Many thanks to the government of Finland for convening this timely and important conference.
It is timely because a new European
Parliament has been elected and a new Commission selected. It is
important because we live in a turbulent world that challenges
foundational premises we had been able to take for granted. The European
Union is one of the most significant governance innovations in modern
times. It all began modestly, with six countries coordinating their coal
and steel sectors in the wake of World War II. Today, the EU – whether
it is 27 or 28 – constitutes an economic and social superpower. Now more
than ever, the EU needs to think of itself in those terms.
I am pleased that Finland chose business
and human rights as the focus of its EU Presidency and of this
conference. It leads us to address the people part of the people and
planet challenges faced by all humanity. The conference agenda asks the
question: How do we most effectively advance action on the EU level? My
job this morning is to sketch out the backstory to our discussions and
suggest some strategic directions.
Let me begin with the most basic question:
What is business and human rights all
about? The answer varies depending on the vantage point. In big-picture
terms, it is about the social sustainability of globalization. Some
years ago, my favorite boss, Kofi Annan, said: “if we cannot make globalization work for all, in the end it will work for none.”
Today, people around the world are telling us that we have fallen
short, that the benefits and burdens of globalization have been
unequally distributed within and among nations. The result is public
resentment and loss of trust in institutions of all kinds.
When seen from the perspective of
enterprises, business and human rights is about ways they can recover
trust and manage the risk of harmful impacts. Undeniable progress has
been achieved by individual firms, business associations, and even
sports organizations. But not enough, and not by enough of them.
For governments, business and human
rights is at the core of new social contracts they need to construct for
and with their populations. This includes decent work and living wages,
equal pay for work of equal value, social and economic inclusion,
education suitable to the needs and opportunities of the 21st century, and effective social safety nets to buffer unexpected shocks to the economy or the person.
For the individual person whose rights
are impacted by enterprises, business and human rights is about nothing
more – but also nothing less – than being treated with respect, no
matter who they are and whatever their station in life may be, and to
obtain remedy where harm is done.
My second point is to remind us that
formal international recognition of business and human rights as a
distinct policy domain is relatively recent. At the UN level, the first
and thus far only formal recognition dates to 2011, when the Human
Rights Council unanimously endorsed the Guiding Principles on Business
and Human Rights.
The state duty to protect against human rights harm by third parties, including business; the responsibility of enterprises to respect human rights, regardless of whether states meet their own obligations; and the need for greater access to remedy
by people whose human rights have been abused by business conduct. The
OECD Guidelines on Multinational Enterprises quickly incorporated Pillar
II virtually verbatim.
The UNGPs comprise 31 Principles and
Commentary on what each means and implies for all actors: states,
enterprises, as well as affected individuals and communities. They are
not merely a text. They were intended to help generate a new regulatory
dynamic, one in which public and private governance systems, corporate
as well as civil, each come to add distinct value, compensate for one
another’s weaknesses, and play mutually reinforcing roles—out of which a
more comprehensive and effective global regime might evolve.
That brings me to the key issue of
strategy – how to reinforce and add to this transformative dynamic. The
Guiding Principles embody two core strategic concepts: advocating a
“smart mix of measures,” and using “leverage.” I’ll take them up in
We often hear the term “smart mix of measures” being employed to mean voluntary measures alone. But that gets it wrong. Guiding Principle 1 says that states must have effective legislation and regulation in place
to protect against human rights harm by businesses. Guiding Principle 3
adds that states should periodically review the adequacy of such
measures and update them if necessary. They should also ensure that
related areas of law, for example corporate law and securities
regulation, do not constrain but enable business respect for human
rights. So, a smart mix means exactly what it says: a combination of
voluntary and mandatory, as well as national and international measures.
A number of EU member states and the EU
as a whole have begun to put in place mandatory measures that reinforce
what previously was voluntary guidance to firms on corporate
responsibility. These include reporting requirements regarding modern
slavery, conflict minerals, and non-financial performance more broadly,
as well as human rights and environmental due diligence. Such
initiatives are aligned with the spirit of the UNGPs, and they are
important steps in adding “mandatory measures” into the mix. Still, many
leave a lot to the imagination – of company staff, consulting firms,
and civil society actors among others. More should be done to specify
what meaningful implementation looks like, in order to avoid
contributing to the proliferation of self-defined standards and
storytelling by firms. Also, with limited exceptions currently no direct
consequences follow from non-compliance. Nevertheless, the ascent of
Pillar I is underway.
A second key strategic concept embedded in the UNGPs is “leverage.”
Here are three examples of how leverage can play into the core question
of how most effectively to advance implementation at the EU level.
First, individual member states and the EU as a whole are economic actors: they procure goods and services, provide export credit and investment insurance, issue official loans and grants, and so on. Each agency involved has particular objectives of its own, to be sure. But in all cases, they should consider the actual and potential human rights impacts of beneficiary enterprises with which they engage.
Second, the UNGPs state that the responsibility of enterprises to respect human rights requires that they avoid causing, contributing to, or otherwise being linked to adverse impacts, and to address them when they occur. This extends throughout their value chains. Of course, all firms, including the suppliers of goods and services within global value chains, have the same responsibility to respect. But parent companies and companies at the apex of producer- or buyer-led value chains should also use whatever leverage they have in relation to their subsidiaries, contractors, and other actors in their network of business relationships. They should establish clear policies and operational procedures that embed respecting rights throughout their entire value chain system. Where leverage is limited it may be possible to increase it, for example by providing incentives or collaborating with other actors.
In turn, home, as well as host states of multinational enterprises, have significant roles to play through laws and regulations that enable and support private international ordering of this sort. Global value chains are exceedingly complex. If parent or lead companies fear that they may be held legally liable for any human rights harm anywhere within their value chains, irrespective of the circumstances of their involvement, it would create the perverse incentive to distance themselves from such entities. It is important that regulation gets the balance right.
A third way in which leverage can play into effective implementation at the EU level is by reinforcing positive trends already underway in the business community, but which need strengthening. Perhaps the most important instance today is ESG investing – investment decisions that combine environmental, social, and governance criteria with financial analytics. ESG investing now accounts for $31 trillion of all assets under management worldwide, or one-quarter of the global total. And while it may not be known to many investors themselves, the S in ESG is all about human rights. It seeks to assess how firms conduct themselves in relation to the broad spectrum of internal and external stakeholders – workers, end-users, and communities. It typically includes such categories as health and safety, workplace relations, diversity and social inclusion, human capital development, responsible marketing and R&D, community relations, and company involvement in projects that may affect vulnerable populations in particular.
But here is the problem: it is now
generally agreed that a major impediment to the further rapid growth in
ESG investing is the poor quality of ESG data provided by raters. Common
taxonomies and templates are still in their infancy and evolving
haphazardly even as demand for ESG products is increasing. This poses
problems for investors who seek ESG opportunities and may be paying a
high price for flawed data, as well as for companies striving to improve
their practices that go unrecognized. The problem is especially severe
in the S category – addressing human rights-related issues.
The EU has developed a comprehensive
taxonomy for investment on climate-related standards, indices, and
disclosure. That should have a significant impact for strengthening the E
in ESG. Also issuing official guidance to the S in ESG investing,
making clear its human rights bases, could have a transformative effect
on global capital markets.
In short, a great variety of
opportunities exists for exercising leverage in order to generate
further positive developments in business and human rights.
Allow me briefly to add two thoughts in closing.
The first is that business and human
rights, by definition, is a domain that requires horizontal vision and
cross-functional collaboration – whether within companies, governments,
or the EU. Within the European Commission the task has been largely left
to the External Action Service, with the support of other
directorates-general. That is too narrow a lens to do justice to the
broad array of challenges, and to have the impact that could be
achieved. One of the singular contributions of National Action Plans for
implementing the Guiding Principles is that they have required the
whole of governments, for the first time ever, to consider business and
human rights as a single policy space. The same holds true at the EU
My other concluding thought concerns the
ongoing negotiations on a binding business and human rights treaty in
Geneva. International legalization is both inevitable and desirable to
help level the playing field in a world of global business. In fact, at
the conclusion of my mandate in 2011, I proposed that governments
negotiate a targeted legal instrument addressing business involvement in
gross human rights violations, coupled with the need for greater
cooperation between states to provide remedy. Some parties objected on
the grounds that this did not go far enough, others that it went too
far. It became the only one of my recommendations that did not get
The current treaty process began in
2014. From the outset, I expressed my doubts about attempting to
shoehorn the entire business and human rights domain into a single,
overarching treaty. In my judgment, this is far too complex and too
contested a domain for such an endeavor to produce meaningful results.
Indeed, the risk is that if it were to “succeed” in the sense of being
adopted by some minimum required number of states, it would be by
locking in lower expectations and fewer incentives for innovative
practical approaches than exist today. Nothing I have seen in the five
years of negotiations suggest otherwise.
Having said all that, I do find it
puzzling that the EU has taken no substantive position in these treaty
negotiations. It is puzzling because the EU was an early supporter of
the “smart mix of measures” idea. This leads me once again to thank the
government of Finland for bringing business and human rights to the
forefront of its EU Presidency, with the aim of contributing to a common
agenda for action. I very much hope that Finland’s successors – as well
as the Commission and Parliament – will continue on this path.
Thank you for your attention, and I look forward to our discussions.
This webinar, hosted by the UN Global Compact, provides an overview and discussion of how human rights can and should be considered in mergers and acquisitions processes. The webinar features Shift’s Anna Triponel speaking on the topic and company speakers from Total and Ericsson.
Something that is salient is prominent or important. It stands out conspicuously.
Salient human rights issues: The human rights at risk of the most severe negative impact through the company’s activities and business relationships.
A company’s salient human rights issues are those human rights that stand out because they are at risk of the most severe negative impact through the company’s activities or business relationships.
This concept of salience uses the lens of risk to people, not the business, as the starting point, while recognizing that where risks to people’s human rights are greatest, there is strong convergence with risk to the business.
The emphasis of salience lies on those impacts that are:
Most severe: based on how grave and how widespread the impact would be and how hard it would be to put right the resulting harm.
Potential: meaning those impacts that have some likelihood of occurring in the future, recognizing that these are often, though not limited to, those impacts that have occurred in the past;
Negative: placing the focus on the avoidance of harm to human rights rather than unrelated initiatives to support or promote human rights;
Impacts on human rights: placing the focus on risk to people, rather than on risk to the business.
Salience therefore focuses the company’s resources on finding information that is necessary for its own ability to manage risks to human rights, and related risks to the business. In this way, it helps companies report on the human rights information that shareholders, investors, governments, customers, consumers, media, civil society organizations and directly affected people want to see.
What is the difference from materiality?
Materiality depends on the choice of a particular audience or goal for which things are then judged more or less important. The audience may be shareholders alone or other stakeholders as well. A goal may be profit-making alone, decisions of an investor more widely, or societal welfare generally. The choice of audience or goal then dictates the selection of material issues.
By contrast, salient human rights issues are not defined in reference to any one audience or goal. Salience puts the focus on those human rights at risk of the most severe negative impact. This provides a consistent, predictable and principled means of identifying the appropriate focus of human rights reporting. At the same time, it gives business an effective tool for understanding how human rights issues connect with risk to the business.
When conducting materiality assessments, many companies discount human rights issues due to common assumptions, such as:
Assumption of no risk to human rights: an assumption that the company doesn’t and couldn’t be involved with negative impacts on human rights, based on a limited knowledge of human rights and how they can be affected by business activities and through business relationships;
Assumption that risk to human rights doesn’t matter: An untested assumption that impacts on human rights are without substantial risk to the company and are, therefore, not material, ignoring the many ways in which such impacts can lead to tangible and intangible costs and loss of value for the business, particularly in the medium to long term;
Assumption that past impact defines future risk: An assumption that looking at past impacts will be sufficient for the identification of forward-looking risks to human rights, ignoring risks that might be identifiable from the experience of others in the industry, from other industries, from an understanding of emerging issues and from scenario planning.
Where materiality processes engage external stakeholders to help inform the company’s understanding of relevant issues for reporting, common pitfalls include:
Skewed feedback: Processes that engage with stakeholders based on their expertise in areas the company already assumes are material, such that their feedback reinforces the company’s starting assumptions.
Under-informed feedback: Engagement processes where stakeholders are not given sufficient insight into the company’s operations, range of business activities and business relationships in order to provide informed advice of where they most salient issues might lie.
As a result of these common assumptions and pitfalls, many companies’ existing materiality processes fail to adequately reflect human rights issues or to identify those human rights that are at greatest risk and are therefore priorities for management and reporting.
This webinar explores how business can use the UN Guiding Principles Framework to report in a meaningful way on human rights risks and impacts, and provides examples of how the Framework is being used to support internal management of human rights issues. The webinar also features speakers from Shift, H&M and Newmont.
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