Business Model Red Flags

Business Model Red Flags (Beta)

This resource is a work in progress as part of Shift’s Valuing Respect project. It provides a non-exhaustive menu of business model features that carry inherent human rights risks. It aims to help companies, investors and others foster sustainable business models that can be economically successful without exacerbating inequalities.

Analysis of human rights risks is often tied to characteristics of a particular sector or assessment of a particular company. Both approaches are important. But where risks are embedded in decisions about how a business will create value, including profits, they need to be identified and addressed at that level. It is not possible to mitigate risks to people at the operational level if they are designed into the core of how the business is intended to operate. The primary intended users of the resource are:

• Investors and civil society organizations seeking to strengthen their analysis, strategies and engagement with companies in order to advance respect for human rights and thereby reduce inequalities;
  
  
• Financial institutions scrutinizing their portfolios for human rights risk and diagnosing whether significant human rights incidents are likely to be replicated by the company concerned or in other parts of the portfolio; and
  
  
• Business leaders seeking to identify and address risks to people that may be embedded in the business model, in order to ensure the resilience of value propositions and strategic decisions.

The Red Flag indicators are grounded in three features of a business model:

• The value proposition (what the company offers and to whom);
• The value chain (how the company delivers value); and
• The revenue model (how the business model is profitable).

They are not intended to be an exhaustive list, but may help spark reflection and enable the identification of additional red flags. For each red flag, we are developing supporting resources, including 3-4 questions for top managers or investors to ask when they identify a red flag in their company/ investment. Specifically, these resources will identify:

• Higher risk sectors/industries
• Key Questions to Ask
• Risks to People
• Risks to the Company
• Implications of the UN Guiding Principles
• Nexus with the SDGs
• Due Diligence Lines of Inquiry
• Mitigation Examples
• Alternative Model Examples
• Tools/Further Information