Resource Type: Publications

Human Rights Due Diligence in High Risk Circumstances

This guidance is relevant for companies of all sectors but may be particularly helpful for public and private sector financial institutions. It draws on Shift’s work with the International Finance Corporation to explore the relationship between human rights due diligence and the IFC’s Performance Standards.

Summary

High risk circumstances are situations in which the likelihood of severe human rights impacts is greatest. Human rights due diligence (HRDD) consists of the processes that help businesses become aware of the actual and potential human rights impacts on people associated with their business and take appropriate action to prevent and address those impacts.

From the perspective of the United Nations Guiding Principles on Business and Human Rights (UNGPs), high risk circumstances should be the highest priority for company action since they present the greatest risks to individuals. In such situations, it is therefore especially critical for companies to conduct effective HRDD. Moreover, high risk circumstances for human rights often present high risk to the business as well, including commercial, reputational, investor related and legal risks. This convergence creates a constructive opportunity for human rights leaders within companies to gain the necessary buy in for identifying and addressing human rights risks and impacts.

While it is particularly critical for HRDD to be effective in high risk circumstances, those circumstances can also pose unique challenges for a business’ HRDD processes. High risk circumstances are more complex and fluid. There may be practical difficulties in engaging directly with some affected individuals and groups. The capacity to manage identified risks and impacts may be beyond the sole control of the business enterprise.

Key lessons and insights from business practitioners, further elaborated in this resource, include:

  • To understand the source of risk, and determine where there are high risk circumstances, companies can ask themselves a set of targeted questions, looking at the operating context, the nature of the company’s business relationships, the nature of the company’s business activities, and the types of people who could be affected by the company’s activities (or activities of its business relationships). A listing of these diagnostic questions is an annex in this resource.
  • Engage internal stakeholders in ways that: (a) raise awareness of high risk circumstances, (b) create expectations about identifying and escalating these types of risks, (c) ensure that due diligence is ongoing and responsive to changes in circumstances.
  • Engage external stakeholders in ways that: (a) are integrated into more robust strategies, (b) involve independent third parties in support of company efforts, (c) enable the business to push information to stakeholders and empower stakeholders to push information to the company.

Across these insights and examples, one crosscutting message becomes clear: while the tendency within many companies is to seek greater control over and protection of information as risks increase, in reality, enhanced transparency is critical for success.

UN Guiding Principles Reporting Framework

This resource is available in multiple languages. Click here to see which translations are available or in progress.

Whether your company is ready to report on its human rights management or is just trying to figure out where to get started, the UNGP Reporting Framework is a powerful tool for both performance and disclosure. Its 31 “smart” questions guide a company through the steps it should be taking to manage and report on its salient – or leading – human rights risks. The Framework was developed over a nearly two-year period through an extensive multistakeholder consultation process. | Learn more about the process of its development | Learn about our current reporting program

The UNGP Reporting Framework was developed through a joint initiative of Shift and international accountancy firm Mazars and is backed by an investor coalition of 87 investors with over $5.3 trillion assets under management, calling on companies to use the Reporting Framework.

The UNGP Reporting Framework has a dedicated website that includes the online version of the Reporting Framework and its two supporting guidances on implementation and assurance, as well as additional resources including an explanation of salient human rights issues, interviews with companies that use the Reporting Framework and a database of corporate reporting mapped to the expectations of the Guiding Principles.

How Can Businesses Impact Human Rights?

What do we mean by “internationally recognized human rights”? What is an example of a human right? How could a company’s activities infringe on somebody’s human rights? This concise table lays out what human rights are and gives concrete examples of how businesses can impact them.

Examples of internationally recognized human rights

The table draws on the publication by the UN Office of the High Commissioner for Human Rights, International Business Leaders Forum and the Castan Centre for Human Rights Law, Human Rights Translated: A Business Reference Guide (2008), which is an excellent source of additional information and guidance for companies.

Guidance for Companies on Respecting the Human Rights to Water and Sanitation

This guidance was developed with input from companies participating in the UN Global Compact’s CEO Water Mandate. | Learn more about the collaboration.
The summary below is excerpted from the resource.

Summary

This guidance aims to help companies (particularly heavy water users) translate their responsibility to respect the human rights to water and sanitation (HRWS) into their existing water management policies, processes, and company cultures.

What are the rights to water and sanitation?

  • The human right to water entitles everyone to sufficient, safe, acceptable, physically accessible, and affordable water for personal and domestic (household) use.
  • “Sanitation” is defined as a system for the collection, transport, treatment, disposal, or reuse of human excreta and associated hygiene. The human right to sanitation entitles everyone to sanitation services that are safe, socially and culturally acceptable, secure, hygienic, physically accessible and affordable, and that provide privacy and ensure dignity.

The main audiences for this guidance are staff with responsibility for human rights and those with responsibility for water stewardship within companies. Both large and small companies should find the guidance useful, but it should be particularly relevant for those with heavy water use in their operations.

In addition, the guidance should be of use to other stakeholders, including representatives of states, civil society organizations working on water and sanitation or on broader human rights issues, investors, international organizations, and others who have an interest in supporting, incentivizing, or requiring companies to meet their responsibility to respect the HRWS.

Translating Impacts on People Into Human Rights and Water Stewardship Terms

What is different when a company brings a human rights lens to its water management efforts? At its core, this means focusing on water-related risks to people rather than water-related risks to the business. This means that company efforts to understand their actual and potential impacts need to take full account of the severity of such impacts on “affected stakeholders,” as defined in the Guiding Principles. This could include workers, local community members, or other individuals or groups whose rights may be negatively affected. These impacts may involve the HRWS, but they may also have an effect on other human rights, such as the rights to health, life, and food. They may also have particular implications for individuals or groups who are at heightened risk of marginalization or vulnerability, who are entitled to additional protections under international human rights law.

Many impacts on the HRWS start as less severe social or environmental impacts, so it can be helpful to consider impacts as existing on a continuum. Preventing less severe social or environmental impacts can therefore help prevent negative impacts on the HRWS, as well as prevent negative impacts on other human rights.

Evidence of Corporate Disclosure Relevant to the Guiding Principles

Summary

This report provides an analysis of corporate reporting related to human rights from October 2013 to March 2014. Since that time, corporate reporting has further evolved. To see more examples of corporate reporting on human rights, we suggest exploring the many companies listed in the UN Guiding Principles Reporting Database. For examples of good corporate reporting on human rights, we recommend reading Examples of Good Reporting on the UNGP Reporting Framework website.

The underlying research for this report was commissioned by Shift to build understanding of how leading companies across different sectors currently report on their human rights performance, and how this disclosure relates to the UN Guiding Principles on Business and Human Rights. The research was desk-based, using the information publicly reported during the period from October 2013 to March 2014 (or earlier) by the 43 companies in the research sample.

The findings summarized here indicate that many companies already disclose information about their human rights performance in relation to the key components of the corporate responsibility to respect human rights, as set out in the UN Guiding Principles. However, most disclosure on human rights is at present limited to relatively general statements about process, with little information disclosed about how these relate to specific risks or impacts, or company responses to them.

That said, examples included within the research sample also illustrate that fuller and more specific disclosure on human rights performance is feasible. Companies whose disclosure is excerpted in this report include Rio Tinto, Nike, Gap Inc., HP, Anglo American, Ford Motor Company, PVH, Timberland, Nestlé, Coca-Cola Company and AngloGold Ashanti.

General trends identified within the research sample are as follows:

  • The majority of companies in the research sample have committed to the corporate responsibility to respect human rights and publicly disclose this commitment in a stand-alone Human Rights Policy, Code of Business Conduct, Supplier Code, or other company-provided statement.
  • Many companies are reporting on human rights due diligence, although often providing information in high level statements rather then explaining their processes for implementing their commitment to respect for human rights.
  • Many companies are disclosing information about Assessing Impacts, Integrating & Acting, and the importance of Grievance Mechanisms. However, companies are typically disclosing that they acknowledge the importance of these principles and do not necessarily provide further information about their specific processes and programs.
  • Often, the most detailed disclosure within a report is related to disclosure on supply chain contexts. This information typically relates to tracking performance and details of compliance audits.
  • Many companies disclose information about stakeholder engagement processes. However, they often describe processes that are led by corporate headquarters. Few companies disclose evidence of how they engage affected stakeholders in their processes for assessing impacts or tracking the effectiveness of actions taken.
  • The companies’ with the strongest disclosure in the research sample were fairly evenly divided between European- and North American-headquartered companies.
  • The European companies tended to have stronger disclosure about their human rights policy commitment and overall human rights due diligence processes, while the North American companies were stronger in disclosure about how they integrate and act on the impacts they identify and track their performance, albeit with a strong emphasis on supply chains.
  • Regarding sectoral trends, the companies with the strongest disclosure tended to be in the extractive sector, followed by those companies whose disclosure focuses primarily on supply chain impacts – notably (and in order) the apparel; food, beverage and agriculture; and ICT sectors.

Organizing the Human Rights Function Within a Company

This resource is based on Shift’s experience working with companies from diverse sectors and contexts. The summary is excerpted from the resource.

Summary

In order to deliver on a company’s commitment to respect human rights, individual people within the company need to know their specific role in making that commitment a reality. The commitment has to be embedded into employees’ day-to-day activities.

So how do companies choose to assign that responsibility? Who leads and who implements? How do they coordinate their efforts? Who is ultimately accountable for their success?

This analysis reviews real company practice and identifies four general models for how companies organize human rights responsibility. These models include:

  • Cross-functional working groups, which bring together relevant business functions in a collective platform to address and manage a company’s human rights risks;
  • Hosting a “guide dog” function within existing business departments, where the focus is typically on awareness-raising, information-sharing, support and guidance in helping relevant business units meet the enterprise’s overall responsibility to respect human rights;
  • Legal and/or compliance-driven “guard dog” models, which place greater emphasis on oversight, compliance and accountability for implementation;
  • Separate responsibilities allocated across different departments, through which various departments, based on their respective areas of expertise, assume responsibility for different aspects of the company’s responsibility to respect human rights.

To help readers understand which model – or combination of models – may be most valuable for their company, this resource reviews the models’ relative merits and limitations based on real company experience.

Remediation, Grievance Mechanisms and the Corporate Responsibility to Respect Human Rights

Summary

In the Guiding Principles, the term remediation is used to refer to the process or act of providing remedy. It should not be confused with “remediation” in the context of social audits, where the concept includes (and typically focuses on) forward-looking actions to prevent a non-compliance from recurring. 

At its core, the concept of remedy aims to restore individuals or groups that have been harmed – in this case by a business’s activities – to the situation they would have been in had the impact not occurred. Where this is not possible, it can involve compensation or other forms of remedy.

As the Guiding Principles set out, “remedy” in the judicial context is understood to include: “apologies, restitution, rehabilitation, financial or non-financial compensation, and punitive sanctions (whether criminal or administrative, such as fines), as well the prevention of harm through, for example, injunctions or guarantees of non-repetition.” These forms of remedy are relevant – or have equivalents in the case of punitive actions – also in the context of non-judicial mechanisms, with the exception of criminal sanctions. 

Understanding the Business Responsibility for Remedy

The Guiding Principles make clear that a company’s responsibility to provide for remedy depends upon its connection to the human rights impact that has occurred: “Where business enterprises identify that they have caused or contributed to adverse impacts, they should provide for or cooperate in their remediation through legitimate processes,” (Guiding Principle 22).

Where the company has neither caused nor contributed to an impact, but the impact is nevertheless linked directly to its operations, products or services, there is no responsibility under the Guiding Principles to provide for or contribute to a remedy. A company may choose to contribute to remedy in these situations for other reasons – humanitarian, commercial, reputational or other – but this is not grounded in their responsibility to respect human rights.

Understanding and assessing the nature of a company’s responsibility with respect to a specific impact can therefore be an important step in determining a company’s responsibility to provide remedy. Few companies have systematic approaches for analyzing the nature of their responsibility. One company representative observed that, “Our incident management systems are primarily designed to see if an impact occurred, but we have no systematic way of analyzing what our role with the impact may have been.”

Mapping the Place of a Grievance Mechanism

Where companies have caused or contributed to an impact, they have a responsibility to provide or contribute to remedy for those who have been harmed. Primarily, the way companies have understood this responsibility is the need to establish grievance mechanisms, through which affected stakeholders can raise and seek redress for impacts that have occurred. 

The internal “ecosystem” for remediation

Internal policies and processes that may already exist and provide a channel for receiving complaints and/or for addressing them include:

  • Whistle-blower / ethics hotlines
  • Employee ombudsman / human resources complaints processes
  • Open Door / Speak up policies
  • Trade Unions / Industrial Relations processes
  • Consumer complaints mechanisms
  • Community facing grievance mechanisms
  • Business-to-Business contract clauses with dispute resolution provisions
  • Code of Conduct requirements for supplier mechanisms
  • Audit processes (and worker interviews)
  • Supply chain hotlines
  • Stakeholder engagement (at the site level and the policy level)

Mapping the internal ecosystem for remediation serves a number of purposes:

  • Increasing internal comfort with the concept
  • Identifying gaps
  • Learning from existing processes
  • Ensuring connectivity: impacts and grievances are channeled to the right people to be addresses, and the business has full visibility into its human rights impacts.

The external “landscape” for remediation 

Just as companies can look at the internal ecosystem as they consider strengthening or augmenting existing remediation processes, they can likewise look at the “external landscape” for remediation in different operational contexts.

States have critical roles to play in ensuring that effective judicial and non-judicial processes are present. They do so through national court systems and statutory and regulatory bodies, such as national human rights institutions, labor dispute bodies, as well as through administrative mechanisms such the National Contact Points (NCPs) of the OECD Guidelines for Multinational Enterprises. Public financial institutions and multi-stakeholder initiatives may also provide accountability mechanisms and grievance processes to enable those affected by their clients’ or members’ business activities to raise concerns and seek redress for impacts. 

Operational-level grievance mechanisms administered or co-administered by companies sit within this landscape – as non-state-based, non-judicial mechanisms, which should be primarily dialogue based in nature. 

Operational-Level Grievance Mechanisms

Operational-level grievance mechanisms are a systematic means of providing remediation processes.

This resource does not seek to provide full treatment of how to make operational-level mechanisms effective. However, some key areas to keep in mind include:

  • Need for effective management system of the grievance mechanism
  • Determining scope for the grievance mechanism
  • Considering how to talk about the grievance mechanism
  • Designing the system with an holistic and integrated, rather than silo’ed, approach
  • Ensuring an escalation process
  • Using the effectiveness criteria (set out in the Guiding Principles)
  • Connecting grievance mechanisms with stakeholder engagement
  • Getting started by knowing where you currently are

Roles and Responsibilities for Remedy in the Value Chain

When impacts occur within a company’s value chain, businesses often find themselves in a “linkage” situation: that is, the company has not caused or contributed to the impact, but the impact is directly linked to the company’s operations products or services.

In such circumstances, businesses should first confirm that it is indeed a situation of linkage, and not contribution. For instance, in the supply chain context, companies can in some instances contribute to impacts that occur at the supplier level, for example, through their purchasing practices or payment terms.

In these circumstances, companies can play an important role in incentivizing those in their value chain to provide effective grievance mechanisms. This is likely to be easier in relation to suppliers than in downstream relationships.

Ways companies incentivize suppliers to establish grievance mechanisms may include:

  • Making expectations of grievance mechanisms clear in contracts or codes of conduct;
  • Including review of grievance mechanisms during assessments;
  • Offering capacity building for suppliers on grievance mechanisms;
  • Providing a recourse mechanism (like a hotline) if local grievance mechanisms are inadequate.

Costs of Company-Community Conflict in the Extractive Sector

This resource was developed through extensive confidential interviews with industry, analyses of 50 publicly available cases, as well as field work in Peru. It contains a typology of costs that are of relevance to companies well beyond the extractive sector. The summary below is excerpted from the resource.

Summary

Over the past decade, high mineral and energy commodity prices have driven expansion of the extractive sector. Mineral and energy developments profoundly transform environments, communities and economies – and can often generate social conflict. This study seeks to answer the question: if the costs of conflict experienced by companies in the extractive industry were better understood, would relationships between companies and local communities receive greater priority and attention?

Through in-depth interviews and empirical case analysis, the study explores the value at stake when companies in the extractive sector experience conflict with local communities. The study involved detailed case analysis of publicly available information regarding 50 situations of prolonged or otherwise significant company-community conflict, as well as 45 in-depth confidential interviews with individuals from, or with great experience in, the extractive industry.

The research shows that most extractive companies do not currently identify, understand and aggregate the full range of costs of conflict with local communities. Although company-community conflict may generate the same broad effects as those caused by technical problems, contractual or regulatory disputes, or environmental or safety breakdowns (such as a reduction in or suspension of operations), it is typically not given equivalent attention or resources. In the research, costs were understood broadly as meaning any negative impacts on a company’s tangible or intangible assets, including value erosion, from failing to avoid, mitigate or resolve conflict at an early stage. 

The case analysis revealed that environmental impacts such as pollution typically precipitate or trigger conflict, while broader social and economic issues (such as the distribution of project benefits or the quality of the company’s ongoing consultation processes) typically underlie situations of conflict. These underlying issues can affect the quality of the relationship between the company and community and lead to a situation in which a trigger is more likely to set off a confrontation. Nearly half of the cases analyzed involved a blockade, while a third involved a fatality or injuries, damage to property, or the suspension or abandonment of a project – a particular risk in the feasibility and construction stages.

The research explored the most frequent, greatest, and most often overlooked costs of company-community conflict. The most frequent costs were those arising from lost productivity due to temporary shutdowns or delay. For example, a major, world-class mining project with capital expenditure of between US$3-5 billion will suffer costs of roughly US$20 million per week of delayed production in Net Present Value (NPV) terms, largely due to lost sales. Direct costs can accrue even at the exploration stage (for example, from the standing down of drilling programs).

The greatest costs of conflict identified through the research were the opportunity costs in terms of the lost value linked to future projects, expansion plans, or sales that did not go ahead. The costs most often overlooked by companies were indirect costs resulting from staff time being diverted to managing conflict – particularly senior management time, including in some cases that of the CEO. There may also be costs associated with the inability to recruit and/or retain top talent, particularly in the community relations function.

The “language of costs” was seen as being particularly useful for a company’s community relations/social performance team in reaching two key audiences: senior management and financial colleagues. One company had undertaken a systematic review of the potential costs of nontechnical risks connected to its various projects and identified a significant figure – a value erosion of more than $6 billion over a two-year period, representing a double-digit percentage of its annual profits – which it used to attract Board-level attention to these issues.

Interviewees cautioned against relying on pure cost-benefit analysis; rather, those within companies that had experienced success with cost-based arguments emphasized the need to tie them closely to anecdotal experiences and to the company’s own values when communicating with internal audiences. The need for reliable data was emphasized; interviewees noted various challenges in determining causality when attributing certain costs to company-community conflict, and in aggregating costs across different projects or regions.

Interviewees saw a need for extractive companies to better understand the costs – in the sense of loss of value – that can arise from failing to build sustainable relationships with local communities; for example, a less-resilient supply chain or an unreliable local workforce, and the impact that this can have on core business. They highlighted the need for companies to distinguish their social investment spend from what they allocate to social risk mitigation; confusing the two tends to lead to a focus on money rather than on building relationships, as a way to address problems, and to rewarding those individuals who are most vocal while ignoring others who may also have real concerns.

Industry experts observed that the triggers of company-community conflict are increasingly predictable, yet not enough companies are using root cause analysis or similar processes to evaluate such incidents and learn the relevant lessons. Certain other company systems and processes were seen as particularly relevant to identifying (and preventing) costs arising from conflict, including impact assessment, risk and commitment registers, and operational-level grievance mechanisms.

Taking the necessary time to prevent and address such conflict, particularly the time needed to build sustainable relationships through engagement with local communities, is often in tension with short-term production targets or ambitious construction schedules. A failure to identify the connections between distinct budget lines (eg, between security costs and community relations) can also limit understanding of these issues. Conversely positive internal incentives can help enhance attention to the costs of conflict – and the action needed to prevent it. The research highlighted some examples of creative approaches to social performance objectives and indicators by extractive companies.

External incentives that can enhance company attention to these issues include evidence of impacts on capital – for example, in a key study analyzing the impact of company-community relationships on the stock prices of Canadian gold mining juniors. Reputational impacts remain hard to quantify, but heightened stakeholder attention to issues of materiality and reporting regarding social impacts appear likely to drive greater attention to this area.

Interviewees observed that effective management of community expectations requires “frontloading” the company’s investment in community relations. This may be easier for large multinationals with positive cash flow, while smaller and medium-size companies may face constraints in this regard. Limits on cash flow at the start of a project can lead a company to adopt an approach that relies on remediation of social impacts after things have gone wrong, rather than seeking to prevent impacts, and conflict, from occurring. Yet experienced interviewees emphasized that it only gets more expensive to try to “buy support” later in the project lifecycle and that this almost never leads to sustainable relationships. Analyzing the costs of conflict can thus help community relations staff to make the business case for increased attention to community engagement before severe impacts occur and the company reaches a tipping point in its relationships.

Finally, the research explored a number of market drivers of greater company attention to company-community relationships. These include project lenders and insurers, some of whom are increasingly sensitive to their clients’ social risk exposure – and to their own as a result. In some cases, this is translating directly into financial risk for lenders. For example, there is emerging evidence in Peru to show that banks are exposed to higher default rates on the financial support that they provide to small businesses or individuals in areas around extractive projects that are experiencing high levels of company-community conflict. There is also increasing awareness of these issues among juniors because of the growing implications for successful onwards sale of assets, and among business customers and consumers in areas like conflict minerals and coal. Government, of course, can play a variety of roles – as a source of positive pressure on the sector, as a hindrance to company efforts, or as a potential partner in joint venture situations.

Overall, the research suggests that improved identification and analysis of the costs of company-community conflict is important for the extractive sector. It identifies a range of factors that are likely to influence the extent to which companies pay attention to these costs, and invest in the underlying relationships with local communities.

Business and Human Rights Impacts: Identifying and Prioritizing Human Rights Risks

This report reflects learning from a workshop with 12 Dutch companies together with expert stakeholders, hosted by the Social and Economic Rights Council of the Netherlands, about how companies can identify and prioritize human rights risks and test their findings through stakeholder engagement. The annex features examples of real company risks and prioritization exercises within a set of analysis tools. This workshop supported the process leading to the development of sectoral covenants in the Netherlands to address human rights risks in global supply chains. | Learn more about our work supporting the broader covenant process

This report summarizes the key lessons learned from a workshop facilitated by Shift on identifying and prioritizing human rights risks. The workshop was convened by the Dutch Social and Economic Council of the Netherlands (SER) on January 15-16, 2014, in The Hague. The workshop involved over 20 representatives from 12 participating companies, as well as 12 expert stakeholders, including from trade unions, NGOs and other non-profit organizations.

The objectives of the workshop were to:

  1. Build practical experience in applying key tools and approaches for identifying, appropriately prioritizing and taking action on human rights risks;
  2. Generate broader learning about implementing these approaches to share with a wider audience in order to contribute to evolving understandings of how to put business respect for human rights into practice.

The workshop focused on the first two steps of human rights due diligence as they are elaborated in the Guiding Principles, and incorporated in the OECD Guidelines for Multinational Enterprises – assessing impacts and integrating and taking action on identified impacts. It drew on existing methodologies developed by Shift through its work on putting the Guiding Principles into practice.

In advance of the workshop, participating companies were asked to prepare an initial identification of human rights risks related to their operations. In addition, three pilot companies applied the relevant methodologies in more depth, with support from Shift. During the workshop, participants engaged in table discussions (with three companies and 2-3 expert stakeholders at each table) about the methodologies for identifying, appropriately prioritizing, and taking action on human rights risks. The companies shared their own efforts and received feedback from the other participants.

The role of the expert stakeholders was two-fold: to provide sector-specific knowledge about human rights risks in a particular commodity and/or country, and to help stimulate critical thinking by company participants. Each session ended with a plenary discussion about key learning, as well as common pitfalls and challenges experienced by companies, which are summarized in the body of this report.