporate lawyers should be advising their clients on these issues, public and private finance institutions integrating human rights into their financing decisions, investors calling on companies in their portfolio to implement the Guiding Principles – and even divesting on human rights grounds, ever more jurisdictions – now joined by the European Union – requiring companies to report on their human rights performance, regional organizations adding their endorsement of the Guiding Principles, and trade unions and NGOs using the Guiding Principles in their advocacy work, to good effect. 

We are even starting to see some regulatory initiatives by governments and parliaments to mandate corporate human rights due diligence as defined by the Guiding Principles.

To underline that much more remains to be done is absolutely right. But to suggest little or nothing has been done is quite wrong: arguably no human rights document of the United Nations has had more broad-ranging and serious uptake in so short a time for decades. 

Protecting Human Rights

Perhaps most importantly, companies today aren’t implementing the Guiding Principles because the UN said they should. They are implementing them because their home and host governments, financers, investors, workers and consumers are all saying they should; because their employees’ morale, their public reputation and even their bottom line increasingly depend on them doing so. 

So neither companies nor governments should fear that this development in Geneva is a diversion from, or dilution of, what has been achieved in the last 10 years.

John Ruggie and others have laid out the reasons why efforts to develop an all-encompassing business and human rights treaty (instead of targeting specific governance gaps) will struggle to deliver meaningful change. But ultimately, if the proposed treaty process is poorly defined and driven by political machinations not human rights principles, it will simply demonstrate its irrelevance.

And if – as I still hope – Geneva manages to salvage a good process, crafting a targeted agreement that can add real value, this will inevitably drive corporate practices in the same direction as called for by the Guiding Principles.

It will be years before we know which scenario wins out. Either way, putting the Guiding Principles into practice remains the only practical way forward and the imperatives for doing so grow unabated. 

A good treaty may add to them. A bad treaty will not reduce them.

Also see: Shift’s reporting program | our resource library section on policy and regulations, including reporting requirements

On June 9, the UK’s Financial Reporting Council (FRC) published guidance on the standards for corporate reporting that were introduced last year in the revised UK Companies Act. That law requires that all quoted companies report publicly on environmental matters, the company’s employees, and social, community and human rights issues, where this information is, “necessary for an understanding of the development, performance or position of the company’s business.”

Particularly significant here is the explicit inclusion of a requirement for human rights reporting. Indeed, the UK is not alone in taking this step towards greater transparency on companies’ human rights performance. Since 2011, when the United Nations Human Rights Council endorsed the Guiding Principles on Business and Human Rights, we have seen a clear trend among regulators, stock exchanges and investors calling for more disclosure in this important area of corporate performance. Be it Danish, French, US or other regulatory reporting requirements; pressure from stock exchanges in India, Thailand and elsewhere; or shareholder resolutions calling for greater transparency of companies’ human rights risk management, the message is clear: companies that are not yet addressing respect for human rights as part of their core operations have a dangerous blind spot – one that places at risk not only the welfare of the societies in which they operate, but also their own sustainability and success.

The new FRC guidance is a product of this reality. The UK Companies Act on which it is based requires quoted companies to reflect on whether providing human rights information to its shareholders is necessary for an understanding of their business. Many companies have simply never asked themselves this question. The many costs that can accrue to companies (let alone to societies) from a failure to manage human rights risks associated with their operations often go unidentified, buried within budget lines for permitting, litigation, human resources, sourcing, communications and similar activities. When they are accounted for correctly, the results can be shocking.

Recent research co-authored by Shift finds that the costs of company-conflict with local communities in the extractive sector (very often over human rights related issues), once correctly identified and added up, are far greater than has generally been understood. For example, delayed production for a major mining project (with capital expenditure of between US$3-5 billion) typically costs around US$20 million per week. While the most frequent costs are those from temporary shutdowns or delay; the greatest costs are the opportunity costs in terms of lost value linked to future projects, expansion plans or sales that did not go ahead. The most often overlooked costs are the costs of staff time being diverted to managing conflict. The “typology” of costs that this research generated has potential relevance to many other sectors as well.

Indeed, the FRC explicitly recognizes that “[t]here can be a strong relationship between the development, performance, position or future prospects” of a company and human rights, “particularly over the longer term.” And while the relationship does not always manifest in tangible costs, the intangible costs should not be underestimated. 

Recent research by Reputation Dividend highlights that corporate reputations are now one of the main drivers of market cap growth across the FTSE350. It shows that 38 percent of the value of the FTSE 350 is reputation-based, with the combined value of their reputations standing at £911bn at the start of 2014, and UK listed companies such as Unilever, Diageo and Royal Dutch Shell having over 54 percent of their market caps contributed by reputation.

The regularity with which stories about companies’ involvement with human rights abuses now fill our newspapers can leave little doubt that their own reputations are increasingly at risk when it comes to their human rights performance. Company responses to the Rana Plaza factory collapse in Bangladesh, to Oxfam’s “Behind the Brands” campaign, or to the movement to address conflict minerals show clearly that they know their reputations are on the line and action is needed. Moreover, research conducted by the Swiss Federal Institute of Technology Zurich and the University of Hamburg finds that companies criticized in the news for a lack of corporate responsibility (including on human rights) have higher credit risk as well.

Perhaps it is this growing and compelling evidence that risks to human rights are also risks to companies themselves – at least in the medium to long term – that led the UK Companies Act to state that if a company decides not to disclose human rights information, it should explicitly say so. Moreover, this logic extends beyond the quoted companies covered by the Act. The FRC’s Accounting Council specifically notes that it would not be best practice for an unquoted company to prepare a strategic report which omitted, for example, information on a material human rights issue, simply because there was no explicit legal or regulatory requirement.

These clarifications are all to be welcomed. So is the FRC’s explicit reference to the Guiding Principles as a source of guidance for directors. This helpfully enumerates the types of policy and process that the Guiding Principles call for.

It is less fortunate that the FRC guidance adopts a materiality threshold for reporting. Such a threshold is absent from the UK Companies Act itself. The new EU directive equally places no materiality limitation on the human rights information to be reported; rather, it calls for the reporting of information necessary, “for an understanding of the undertaking’s development, performance and position and of the impact of its activity.”

The FRC, however, recommends that companies include human rights-related information, “if its omission from or misrepresentation in the strategic report might reasonably be expected to influence the economic decisions shareholders make on the basis of the annual report as a whole.” It notes that materiality is based on the nature or magnitude (or both) of the actual or potential effect of the matter in question.

On the face of it, this introduction of a materiality threshold with a relatively narrow definition might lead companies to rest in their established comfort zone when it comes to reporting on human rights performance. They would be ill-advised to do so.

Given the evidence described above of significant and growing costs to companies themselves from a failure to manage human rights risks, Boards will need to consider very carefully whether human rights information is indeed relevant for shareholders, whether by its nature or its magnitude.

At a minimum, it must be relevant to shareholders to know whether a company has conducted an assessment of its human rights risks. Absent such an assessment, there is a relatively high chance that any large company with overseas supply chains or operations has unidentified – and therefore unmanaged – risks that could expose its reputation, its bottom line or both. Indeed, one top audit firm we recently spoke to remarked that 100 percent of the materiality assessments it had conducted with companies over the past year found human rights was a material issue for the business, often to the company’s great surprise. So if a company cannot at a minimum state that it has conducted an assessment of its human rights risks across its operations, shareholders should be worried.

Moreover, if a company’s due diligence identifies that it is or may be involved with a severe impact on human rights, then this information – by its “magnitude” – must also be relevant for shareholders. In these cases, companies should be reporting on how those impacts are managed.

The Guiding Principles have established the global standard for conducting human rights due diligence to identify and address such risks, as witnessed by their inclusion in both a range of other international standards and a growing number of legislative requirements in Europe and the US. Indeed they are included in the FRC’s guidance itself, which guides companies to consider reporting on: (a) the company’s human rights policy, and how it is embedded, (b) the company’s human rights due diligence processes, and (c) the company’s participation in remediation processes – the three key elements of meeting the corporate responsibility to respect human rights in practice.

However, if companies are really to start reporting meaningful information on their human rights performance, more specific guidance will be needed. It is with this in mind that Shift together with the global audit and advisory firm Mazars, is facilitating the Reporting and Assurance Frameworks Initiative (RAFI). RAFI aims to develop a twin set of guidance frameworks: one on what good reporting on human rights in line with the Guiding Principles would look like; on the other on what good assurance of such reports would involve. The initiative is proceeding through a series of wide and deep consultations with all stakeholder groups. We hope to complete the initial draft of the reporting framework by December 2014, with the assurance framework to follow soon after. Already one multinational will start piloting parts of the reporting framework in 2014. Further pilots in 2015 will help refine both frameworks, and consultations will consider the best long-term institutional homes for their continued oversight and evolution.

The FRC’s guidance is a step forwards. It is part of a rising tide of demands for improved corporate reporting on human rights performance. Smart companies will ride the wave forwards, not battle the current.