In Memory of John G. Ruggie

New York, NY

IN MEMORY OF JOHN G. RUGGIE (1944-2021)

John Ruggie passed away on 16 September with his beloved wife and son at his side. A light has gone out in the world. More than a light. John was a beaming beacon for so many of us who had the privilege to know him, to work with him, to learn from him, to laugh with him, to love him. He achieved academic heights that his colleagues at Harvard and around the world will attest to in the days and weeks to come. Yet his ideas and insights never rested on paper, for his gift was to turn them into the tools of tangible change and his passion was to make the world a more equal and just place. He did both.

Nowhere is John’s gift for crafting words that create change more evident than in the UN Guiding Principles on Business and Human Rights, which he authored in his six years as the UN Secretary-General’s Special Representative. We had the good luck and constant delight of working with John through that time as part of a wider team which he fondly dubbed ‘Team Ruggie’ and which became an enduring extended family. As we then set up Shift to be part of the movement needed to translate the Guiding Principles into practice, John was at our side – not just formally as our Chair, but as our champion, support and guide, and above all as our friend. 

John’s legacy cannot be captured in a few words. He leaves behind not just the seeds of the change he wanted to see in the business world, but the blossoming on all continents of new policies and practices, laws and regulations, fans and followers. John’s spirit will live on in all we do at Shift, alongside so many others in the business and human rights movement, to further nurture and fuel the change he set in train. Indeed, our name comes from a phrase John would gleefully pronounce, a sparkle in his eye, whenever he saw a new sign of the impact of the Guiding Principles  – ’Shift happens!’  So it does – when grounded not just in the intellectual depth and drive but in the humanity, humility, integrity and compassion that were so central to how John moved through the world.  We miss him deeply.

Our thoughts are with Mary and Andreas Ruggie and their wider family at this time. A memorial service will be held in Cambridge, Massachusetts with details to be announced in the coming days.  

Caroline and Rachel

And the Shift Team

Keynote address by John Ruggie at the Event “The “S” in ESG: Best Practices and the Way Forward?”

These remarks were originally delivered by Professor John Ruggie at the Event “The S in ESG: Best Practices and the Way Forward?“, on July 1, 2021. The event was co-organized by Shift, FrankBold and the Thomson Reuters Foundation.


ESG investing morphed out of the Socially Responsible Investment movement. The concept of ESG was first introduced in a UN Global Compact Report, ‘Who Cares Wins: Connecting Financial Markets to a Changing World’. It served as the background document for the 2006 launch by then Secretary-General Kofi Annan of the Principles for Responsible Investing (PRI), now an independent entity whose 3,000 signatories have more than $100 trillion in assets under management. 

Initially, ESG investing was a niche product, rising ever-so slightly year-on-year. But it turned up like a hockey stick in the wake of the 2008 financial crisis. It hasn’t stopped its rise since, now accounting for more than one-third of all assets under management globally. This suggests that growing numbers of investors are concerned that mainstream finance is incapable or unwilling to do future-oriented heavy lifting. 

Today, every major international standard setting body is rushing in to develop robust standards for the E in ESG, including the IFRS and IOCSCO. Standards are also being developed under the EU Green Deal. 

The first instinct was to concentrate exclusively on the E in ESG, and then come back to work on the S. But pressure against this incremental approach has also put standards for the S, in some form, on the table. This is highly desirable, but it also raises concerns. 

Developing metrics for the E is complex enough. But rough approximations of comparable company data can be produced by combining big data, including from remote sensing technologies, with artificial intelligence. But if the pressure to produce high quality data for the S simply mimics that path, the results will be far more problematic. Why is that, and what can we do about it? 

The S is about risks to people. Some of these are readily quantifiable: what is the health and safety record in your operations? Others are harder: was the indigenous community in whose lands you’re opening a copper mine consulted? Was it adequately compensated? And harder still, how should we measure Facebook’s role in the genocidal attacks on the Rohingya people in Myanmar? Facebook had no staff on the ground to understand local ethnic conflicts, yet it opened its platform widely to all comers spreading hate speech and inciting violence. 

In short, measuring the S in many instances is far more difficult and not amenable to tick-box exercises that businesses yearn for. What is to be done? That’s a long story. I can address just two points here. 

The first concerns the concept of materiality. I agree with U.S. Securities and Exchange Commissioner Allison Herren Lee, who considers the belief that ESG disclosure rules must pass a materiality test to be a myth. As she puts it, it is “legally incorrect and historically unsupported.” Indeed, a recent academic study reported in the Wall Street Journal found that “CEOs who riled shareholders on social issues were more likely to receive compensation penalties and be fired than when shareholders were unhappy about wealth-oriented actions.” 

In short, materiality doesn’t get you far enough. Companies must identify and address serious risks to people that their activities and relationships may pose. Those may become material risks in the narrow sense, but by then great harm to people may already have been done. 

Materiality doesn’t get you far enough. Companies must identify and address serious risks to people that their activities and relationships may pose. Those may become material risks in the narrow sense, but by then great harm to people may already have been done. 

My second point concerns how investors and operating companies can be expected to identify such risks. Financial risks, of course, are assessed through a due diligence process. So why not for the S in ESG? Companies can employ the human rights due diligence process prescribed in the UN Guiding Principles on Business and Human Rights. It has served as the global soft law standard for the past decade and is now being incorporated into European Union hard law – applicable to any business above a certain size operating in the EU’s internal market, irrespective of nationality. 

Human rights due diligence is not transactional, but an ongoing process. It includes assessing actual and potential adverse impacts on people, integrating and acting on the findings, tracking the effectiveness of responses, and communicating how the impacts are addressed. It is difficult to imagine how this could be done adequately without engaging at-risk stakeholders, or, where that it not possible, their legitimate representatives or subject matter experts. 

So, my message to you today is that we need to think of the S in ESG as addressing the people dimension of sustainability, which in turn requires more qualitative metrics and more sophisticated AI than the E. That’s why an EU advisory body has recommended that “socially sustainable activities should be underpinned by existing global guidelines” such as the UN Guiding Principles, among others. 

In the end it all comes down to this: measure what matters, not merely what is easily measured. 

Thank you, and I look forward to the discussion. 

Statement on the 10th Anniversary of the UN Guiding Principles

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.

___

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

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.

Shift’s response to the European Commission’s Proposal for a Corporate Sustainability Reporting Directive

New York, NY

Shift – the leading center of expertise on the UN Guiding Principles on Business and Human Rights – welcomes the proposal by the European Commission to amend the Non-financial Reporting Directive (NFRD) and related Directives to develop a renewed sustainability reporting regime in Europe (the Corporate Sustainability Reporting Directive, CSRD). The legislative proposal follows the report by the Project Task Force of EFRAG (EFRAG PTF), on which Shift commented in March 2021.

In addition to supporting the statement by the Alliance for Corporate Transparency, Shift highlights the following positive points and suggests where certain elements require further attention:

Double materiality

Positive development

The current NFRD offers a unique and unprecedented approach to materiality: it requires entities to report both on impacts on people and the planet by businesses, as well as on risks to the business itself. As the EFRAG PTF pointed out, it is critical that the new reporting regime provide clear direction and guidance, so that companies report not only on where impacts and risks overlap, but on the full range of sustainability impacts and risks, in line with international standards. The proposed CSRD is “removing any ambiguity” (p. 13) that this should be the case. Moreover, it makes clear that the materiality assessment should include risks and impacts across the full value chain (p. 43, among others) and that reporting entities should disclose the process that they use for determining their material issues (p. 43).

Points needing further attention

It is critical that the EU and its member states find coherence between what they are mandating companies to do on human rights and environmental due diligence (HREDD), and what they are expecting them to report on. While the explanatory memorandum of the proposal refers (p.5) to the Sustainable Corporate Governance Initiative (which is due to issue Commission proposals on mandatory HREDD this summer), the need for alignment with this forthcoming legislation should be strengthened in the CSRD itself (once the mandatory HREDD proposals are issued) if it is to be translated into the standards. This is particularly important where it relates to prioritization, and the new reporting regime should establish clear methodologies to prioritize sustainability issues under an impact materiality lens that are in line with the EU and international standards referenced in the proposal.


“Social” Issues

Positive development

The proposed CSRD includes a new list of more detailed sustainability topics and subtopics that entities would be required to report on, organized around the three ESG pillars. The Commission did not follow GRI in re-naming the second pillar “People” rather than the often misunderstood and misrepresented category of “Social”; however, it is noteworthy that issues critical for addressing inequality and vulnerability of workers and others in company operations and value chains, will now need to be reported on by all companies. This includes:

  • Equal opportunity, including related to gender, equal pay for equal work and people with disabilities;
  • Working conditions, including wages, social dialogue and collective bargaining;
  • Respect for human rights broadly with a reference to core international and EU standards.

The proposal also identifies several sub-topics under the “governance” pillar (e.g., lobbying activities, payment practices) that are often critical for understanding human rights performance.

Points needing further attention

While the current NFRD positions human rights in a problematic way (separating ‘social and employee matters’ as a distinct category rather than as a subset of human rights), the new proposal does not necessarily provide more clarity and structure. Shift encourages the CSRD to adopt the EFRAG PTF’s recommendation to organize the people/social pillar on the basis of who could be affected, which would provide a much-needed organizing construct: starting with the stakeholder groups that can be impacted and then articulating sub-topics for the types of impacts those people can experience. At a minimum, it should recognize that they are not abstract ‘sub-topics”, but represent impacts on actual people that need to be explicitly identified by the reporting entity in order to be appropriately managed and reported on.

Excerpt from the EFRAG report, p. 102

EFRAG Governance

Positive development

If and when the CSRD would be adopted by the EU, EFRAG would be tasked with developing the more specific EU Sustainability Reporting Standards (level 2), building on the parameters set out in the proposed legislation (level 1). To this end, EFRAG has proposed an update of its governance, which according to the proposed CSRD, should include, “a balanced representation of experts from national authorities, civil society and the private sector,” (p. 9) and that its advice to the Commission for adopting new sustainability reporting standards should be, “developed…with the expertise of relevant stakeholders” (p. 53).

Points needing further attention

EFRAG’s traditional constituent stakeholders come from different institutional backgrounds (business, audit/assurance, investor etc) and have experience in financial reporting. Many of those same organizations have experience with financially material sustainability issues. But expertise in the material impacts of business on people and the environment, and what makes for meaningful reporting about them, often sits elsewhere. ‘Balanced representation’ therefore needs to mean more than just equal numbers from each constituency if it is to cover the very issue that makes the CSRD a holistic reporting proposition – the concept of impact materiality. Getting this right will determine whether the pioneering concept of double materiality succeeds or fails once it moves from paper to practice.


Ensuring relevant reporting

Positive development

Throughout the proposal, it is emphasized that the new sustainability reporting standards, “shall require that the information to be reported is understandable, relevant, representative, verifiable, comparable, and is represented in a faithful manner” (p. 45, emphasis added). The word “relevant” is critical here, since earlier communications around the NFRD at times overemphasized comparability (as many current reporting initiatives still do), often at the expense of ensuring relevant and meaningful reporting on people matters.

Points needing further attention

To give real substance to this criterion, the new reporting regime should build on the EFRAG PTF’s proposals that it, “should develop guidance on principles governing the quality of information”, including by setting criteria for the quality of indicators, “that test the validity of the insight the resulting information can provide to users and the potential for unintended consequences from their application” (proposal #14 & 15, p. 66-67). 

No Need to Reinvent Wheels: Drafting Meaningful Human Rights Due Diligence through Model Suggested Supply Chain Contract Clauses

The American Bar Association (ABA) is the largest voluntary association of lawyers and law students in the U.S. and the world. It was the first national bar association to have formally endorsed the 2011 UN Guiding Principles on Business and Human Rights (UNGPs) and has made the elimination of modern slavery and child labor in supply chains a signature goal. I have been an ABA member for many years, starting as a former corporate lawyer who worked for a large multinational company, and continuing when I moved to the field of business and human rights. 

I am therefore happy to report that in March of 2021, a Working Group of the ABA Business Law Section published its Model Contract Clauses to Protect Workers in International Supply Chains (Model Clauses). This version offers contract lawyers the opportunity to use contract language that would explicitly operationalize human rights due diligence in supply chain contracts, in order to make clear that abuses of workers’ rights occurring in global supply chains is a shared responsibility of buyers and suppliers. Group 33 Created with Sketch. (The Model Clauses are for informational purposes, do not constitute legal advice and are not official ABA policy.)  

This version offers contract lawyers the opportunity to use contract language that would explicitly operationalize human rights due diligence in supply chain contracts, in order to make clear that abuses of workers’ rights occurring in global supply chains is a shared responsibility of buyers and sellers.

The traditional approach of buyers’ legal counsel towards the problem of human rights issues in business supply chains has often been to shift most responsibility to suppliers. This resulted in the creation of supply chain contracts that require suppliers to meet prescribed human rights standards (often in the form of boilerplate codes of conduct for suppliers), breach of which could entitle the buyer to the full range of contract remedies (including damages, rejection or resale of the goods, termination of the contract, and indemnification), whether or not the buyer’s own decisions or actions contributed to the breach. 

This is sometimes referred to as a “top-down compliance” approach because it is based on representations and warranties of performance that the supplier must adhere to in the contract. However, this approach is in tension with human rights due diligence under the UNGPs, which provide that since buyers can contribute to human rights impacts by suppliers (e.g., by repeatedly making last-minute quantity and design changes without due consideration of the potential impact on workers, as suppliers scramble to meet those changes), they should share responsibility for addressing the impacts. Group 33 Created with Sketch. (In addition, even where the buyer does not cause or contribute to the impact, it should exercise or try to build its leverage to prevent the impact where it is directly linked to the buyer’s goods or services.)  

Not only is such an approach problematic under the UNGPs, but substantial research has shown that it is not effective to improve supply chain human rights performance; i.e., it often ignores the root causes of human rights abuse, and does not prevent its recurrence. By failing to do so, a top down compliance approach can perversely encourage suppliers with low margins and inadequate financial and managerial capacity to meet contractual human rights standards to cheat, in order to keep the customer’s business.  This approach by buyers has sometimes been called “paying for a bus ticket expecting to fly.”

A top down compliance approach can perversely encourage suppliers with low margins and inadequate financial and managerial capacity to meet contractual human rights standards to cheat, in order to keep the customer’s business. 

The Model Clauses seek to address this problem by shifting from a top-down compliance approach to a human rights due diligence approach. A key driver for the changed draft is the need to prepare lawyers to be able to align their clients’ contracts with the likely enactment of mandatory human rights due diligence legislation in the EU, which will affect US companies that do business in the EU.

The Model Clauses are not intended to be a binding standard. It is suggestive only, and does not constitute legal advice. It is not official ABA policy. Rather, it is aimed at buyers who truly want to align their supply chain contracts with the UNGPs, but don’t yet know quite how to do so. As opposed to reinventing the wheel, the Model Clauses provide a suggested model for doing so. 

Multistakeholder Consultation: The Model Clauses are the product of extensive research and consultation with a wide variety of different types of lawyers in the ABA, including commercial, business, and human rights lawyers. The Working Group also solicited wide input from civil society and businesses.  Its goal was to develop contract language that is practical, reasonable and readily operationalized. 

The Model Clauses incorporate changes in two key areas, which I discuss below:

  1. Moving to a Human Rights Due Diligence Regime

First, the Model Clauses explicitly incorporate language that would require buyers and suppliers to perform the contract in accordance with the human rights due diligence provisions of the UNGPs. The suggested language would flow this responsibility through the entire supply chain. It would make clear that seeking to prevent human rights impacts in the supply chain is a shared responsibility of buyers and suppliers at all supply chain levels. 

  1. Shared Responsibility to Understand and Remedy Human Rights Impacts.

Second, the Model Clauses would recognize the shared responsibility of buyer and supplier to remedy human rights impacts. It would oblige the suppler to have in place adequately funded and governed nonjudicial operational level grievances mechanisms, and to develop and implement a plan to remedy adverse human rights impacts resulting from their performance of the contract. Buyer and seller would cooperate to understand the causes of the impacts. And if it is determined that buyers contribute to them, the buyer would be obliged to cooperate with the supplier to contribute to the remedy of the impact. In order to encourage amical resolution of disputes between buyers and suppliers, the Model Clauses would provide for nonjudicial dispute resolution mechanisms prior to litigation.

To implement these changes, the Model Clauses suggest two model Schedules: a Schedule P (human rights contract performance standards) and a Schedule Q (buyer’s code of conduct).

Schedule P would list contractual standards of human rights performance necessary and appropriate to the contract, such as references to the UNGPs and to the OECD Guidelines for Multinational Enterprises and guidance documents on their implementation; to specific human rights legislation and multistakeholder initiatives; to the company’s own human rights policies, supply chain codes, and so forth.

Schedule Q is a proposed buyer’s code of conduct. It would detail the contractual responsibilities of buyers concerning their commitment to respect human rights, buyer selection of suppliers, negotiating the contract, performing and renewing the contract, remediating human rights impacts, and disengagement/responsible exit. Schedule Q is intended to explicitly embody in the contract the expectations that buyers will not undermine the human rights performance of suppliers, as referred to earlier.

In essence, the Model Clauses are designed for buyers’ counsel whose clients want them to implement human rights due diligence in their supply chain contracts. Since human rights due diligence is being reflected or incorporated in the law, particularly in the EU, this is very timely. Lawyers would not have to reinvent the wheel when seeking to integrate respect for human rights into supply chain relationships.


This viewpoint contains the personal views of the author only, not that of any person or entity, including Shift or the ABA. The author was an advisor to the Working Group of the ABA Business Law Section.

Statement on recommendations by EFRAG to the European Commission on sustainability reporting standards and governance

New York, NY

Shift – the leading center of expertise on the UN Guiding Principles on Business and Human Rights – welcomes the report published this week by EFRAG following the mandate from the European Commission, that sets out recommendations for European sustainability reporting standards. The report contains a range of critical recommendations for the work of a future standard-setter for EU-mandated sustainability reporting:

  • First, it highlights the principles and the process for implementing ‘double materiality’ to determine what information a company should report: both information about the company’s most significant impacts on people and the environment (impact materiality); and information about sustainability matters that affect the company’s ability to create value (financial materiality). The Task Force recognizes from past experience that companies need clear guidance on implementing double materiality, so they report fully on their material impacts, and not only on those that are also financially material.
  • Second, the report proposes a welcome shift away from a vague category of ‘social’ information to an approach that starts with the stakeholders most at risk (“affected stakeholders“) and then looks at how the company’s business may affect them – for instance through health and safety, forced labor practices or loss of access to clean water. This gives companies a clear way to prioritize the issues they need to report on, in line with international standards.
  • Third, the recommendations highlight the need for indicators and metrics that offer genuine insight to the users of reporting (“characteristics of information quality”). Too few of the typical ‘social’ indicators do so today. The report underlines the need for all indicators to be assessed against some key criteria to avoid perverse consequences and false conclusions. And it emphasizes the value of companies setting and reporting against good quality, outcome-oriented targets that reflect the change they intend to make and enable them to measure and disclose progress.

David Vermijs, who co-chaired the Task Force’s workstream on conceptual guidelines, commented, “These are critical recommendations that need to be front and center in the work of the future EU standard-setter. They set the foundation for ensuring that sustainability reporting both helps companies focus on what matters most when it comes to their sustainability performance, and enables their stakeholders to get a true picture of how well they are progressing.”

Shift notes that some of the Task Force’s recommendations will benefit from continuing consultation, including how the new standard-setter can support and accelerate greater ambition and convergence in reporting standards at the international level – including the integration of impact materiality and with regards to “reporting areas” – and the extent to which ‘intangibles’ can be brought within the framework of sustainability reporting.

“Perhaps most important at this point,” commented Caroline Rees, Shift’s President, “is the matter of the standard-setter’s future composition. While we welcome the separate report published on this issue, it leaves open some critical questions as to whether and how the new body will include the necessary deep expertise in the full range of sustainability issues, including and in particular regarding impacts on people. Getting this right will be key to the success of the whole endeavor.”

For media inquiries, please contact communications [at] shiftproject [dot] org.

Planning for Risk Mitigation: Assessing Human Rights in Strategy Development and Roll out

When human rights practitioners develop strategies to identify and prevent risk to people, they often feel like their hands are tied: the business is already operating in a certain way, in given markets with different levels of risk, selling a line of products that already exists and partnering with suppliers that have already been decided by other functions. They then spend effort and resources trying to superimpose human rights considerations onto an approach that is already wired to impact people.

But what if that were not the case? What if a company could build human rights risk planning into the design of a new strategy, or soon-to-launch product or business model transformation? Companies could develop a product or roll out a strategy with the necessary safeguards in place to mitigate risks to people, to improve company decision-making, and to potentially re-shape business behaviors. Crucially, an early and full view of the potential impacts across the ecosystem in which a new product, service or strategy sits would also enable a company to bring in the right peers and partners to address them.

This ambition shaped Ericsson’s approach – to examine human rights risks connected to the rollout of their new flagship technology: 5G.

LISTEN TO | Théo Jaekel, Corporate Responsibility Expert at Ericsson explaining why 5G is critical to the telecom industry and to his company.

5G is the latest evolution of mobile technology standards. While we’ve become familiar with the iterative release of mobile technology innovations, 5G it not just the “latest version.” It promises to exponentially increase the capacity and efficacy of networks and to enable many new user scenarios and capabilities: data will be king (as opposed to voice and SMS); download and upload speeds will be faster, and devices will connect to wireless networks quicker. 5G will also provide the fuel for the Internet of Things (IoT), Augmented Reality, Virtual Reality and Big Data. In short, it is a quantum leap for the ICT sector and, most likely, for all of us as well.

But news coverage of 5G has not always been as optimistic. The legitimate concerns about the way this new technology may affect us – whether due to privacy breaches, the increased automation of jobs and the need for “just” worker transitions, or the potential for citizen surveillance – have often been obscured by various conspiracy theories, including misleadingly linking cell towers to the coronavirus pandemic.

In this context, ahead of the upcoming large-scale rollout of 5G, Ericsson aimed to encourage an informed discussion of these human rights risks and the company’s involvement with them. Along with Shift, the company embarked on a distinct human rights assessment, looking not at what the impacts were, but at what they could be.

The exercise started with desktop research on the new technology, which led to the mapping of the 5G value chain and then layering on the potential impacts on affected stakeholders whose rights could be at risk. This resulted in a set of salient human rights impacts (those human rights at risk of the most severe negative impacts) that could be tested internally with key company stakeholders in a workshop setting, along with a group of expert, external organizations.

Through that exercise, Ericsson was able to identify risks before they happened. For example:

  • Through the value chain, Ericsson identified ways in which privacy could be at risk if the new technology enables apps to gather an exponentially greater amount of data without the knowledge or consent of users, and then sell it to digital advertisers to help them target their messaging more effectively.
  • 5G will enable machines to take on more specialized and professional work, potentially impacting significant portions of the working population (blue and white-collar workers alike) in the future. This will require a concerted response by businesses and governments to ensure a ‘just transition’ for workers through new skills development.
  • 5G technology is also likely to support increased surveillance capabilities, including more precise geolocation data, which could be misused for illegitimate purposes, such as enabling governments to target specific groups or shutdown networks in more discrete ways.

The identified impacts are not necessarily unique, or indeed solely attributable to 5G. But, the potential for many of the impacts is heightened by the way in which 5G breathes life into a myriad of other emerging technologies such as Artificial Intelligence, Virtual Reality, Augmented Reality and Big Data. By understanding this, Ericsson is better prepared to manage and/or mitigate their occurrence.

LISTEN | Senior Advisor David Vermijs offers examples of the breadth of impacts that could be connected to the roll out of 5G

Proactive, early-stage risk identification comes with its own challenges, specifically because not all potential risks (or the related unintended consequences) can be anticipated until a product or strategy hits the market. A business will have to fine-tune its approach as roll out continues. However, this effort will allow the company to embed safeguards into the product or strategy, identify channels for leverage with other entities, and be better positioned to engage with stakeholders in future conversations.

So, what can other companies learn?

Taking a pre-emptive approach – while preferable – may not always be possible. Yet, there are important lessons from this exercise that practitioners may want to consider regardless of where their company is on their human rights journey:

  1. Make the business case for why it is important for human rights to get a seat at the table in product and strategy development and rollout. While practitioners may not be able to turn back time, they can make the case for why it is important to identify risk at an early stage of future product and strategy design. A proactive approach can:
    • Enable companies to identify potential impacts before they occur and be better positioned to tackle otherwise unforeseen risks, including risks to the business.
    • Help identify systemic issues that are often difficult to see through a more traditional audit.
    • Help the company build partnerships at an early stage, positioning it as a convener for partners, peers and other stakeholders to use collaborative leverage when needed.
    • Show stakeholders who are reticent that the company understands their concerns and is willing to take action.
    • Help the company develop a relationship of trust with civil society organizations and other stakeholders that can be essential in the planning, executing, monitoring and evaluation of human rights actions.
  1. Assessing risk is the foundation, not an end result. While this sort of approach to identify risk is innovative, it will have limited effect if it is not followed by concrete steps to mitigate the identified risks, and consistent efforts to test whether the initial assessment was accurate, or if there are other risks that arise from the actual rollout of the technology.

Ericsson’s assessment was made publicly available on March 2, 2021 and may be found here.

Introducing Shift’s Financial Institutions Practitioners Circle

New York, NY

Shift, the leading center of expertise on the UN Guiding Principles on Business and Human Rights, is delighted to announce the launch of our Financial Institutions Practitioners Circle, a space carefully designed for a small number of leading practitioners from banks and export credit agencies (ECAs) to discuss common human rights challenges and co-create cutting-edge solutions that put people first.

The first generation of the FIs Circle will gather virtually for the first time in early March and will include a limited number of practitioners from institutions in the financial sector who have demonstrated a serious commitment to advancing their understanding and implementation of the UN Guiding Principles.

Discussion and learning in the FIs circle will be facilitated by experts from Shift, who will also contribute creative solutions that we have been fine-tuning in our one-on-one engagements with financial institutions. Together, through group workshops and discussions, practitioners will foster leading practice by sharing and co-creating approaches to putting the responsibility to respect human rights into practice in the FIs context.

Shift is committed to disseminating the learnings from this group for the benefit of a wider audience of FIs practitioners and other stakeholders.

LEARN MORE>

Participant selection

Shift is currently evaluating candidates for the first generation of the FIs Circle. Admissibility is determined through an in-depth discussion, based on where the organization is on their human rights journey and, regardless of its level of maturity, its commitment to sharing its experiences and improving performance.

To learn more about the FIs Circle, or to inquire about joining, please email communications [at] shiftproject [dot] org.

Shift Submission to IFRS Consultation on a Sustainability Standards Board

In December 2020, Professor John Ruggie submitted his views to the IFRS Foundation for their consultation into the proposed establishment of a Sustainability Standards Board (SSB) to develop global reporting standards on sustainability. Professor Ruggie urged the Foundation not to limit the initial work of a future SSB to environmental issues and suggested that:

  • The urgency of today’s inequality crisis, including environmental justice issues, requires a parallel effort to integrate the underlying human rights issues into a new standard-setter’s work.
  • The IFRS Foundation take care to ensure that the framing and presentation of a new standard-setter are clear regarding the constraints of its mandate to issues that have demonstrated narrowly-defined financial materiality, and that they do not imply that it covers all sustainability issues of critical importance with regards to companies’ social and environmental performance.