These remarks were originally delivered on January 28, 2021 by Professor John Ruggie at the Corporate Due Diligence and Civil Liability Webinar, hosted by Nova Centre.
“Thank you, State Secretary, and thanks to all the sponsors and participants of this seminar series. I have been in this field for a while and I am so pleased by the fact that we are having discussions at levels of detail and possibilities that would have been hard to imagine just 10 years ago, when the Guiding Principles were adopted. I know we have a lot further to go, but every once in a while, I like to remind myself that we have already come a fair way that we can build on…”
In February 2021, Shift submitted responses to the European Commission’s Consultation Proposal for an Initiative on Sustainable Corporate Governance. The feedback provided through this questionnaire will be taken into consideration as the European Commission drafts its policy position.
Shift’s key points include:
EU legislation establishing a new corporate duty to conduct human rights and environmental due diligence (HREDD) has the potential to help level the playing field, ensure that Boards are aware of their responsibility to oversee the management of a company’s salient human rights and environmental risks, and drive a common understanding of what “quality” due diligence looks like. Importantly, it could also help ensure greater access to remedy through the inclusion of appropriate civil liability provisions.
Directors should be accountable for overseeing how a company prevents and addresses its negative impacts on people and planet. Even without the reform of directors’ duties, the introduction of a corporate duty to conduct HREDD would make a significant contribution to this objective by requiring directors to oversee appropriate due diligence systems.
February 2021 | Discussion Draft
“Signals of Seriousness” for Human Rights Due Diligence
The due diligence process expectations set out in the UNGPs and in the OECD Guidelines should form the core requirements on business in any new regulation. But to ensure meaningful implementation, those enforcing this new duty will need to pay attention to key features of HRDD that are indicative of the seriousness of a company’s efforts. National regulators will need guidance on how to assess whether there is an authentic intent and effort within a company to both find and reduce risks to workers, communities and other affected stakeholders. We propose what some of these “Signals of Seriousness” could be for HRDD in a draft resource attached to our submission, informed by initial testing with business, government, and civil society stakeholders.
Any new duty needs to have improved outcomes for people as its ultimate goal. As such, it is important that HREDD is not conceived of as a “tick-box” exercise, but as one that necessarily involves the creative use of leverage beyond contractual terms or commercial leverage alone – including public advocacy where appropriate and partnership with industry peers and stakeholders to drive change – as well as meaningful engagement with affected stakeholders.
Any new legislation should have a wide scope, including both SMEs (with appropriate flexibility in implementation) and foreign companies operating in/into the single market.
To ensure a level playing field in practice, there need to be meaningful consequences for companies that clearly fail to meet a new duty, involving judicial and administrative measures. This should include:
creating or endowing national-level regulatory bodies with the capacity and expertise to carry out regular reviews of corporate disclosure and performance and hold companies accountable;
EU regulatory oversight through a new, fit for purpose entity with its own enforcement powers that brings together national regulatory bodies and expert stakeholders; and
civil liability for certain harms with a defense where companies can demonstrate that they undertook due diligence that was appropriate and proportionate to the relevant impacts. The mere fact of conducting some form of due diligence should not be considered as a complete defense to liability, or as a safe harbor against claims being brought.
A new corporate duty needs to be accompanied by a range of other EU policy measures to set the right incentives and help bridge the “accountability gap” between the likely scope of liability on the one hand and the full scope of HREDD in line with international standards on the other.
Shift joined Frank Bold in responding to the the consultation process on potential needs for changes to the governance and funding of the European Financial Reporting Advisory Group (EFRAG).
The submission comments on issues of due process, governance structures, representation of private sector and civil society; representation of Small and Medium Enterprises (SMEs); on cooperation with other standard setters and initiatives; on governance structure and funding.
Shift is delighted to announce that, in partnership with the Capitals Coalition, the organization will launch a 21-month initiative to develop an accounting model for living wages.
Since 2018, Shift has explored accounting methods as one of the six focus areas of Valuing Respect, a three-year research and co-creation project to develop better ways to evaluate business respect for human rights. As Rebecca Henderson of Harvard Business School writes in Reimagining Capitalism, “It turns out that reimagining capitalism requires reimagining accounting… even tiny changes in accounting rules can change behavior in profound ways.”
In an expert roundtable, hosted in June 2019 by the Institute of Chartered Accountants in England and Wales, participants agreed that focusing on living wages is a sound starting point to make meaningful progress towards reflecting the value of respect for human rights in accounting practices.
Following the roundtable, Shift partnered with the Capitals Coalition in designing the new project. The aim is to develop an accounting model for companies to assess and disclose progress towards living wages in both their workforce and supply chains. The project will be based on broad and inclusive consultations with experts and stakeholders; and it will build on important work already done in the field, including respected methodologies for calculating living wages, which will provide an essential benchmark within any accounting model.
The project has already attracted high levels of interest from companies, investors and civil society organizations. It will be launched in January 2021.
To learn more about the project and for any other inquiries, please email communications [at] shiftproject [dot] org
The UN Guiding Principles on Business & Human Rights are approaching the tenth year since their unanimous endorsement by the Human Rights Council. It is encouraging that their uptake continues apace, not only by businesses but beyond. For example, human rights factors make up the bulk of the S elements in ESG investing, with investors clamoring for more robust metrics. Also, global sports bodies, including the International Olympic Committee and FIFA, have made human rights a mandatory part of their host city agreements.
The UNGPs were conceived to generate an ongoing interactive dynamic of a smart mix of measures – voluntary and mandatory, national and international – that would strengthen the business and human rights regime over time.
But I confess that governments, with exceptions, have been a weak link in this dynamic. So, I am pleased to see action picking up on two significant fronts in the EU context.
The first is human rights due diligence. This is the foundational construct for businesses to identify, prevent, mitigate and account for their adverse human rights impacts – throughout their operations and business relationships.
The experience of the past decade has demonstrated that many multinationals understand the importance and utility of human rights due diligence. But the record also shows shortcomings and weaknesses in implementation.
In response, Germany, like several other governments, is giving serious consideration to making human rights due diligence mandatory, as foreshadowed in its 2016 National Action Plan. Similarly, mandatory human rights and environmental due diligence is on the legislative agenda of the European Commission.
I appreciate that many details still need to be worked out. Perhaps none is more important than the question of liability. It may be helpful for me to recall that the UNGPs foresaw the possibility of liability, and how it might play out in practice. The Commentary to UNGP 17 state that:
Conducting appropriate human rights due diligence should help business enterprises address the risk of legal claims against them by showing that they took every reasonable step to avoid involvement with an alleged human rights abuse.
Of course, case-specific facts would also be considered in any such assessment.
A second area that shows progress is the strengthening of non-financial disclosure requirements, including on human rights. Indeed, there is a rush into this space by private international standard setting bodies, large asset managers, alliances of consulting firms and the like, all wanting a piece of the ESG standards market.
Here the EU, as the world’s largest trading bloc, has a golden opportunity to provide authoritative standards, which inevitably would have international spillover effects.
Perhaps there is still time for the Germany Presidency in collaboration with the Commission to establish a measure of policy coherence across the related EU initiatives, so as not to contribute to overwhelming businesses with potentially overlapping or, worse, inconsistent requirements.
Progress on these two fronts would contribute significantly to the overarching concern of this conference with promoting decent work in supply chains.
Indeed, I believe it would go even further and help inform the grand debate taking place on both sides of the Atlantic on the social purpose of the corporation, on the need for it to better serve a broad array of stakeholders in addition to shareholders.
So in conclusion, thanks again, and I wish you every success on the journey ahead.
John G. Ruggie, the Berthold Beitz Research Professor in Human Rights and International Affairs at Harvard’s Kennedy School of Government, has served as UN Assistant Secretary-General for Strategic Planning, and as the Secretary-General’s Special Representative for Business & Human Rights. He chairs the Board of Shift.
Everyone working to ensure that business acts with respect for people is in the business of behavior change. We want companies, and individuals within them, to act in ways that enable respect for human rights. That being so, it’s intriguing that we have not drawn on the vast range of existing psychological insights about how to influence behavior. In our first-of-its-kind experiment in the business and human rights field, we drew on the field of behavioral science to test how consumer choices might help to reduce pressure on couriers delivering online purchases. We found how best to nudge consumer behavior, which provided some surprising discoveries, data and evidence about what works.
We simulated an online shopping experience and asked 2,500 people to select their delivery options. Consumers’ delivery choices can place pressure on couriers handling the items. Using the latest psychological research, we designed six behaviorally-informed nudges to test what was most effective in nudging consumers towards choosing longer delivery times. This experiment and its revelations demonstrate the need for evidence and experiments of this kind for a number of reasons:
Experimental data are the only way of definitively knowing what works.
Anecdotal evidence and expert advice can only get us so far. Before we ran our experiment, we had a fairly strong contention (based on existing research) that the most powerful nudges would be defaults (pre-selecting our preferred option) and social norms (telling people how others are behaving). We were wrong. These nudges did not seem to work. Instead, other nudges that we tested were more effective. This is important to know in order to avoid promoting or investing in ineffective or inferior solutions. Testing our interventions enables us to either:
a) validate our intuitions, enabling us to scale-up with confidence in our predictions; or
b) disprove our instincts, thereby saving us money, time, effort and resources on solutions that do not work.
By evaluating and testing our behavior change interventions early-on we can create a symbiotic process of rapidly designing and testing as we roll-out or scale-up, confident in our knowledge that the intervention works.
Experiments allow us to understand attribution, cause and effect.
We were able to isolate the effects of our nudges by using control and treatment groups in a randomized control trial. This enables us to isolate the effects of any one intervention to know whether it works, as compared to the control group receiving no intervention. Other methods of evaluation are simply not able to say definitively that any effects are attributed to their intervention. For example, if we had used a before/after comparison that compared consumers’ delivery choices from March 2019 to March 2020, we would be unable to pinpoint our intervention as being responsible for any preference changes. Instead, other underlying variables might be responsible for any changes, such as changes in consumer awareness or the COVID-19 pandemic. By using control and treatment groups we are able to know whether our interventions work, and to what extent. For us to be more confident in the results, our evidence could be backed up by other researchers replicating the experiment via both online simulations and online retailers. (We would welcome this!)
Experiments test how people actually behave, and not simply what they say they will do.
What people say they will do and what they actually do can be different. Tracking behavior tells us more about action than what people say they will do, their intentions or self-perception. In our experiment, people were equally likely to describe themselves as ethical consumers. Yet, their behavior betrayed their intentions. The data showed that while younger and older people were equally fairly likely to describe themselves as ethical consumers, younger people were the least likely to choose the more ethical delivery option. Our experiment was an online simulation and so may not capture real-world behavior as accurately because the purchases are not real. Nonetheless, this shows why it is critical to measure behavior, and not simply rely on what people say they will do.
In the business and human rights field, efforts to assess what companies are doing typically focus on activities and outputs such as policies, processes, people trained, etc. It is often difficult to see whether or how those activities lead to different outcomes for people affected by corporate activity. This is because behavior change is often the critical missing link: what people are supposed to do (or even what they intend to do or believe they will do) often differs from what they actually do in practice. We need to pay much greater attention to the individual behaviors that need to change in order for corporate respect for human rights to be realized. These behaviors can be influenced, measured and tested using experimental methods to know whether we are succeeding.
We believe that behavioral science could be more widely deployed to transform business practices. Some areas that we see as particularly ripe for further experimentation and testing include:
Enabling employees across the business to speak up and raise issues when they spot potential human rights risks and impacts;
Ensuring that human rights training translates into actual changes in behaviors and practice;
Designing grievance mechanisms in ways that encourage intended users to use them in practice; and more.
Our vision is for more experimentation and testing in the real-world to demonstrate impact and outcomes for people. Indeed, this is the only way we can truly know what works.
If we want to make respect for people’s human rights the norm in how business gets done, we need to focus more on behaviors – what people actually do, not just what they intend to do. For that, we need more experimentation and testing – in real-world settings – to find out what makes the difference and delivers improved outcomes for people. Indeed, this is the only way we can truly know what works and therefore where companies should be focusing their efforts and resources. That’s the promise of a behavioral science approach.
Following the presentation of the Green Deal last December, the EU Commission initiated the reform of the EU Non-Financial Reporting Directive (NFRD) with the objective to improve quality, consistency, comparability, as well as accessibility of critical information on sustainability disclosed by companies.
This legal framework provides companies and financial actors with much-needed rules and guidelines to report on the risks and impacts on people and the planet, and provide a basis for the EU Commission’s effort to scale up sustainable finance1. The severity of COVID-19 and its economic and social consequences have underlined the need to further and strengthen our efforts on creating a sustainable and resilient economic system.
The undersigned civil society organizations welcome this ambition and call on the European Commission to address the following two critical issues (…)