This document contains reflections offered by Shift to the World Economic Forum on its white paper ’Towards Common Metrics and Consistent Reporting on Sustainable Value Creation’. The document is based on Shift’s expertise and experience working directly with companies, standard setters and financial institutions. It focuses on indicators and metrics most relevant to the assessment of impacts on people, and draws on Shift’s work leading the improvement of human rights reporting by companies and Valuing Respect, our current initiative to advance better ways to evaluate business respect for human rights.
Shift, IHRB, The Business & Human Rights Resource Centre and the European Coalition for Corporate Justice have written to Sergio Mujica, Secretary General of the International Organization for Standardization (ISO). In the letter, we make the case for why ISO should not proceed with proposals to revise the ISO 26000 social responsibility standard, nor to establish a technical committee charged with introducing further private standards on responsible business conduct.
The ISO 26000 standard was adopted in 2010 in careful alignment with key international standards on business and human rights, and we are concerned that its reopening will become a major distraction from the development of international and national laws in relation to environmental and human rights due diligence.
Please read the full letter below and share it with your networks.
A version of this article originally appeared in Ethical Corporation Magazine
This article is available in PDF format. To download it click here.
The human toll of COVID-19 is growing daily, with over 3 million confirmed cases globally and 26 million unemployment claims in the US alone – well before April is out. The burden is falling disproportionately on the people least able to bear it: those in low-paying jobs, exposed to health risks on the frontline of the pandemic response; losing those jobs altogether in western workplaces and overseas supply chains; or cooped up in worker dormitories far from home and without protection. Against this backdrop, the reactions of business to the pandemic are under as much scrutiny as those of governments. Even mainstream business media are keeping a log of the ‘sinners and saints.’
As the accounting continues, one clear rule of thumb is emerging as to who is getting their response to the crisis (at least mostly) right: those companies that focus first on the most vulnerable. The language of ‘vulnerability’ peppers the news and commentary as never before. Yet it is far more than just a label for the people who stand to lose the most as this crisis unfolds. It is the essential lens we must apply if a new stakeholder capitalism is to succeed: the difference between how our economies have worked in the past and how we need them to work going forward.
Before the pandemic hit, there was already a growing movement away from Milton Friedman’s idea that business should focus on maximizing shareholder returns. The gross and growing inequalities in our societies are the now inescapable result of externalizing risks and costs of business onto vulnerable ecosystems, workers and communities.
And so, a return to a supposedly kinder ‘stakeholder’ capitalism had begun to grow in favor, at least in most developed economies. It called for business to respond to the interests of ‘stakeholders’ beyond shareholders alone. In just the last nine months we had seen nearly 200 CEOs espouse the idea in last year’s Business Roundtable statement; the head of the world’s largest asset manager, BlackRock, urge company leaders to take it seriously; and the Davos Manifesto from January’s World Economic Forum identify it as essential to, “shared and sustained value creation.”
Yet this new narrative of ‘stakeholder capitalism’ always risked being far less radical than it appeared – potentially even the ‘virtuous side hustle’ some have feared from the get-go. Why? At least in part because the categories of stakeholder beneficiaries – employees, suppliers, customers and communities – were defined so generically that they necessitated little real change from the status quo.
Take ‘employees.’ The term includes those generously compensated in safe jobs as well as those whose pay, security and benefits are vulnerable to cost-cutting initiatives. It also excludes altogether people whose roles are externalized by evolving business models and strategies into categories of ‘contractor’ or the nominally ‘self-employed.’ The category of ‘suppliers’ blurs the line between large, strategic partners and small or more remote businesses whose cash flow is fragile and whose workers’ wages are the first to give under pressure.
Similarly, ‘customers’ are by definition those who can afford to access a company’s products or services; yet the term does not call out those who are stretched to do so, and excludes, of course, those who simply can’t. Meanwhile, ‘communities’ can continue to be viewed as the beneficiaries of corporate philanthropy rather than groups whose health, livelihoods and opportunities may be directly affected by company actions and decisions.
With all this flexibility in interpretation, the new ‘stakeholder capitalism’ built a broad church. It certainly embraces companies committed to understanding how business practices may harm people across their value chain, and to reducing those impacts. However, it also readily accommodates companies hoping for little more than marginal adjustments to usual practice, or continuing to bank on business models that embed risks to people at their core. Little surprise, then, that some CEOs seemed taken aback to find that their new commitments raised expectations of real and substantive changes to address the inequalities of today.
Yet this pandemic, with all its awful consequences, is fast removing the ambiguity about what matters. At least in the Global North, it is showing the lens of vulnerability to be essential for businesses to determine how they should act, and a guide for how popular opinion will react. This focus on vulnerable people, once seen by many as idealistic, is becoming a primary expectation from investors, public figures, civil society and business commentators alike.
Companies are making decisions about their employees, being explicitly called on to take pay cuts at the top to preserve jobs at the bottom – and increasingly doing so. Some businesses quickly committed to keep paying the hourly workers providing canteen, cleaning or other services in their facilities; a growing number have increased sick leave and benefits to workers in gig economy roles, whose finances and health are often most at risk.
We see the same expectation to focus on vulnerability in supply chains. More companies are now committing to ease cash flow for businesses in their value chains whose viability and workforces are at risk by paying smaller suppliers first and fastest or extending loans or deferred payment terms to customers in need.
Meanwhile, companies are identifying and prioritizing those customers who are most exposed to harm, with grocery stores offering earlier hours to the elderly, and some key service providers prioritizing the vulnerable over those who can better cope. And we see businesses thinking afresh about impacts on communities. Some that can afford to make new hires are drawing from local, hard-hit populations; others are collaborating with governments to address systemic risks to those most in need.
Of course, the trend is far from universal. Many companies have genuinely little latitude in how they can respond, lacking both resilience and options. And far too many that are not so constrained have nevertheless defaulted to protecting their shareholders and leaders at the expense of the vulnerable.
But the tally is now being kept of which companies are rising to the occasion and which are failing the test. This is not a blip that will be forgotten, it is an acceleration and proliferation of an idea whose time had already come.
The same Milton Friedman who spawned the ‘shareholder primacy’ theory that stakeholder capitalism now proposes to replace, ironically also wrote, “Only a crisis, actual or perceived, produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe is our basic function: to develop alternatives to existing policies, to keep them alive and politically available until the politically impossible becomes politically inevitable.”
The idea that businesses must look beyond generic categories of ‘stakeholder’ to hone in on those individuals in workplaces, supply chains, transportation networks and communities who are most vulnerable is alive and available. It is embodied in the UN Guiding Principles on Business and Human Rights: a ready blueprint for governments and businesses to reorient capitalism to protect and respect those most at risk: a true ‘stakeholder capitalism.’
Companies that have led the way in putting the UN Guiding Principles into practice have shown a more natural reflex to focus on the most vulnerable in their response to the crisis, getting it right while others have fumbled. Yet it is the crisis itself that is now taking the lens of vulnerability to scale. It can no longer be viewed as impossible to make it the ‘new normal’ once we emerge from the pandemic. We just need to make it inevitable.
In February, the European Commission began seeking stakeholder feedback to inform the revision of the EU Non-financial reporting directive (NFRD) as part of its strategy to strengthen the foundations for sustainable investment.
Shift made this submission as part of the consultation, drawing on our work over several years to strengthen human rights reporting standards in line with the UN Guiding Principles on Business and Human Rights.
Lausanne, Switzerland. The International Olympic Committee (IOC) announced a series of initial steps on human rights today, following recommendations made by Shift’s Vice President, Rachel Davis in collaboration with HRH Prince Zeid Ra’ad Al Hussein, former UN High Commissioner for Human Rights. The measures were made public after the IOC’s most recent Executive Board meeting, in Lausanne.
These steps include:
- Adopting a comprehensive human rights strategy encompassing the IOC’s responsibilities in its own operations (including the activities of the IOC administration and its role as organizer of the Olympic Games) and setting out its role to advance respect for human rights as the leader of the Olympic Movement;
- Establishing a Human Rights Unit with expert leadership, and continuing to strengthen human rights due diligence, the use of leverage and engagement with affected stakeholders in existing areas of work, including engagement with Olympic Games hosts;
- The IOC will also establish a previously announced Human Rights Committee once the strategy is elaborated and the internal resources are in place to make it operational.
Rachel Davis and Prince Zeid submitted the recommendations in February as part of their joint report ‘Recommendations for an IOC Human Rights Strategy’, commissioned by the IOC in March 2019. During the past twelve months, Rachel Davis and Prince Zeid evaluated the IOC’s current approach, including through consultation with key internal staff and expert civil society stakeholders. Shift has been providing advisory support to the IOC since May 2018 and will continue to do so during the transition to the IOC’s new internal human rights capacities. We are committed to playing an objective, critical and transformative role in embedding respect for human rights in global sports governance, working side-by-side with others to drive meaningful change in the sports sector as a whole.
Over the past two years, the Shift team has been hard at work collaborating with a diverse community of stakeholders to review, recast, stress-test and ultimately redefine how we can all best evaluate business respect for human rights.
Today, as we begin the third and last year of this ambitious, collaborative project, we are excited to share the newly redesigned Valuing Respect Hub.
The new Valuing Respect Hub offers:
- A new, redesigned interface to explore our six focus areas, understand what we hope to achieve in each one of them, and where we are so far with our research.
- A more powerful and precise search functionality, allowing users to search resources by title, author and focus area.
- Improved tools to share our resources with your community and colleagues.
To learn more visit www.shiftproject.org
Valuing Respect is a global collaborative initiative led by Shift, to research and co-create better ways of evaluating business respect for human rights. We are working with a wide variety of partners across all sectors and geographies. Our goal is to develop tools and insights that can help companies and their stakeholders focus their resources on what matters most: outcomes for people. This three-year project has been made possible thanks to the generous support of our funders: Norges Bank Investment Management, the Norwegian Ministry of Foreign Affairs and the Ministry of Foreign Affairs of Finland.
Between 2010-2014, the Peruvian fruit growing company Composol was in ceaseless conflict with its workers and their union representatives. It had strong turnover of staff, low motivation among those remaining, and, according to its own accounts, very high litigation cost due to constant cases before the labor courts. The company’s labor troubles were even featured as a prominent case example in complaints filed by Peruvian and international unions with the US Department of Labor and the European Commission related to beneficial trade agreements.
It was not until 2014 that the company started to realize how much of an impact this was having on its business, and decided more meaningful action was necessary. Together with local and internationally focused unions and business associations, the company embarked on a path towards fully embracing social dialogue and trade union rights. Through a process of trust-building, negation training and capacity building on labor rights -among others- the company and unions were able to fundamentally transform their relationship. In addition to more satisfied workers and meeting company commitments, results also included lowered costs in recruitment, transportation and legal fees, among many others.In the words of Javier Morales, Camposol’s Managing Director of the Fruit and Vegetable Division: “We have been able to be profitable while focusing on people. (…) Now workers come to Camposol because they choose to, not because they have to as in the past. Competitors are raising the salaries to attract workers more but it is not the only thing that workers seek. What they seek is also a healthy emotional relationship with their employer. We demonstrate that we can align the interests of workers and shareholders.” Perhaps most central to turning things around was the realization that in order to ensure respect for trade union rights companies need to take proactive steps to realize them in practice. This, in a nutshell, is the key message of our newest publication ‘Respecting Trade Union Rights in Global Value Chains’, developed with Mondiaal FNV, to help companies approach trade union rights proactively.
What are trade union rights?
What are trade union rights?
Freedom of association and the rights to collective bargaining (collectively referred to in the publication as “trade union rights”) are recognized by the International Labour Organisation (ILO) as one of a set of four core labor standards that all governments and companies should adhere to. While they are fundamental rights in and of themselves, trade union rights are also recognized as “enabling rights,” meaning that respecting these rights can often lead to the fulfillment of a number of other labor rights, including adequate wages, reasonable working hours, workplace safety, and a work environment free from discrimination and harassment.
Action on trade union rights is hard…
Those who have worked on trade union rights know that this is all easier said than done.
While many companies list respect for trade union rights in their policy commitments, pledge to adhere to industry standards, and participate in multi-stakeholder initiatives, many still struggle to identify and implement meaningful action to address the risks to trade union rights in their global value chains.
In our work with Mondiaal FNV we recognized three categories of barriers that often create challenges for global companies to ensure respect for trade union rights in their global operations and value chains:
- External factors: Respecting trade union rights in many contexts can be extremely challenging: local laws may prohibit them, union-relations may be seen to be political, and local business partners may not see the value in changing what already works.
- Business models and practices: some companies have risks embedded in how they are structured or in how they operate. For instance, extensive reliance on contract labor, or sourcing strategies that rely upon production in markets with lower labor costs and often weaker labor protections.
- Internal company governance and due diligence pitfalls: a number of challenges arise from weaknesses in corporate governance and due diligence. For example, a lack of understanding of trade union rights, limited visibility into conditions in the supply chain, or strong commitments on paper not being translated into action on the ground.
Our publication provides a detailed diagnostic tool with simple questions to help companies identify the specific barriers they might face in a particular context or relationship.
… but there are ideas and experiences to inspire action
We have seen that those companies who identify their salient human rights issues (one of the practical steps the publication suggests) now often include freedom of association and right to collective bargaining among them. I believe it reflects a broader understanding of how interconnected human rights impacts are and that one of the most sustainable ways to improve human rights for workers—in a way that also brings benefits to business—is to give workers a voice and take proactive steps to reduce barriers and reinforce constructive relationships that enable them to organize, make their voice heard and take a stake in the long-term interest of the company.
But identifying trade union rights as important is only the first step. We need to move to action. Our work with companies on these issues has surfaced a range of practical approaches companies are taking to address these barriers in new and meaningful ways. Whether it is the Freedom of Association protocol that was developed by apparel and footwear companies with local suppliers and stakeholders in Indonesia to address the locally challenging context for trade union rights or the way that companies have collaborated in Mexico to jointly apply leverage to improve union relations.
Different types of approaches are almost certainly going to be necessary to address the range of situations a company might face and the different types of barriers that may be present. The resource offers a continuum of different types of leverage that can be applied internally and externally, with practical case examples to illustrate these approaches in practice: for example, working jointly with peer companies and international and local trade unions to advance collective bargaining to improve living wages in the garment sector, or exerting collective leverage with peers vis-à-vis a government to improve laws and regulations that protect trade union rights (both of which have concrete case examples in the publication).
Our aim is to inspire companies with ideas for concrete action, to move from recognizing risks to trade union rights to taking meaningful action to address those risks, by drawing from a menu of potential options for action. We hope it can provide companies with a roadmap for developing thoughtful, meaningful and targeted actions necessary to tackle these issues more effectively in practice.
VISIT | The Valuing Respect website
Companies’ social performance matters!
Thirty years ago that might have been viewed as a radical campaign slogan. Today it is a pretty mainstream observation. The reality of how business activities can negatively affect the lives of people across the world has become inescapable.
Business conversations at major gatherings such as the World Economic Forum are increasingly focused on the purpose of businesses within society. We’re a long way from the days when most companies assumed they should externalize as many social and environmental costs as the law allows in order to maximize their profits. Today, business leaders recognize how self-defeating that proposition is. As Unilever’s Paul Polman has put it, “There is no business case for enduring poverty or runaway climate change.”
In fact the Business and Sustainable Development Commission produced a 120 page report last year emphasizing the imperative (and opportunity) for business to get behind the global Sustainable Development Goals. A key pillar of their message was the need to strengthen the “social contract,” including by contributing to decent jobs, the eradication of forced labor and child labor, tackling discrimination and income inequalities, advancing access to clean water and healthcare and empowering women and girls.
Socially responsible investors have long promoted the need for companies to take ownership of reducing their impacts on people as well as planet. Now mainstream investors are joining the conversation as well, with a rapid growth in “ESG” (Environmental, Social and Governance) investment funds now available — not least in response to demand from millennial and women clients.
All good news, yes? Well, that depends.
Current measurement of companies’ social performance: at best superficial, at worst misleading
The growing attention to companies’ “social performance” – the impact they have on people – naturally raises the question of how to measure which ones are doing well and which are not. But most of the metrics being used to make these assessments are at best superficial and at worst misleading. Moreover, a proliferation of ratings, rankings and ESG products is embedding many of the same weak data into their methodologies.
As a result, companies are allocating critical resources to gathering and publishing information that gives us little insight into how their business actually affects the basic dignity and welfare of people. And markets are left rewarding often poor or inadequate behaviors, while leading practice can go unrecognized and under-supported.
That’s a major setback for champions – inside and outside business – of good corporate social performance. And it betrays the hundreds of millions of people who are most vulnerable to the negative impacts that can result from business activities.
What should we conclude from this? Perhaps it’s that knowing that companies’ social performance matters is only a starting point; it’s how we measure that performance that will be critical to progress.
From audits to training to big data: why these measurement approaches don’t tell the whole story
Right now, we’re falling short on the challenge of measurement – and we are doing so collectively. This is a shared problem across business, investors, regulators and civil society. There are no easy answers. If there were we would have them by now. But the need for better approaches is now urgent.
The UN Guiding Principles on Business and Human Rights, endorsed by the United National Human Rights Council in 2011, set the global standard for what is expected of companies (and governments) in advancing business practices that respect people’s human rights. So why, nearly seven years later, are we not doing a better job of defining what success looks like?
Why are so many analysts giving such weight to how companies spend their profits through philanthropic initiatives or employees’ community volunteering, as against how those same companies make their profits – and whether they respect people’s human rights in the process?
And even when the focus is on how profits are made, why are the metrics dominated by low value input/output data such as the number of hours of human rights training provided to staff, of human rights clauses included in contracts, or of impact assessments or social audits carried out at operational sites and suppliers?
Let’s take just the data produced from social audits of factories and farms in corporate supply chains. These are still viewed by thousands of companies and their investors (including many “social impact investors”) as the answer to addressing labor rights risks. Yet research has long since shown the inadequacy of relying on such data or seeing it as the means to progress.
Most companies will audit just their first tier suppliers, but most of the 40 million workers subjected to forced labor, and the 80 million children in dangerous forms of child labor, work at more remote levels of large companies’ supply chains.
Company managers can report audit data that show dramatic improvements at factories after “corrective action plans” are instituted. But those same managers will admit privately that they expect many of the same problems to be back within a year or so, since underlying causes are often not being addressed and their companies often move on from suppliers that invest seriously in improving their standards when that leads to rise in the price they are charged.
Indeed, pretty much any leading company has frustrated managers eager to share stories of how superficial this information is as a means of measuring or driving positive social impact, or of comparing companies’ performance across an industry. Yet the appeal of social audit data continues: it provides easy, clear numbers that corporate leadership and investors can take as the basis for important business and investment decisions, ignoring the reality that they paint not a picture of true social performance but a mirage that masks a more unsettling reality.
The most accurate data related to human rights impacts often exists where abuses have already occurred: the numbers of workers killed in the collapse of Rana Plaza in Bangladesh, or in demonstrations at the Marikana mine in South Africa; the devastation of homes and livelihoods from the Samarco disaster in Brazil or the BP Deepwater Horizon blow-out; or the burgeoning number of alleged and proven cases of sexual abuse in workplaces across multiple industries.
These are all highly relevant data but they are lagging indicators: that is, they measure, after the fact, instances where respect for people’s human rights has broken down in practice. They don’t help us identify which company is the next one with a similar human tragedy on its way, nor which companies are doing the best job of making sure it isn’t them.
Moreover, many of these same problems are baked into the ways in which “big data” is used to gain insight into corporate performance. Cutting edge software is used to scrape the Internet for allegations of abuse and to train computers to use these inputs to gauge human rights performance. Again, this information is not without value, if used as an input to careful research. But when plugged into algorithms that draw direct and simplistic conclusions on the relative performance of companies, it carries (and conceals) enormous risk.
This may seem a grim diagnosis of the situation, but it’s not a new one. At Shift we consistently hear from those we work with across business, the investment community and civil society that they feel deeply frustrated by the insufficient grasp of how to measure companies’ human rights performance. And various other organizations have highlighted the many symptoms of the problem.
This shared challenge is also a shared opportunity for progress
This is a collective problem that we must all own up to it – and then take shared ownership in addressing.
Getting it right will be truly challenging. Years of sincere effort have demonstrated that there is no silver bullet, no easy answer. As a result, too many human rights abuses in business value chains continue unchecked or even unidentified. Moving forward will require the wisdom of the crowd, multidisciplinary thinking and co-creation.
It is in that spirit that Shift is launching this month a major new collaborative initiative – a crowd-based conversation if you will – to help work out how we can all do better. A conversation to break down the problem of measurement, talk about the barriers to improvement, and see which can be overcome and how. A conversation aimed at learning from and contributing to the very best of practice around the world and looking at how it can be transferred and scaled up across businesses and industries. A conversation that builds a common understanding of the kinds of information that offer a true perspective on which companies are respecting human rights and which are not.
Shift is joined in this initiative by three regional, non-profit partners: the Centre for Human Rights at the University of Pretoria in South Africa, the ASEAN CSR Network based in Singapore, and the Polish Institute for Human Rights and Business. We are grateful for the seed funding for this project from Humanity United and a three-year grant from Norges Bank Investment Management, the sovereign wealth fund of Norway. Together, we will work with a wide range of experts and organizations across all regions and consult with all stakeholder groups throughout the process.
The aim is not to end up with some single “answer” to the problem, nor a proprietary model to promote. The aim is to come up collectively with better approaches to this shared challenge of measurement – approaches that carry wide support, and which everyone can draw from as befits their own work and objectives. The process of research, consultation and the gradual crystallization of ideas, tools, principles, examples, models and conclusions will be open to all, with regular updates posted online.
This is an ambitious initiative, to be sure. But just as we see every day in our work how poorly companies’ social performance is currently being measured, we equally see a burgeoning number of innovators lighting the path to better solutions. New approaches to measuring how business decisions impact people are being quietly explored within companies and piloted through collaborations with trade unions and civil society. New methods to hear and learn from the people who are themselves impacted by business are being developed and tested. New areas of research are bringing to light data about impacts that was not previously accessible; and long-standing areas of research and practice offer us pertinent lessons – from the development, health and safety and change management fields, among others.
Furthermore, there is no shortage of highly-motivated and experienced people across civil society, business, the investor community and government who have shared with us their enthusiasm to help change the state of practice in this field. So we are excited and optimistic about what we can achieve together, and we invite everyone with an idea, a challenge, a question or an interest in this issue to contact us and join the conversation. A conversation about how to make markets more sustainable by equipping investors to more accurately assess the risks in their portfolios.
The groundswell of recognition that every company’s social performance matters opens up huge opportunities for positive change. To seize these opportunities, we need to be able to judge what’s working and what isn’t, which companies are really improving lives through responsible business conduct, and which are churning out numbers and words that build a Potemkin village aimed more at winning awards than having a positive impact. In this age of crowd-sourcing models, we can surely crowd-source – and crowd-craft – the tools we all need to tell the difference.