Change Agents: Business Enterprises
Audio | Getting Contractual Provisions on Human Rights, Right
As the mandatory due diligence debate heats up in Europe and we look ahead to more countries turning the responsibility to respect into a corporate duty, companies will increasingly need to focus on setting clear expectations of their business partners. Putting the right provisions into contracts is going to become even more important.
In this conversation, Shift’s Rachel Davis and John F. Sherman III discuss a recent project of a Working Group of the Business Law Section of the American Bar Association (ABA) that is trying to get ahead of the trend of new legislation and put companies on the right path in how they approach the role of contractual requirements.
You may also read more about the Model Clauses in a viewpoint by John Sherman, here.
This episode’s speakers
Rachel Davis is one of Shift’s co-founders and has led work at Shift over the last decade on standard-setting, human rights and sports, financial institutions, conflict and international law.
As Vice President, Rachel shapes our strategy and oversees a range of our collaborations with companies, governments, investors, civil society and other partners. Rachel leads Shift’s work to influence STANDARD-SETTERS of all kinds to integrate the UN Guiding Principles into the rules that govern business, including engaging with governments and the European Union on mandatory human rights due diligence. Learn more
As Shift’s General Counsel and Senior Advisor, John F. Sherman III focuses on the role of corporate lawyers in the implementation of the Guiding Principles in their role as wise legal counselors.
John is an internationally recognized thought leader on this subject. He chairs the business and human rights working group of the International Bar Association. He writes frequently in professional and academic journals and is a sought-after speaker at legal conferences and workshops, advocating for lawyers’ role in ensuring companies do business with respect for human rights. John is a founder of the IBA CSR Committee and was its co-chair from 2008 to 2010. Learn more
Covid inequalities highlight the pressing need for social reporting
This post was also published by CDSB.
The pandemic has accentuated the important interconnections between our social and environmental systems, and the deep inequalities that exist across society.
As researchers have emphasised, the likelihood of diseases like Covid-19 increases with environmental degradation and climate change, factors which are driven in large part by an unsustainable and extractive model of growth.
There are an estimated 500 million smallholder farming households globally, these people comprise a large proportion of the world’s poor living on less than $2 a day. These farmers produce 30% of the world’s food supply and are forced to adopt unsustainable farming practices to make ends meet. As health impacts and climate change continue, those communities least resilient and least able to adapt are also the most socially and economically vulnerable.
Inequalities have been highlighted and exacerbated by the pandemic. In the UK and the USA, the data is clear that the impact of the virus has been far from indiscriminate, following lines of race, class and social deprivation. The huge social movement for Black Lives Matter and calls of racial equality on either side of the Atlantic can be seen as an indirect result of this stark inequality. The pandemic also highlighted the undervalued and precariously employed workers in healthcare, education, transportation and logistics, while the global vaccine rollout has exacerbated the already significant divide between the developed and developing world.
However, the pandemic has also created a greater openness to change. This reality is being recognised by a growing number of corporate leaders. There is a burgeoning understanding not only of the contribution of businesses to these glaring social problems, but also, of the benefits that such transformation might bring to companies, their investors and wider stakeholders.
Progress, though, is hard for companies to demonstrate – and even harder for investors, regulators and others to measure and reward. We need clarity on what constitutes quality information on companies’ social performance, which is comparable and consistent.
Development is clear when it comes to the mainstream reporting of environmental information. The international support and uptake of the Task Force for Climate-related Financial Disclosures (TCFD) Recommendations is evidence of this, as is the climate-first approach of the IFRS’s recently announced International Sustainability Standards Board. The same, however, cannot be said for corporate reporting on social issues, nor the connections between the ‘E’ and ‘S’ of ESG, which are largely absent from present mainstream reporting practices. This makes it hard to reach effective and impactful decisions on capital allocations towards social sustainability.
As a starting point, it is important to recognise that the categories of ‘social’ issues usually considered in ESG reporting are largely about human rights impacts: that is, impacts on people that reach the level of affecting their basic dignity and equality. For instance, diversity and inclusion addresses discrimination, while health and safety and privacy are themselves human rights. Too often the centrality of human rights issues to companies’ ‘social’ risks and opportunities is neglected to the detriment of reporting quality, being lumped together with philanthropic projects and staff volunteering, which distract from focus on how the business is run.
Indeed, the problems we encounter are not a lack of reporting on ‘social’ issues, but the limited usefulness of the most common corporate disclosures. Reporting is still frequently focused on case studies designed to cast companies in a positive light or boilerplate statements about human rights policies and processes. The social metrics reported by companies are often detached from the risks and issues identified elsewhere in their reporting. They focus largely on inputs, activities and near-term outputs, while offering little insight into how well the issues are managed and what results are achieved – for the people affected and for the business. Such disclosure appears more as a tick-box exercise than an important means of monitoring key business concerns and communicating with investors.
Investors need coherent and meaningful insight into a company’s identification, management and monitoring of social risks, as set out in the kind of human rights due diligence process that has appeared in international standards for nearly ten years, and which looks set to appear in major new EU regulations within the next two or three years. They need to know whether a company has the business model, strategy, leadership mindset and risk management processes necessary for it to get ahead of the kinds of risks to people that could end up being tied to their business – risking reputation, resilience and revenues – if they don’t pay attention.
The responsibility for the quality of the information available in
mainstream social reporting does not lie solely with companies. It is also that of regulators who have yet to set clear expectations for companies to meet, and of mainstream investors, who have themselves lacked clarity on what they need from corporate reporting on these issues. And, importantly, responsibility lies with standard setters and framework providers as well: the present ecosystem of guidance has to date not provided companies with sufficient support to deliver effective mainstream reporting.
Yet there is hope in what we are starting to see through developments in reporting regulations such as in the EU with the evolution of corporate sustainability reporting and the US with the SEC’s rules on human capital reporting and larger market actors driving in the same directions, as seen in BlackRock’s most recent letter to CEOs, which highlighted some priorities for social reporting, alongside expectations for climate disclosures.
In its upcoming position paper, CDSB will set out a roadmap for the inclusion of social issues into its mainstream financial reporting framework and technical work. Building on CDSB’s TCFD-aligned reporting framework and will respond to issues noted above. The inclusion of social issues will offer companies a framework for reporting comprehensively on financially material sustainability risks and opportunities.
As the the leading center of expertise on the UN Guiding Principles on Business and Human Rights, Shift’s primary focus is on the materiality of a company’s impacts on people. However CDSB and Shift recognise the critical value to be offered by a robust framework for assessing and reporting on financially material social issues. Indeed, CDSB and Shift believe this will help companies in understanding the increasingly dynamic relationship between these two concepts of materiality, as well as the crucial links between environmental and social risks and how companies respond to them. Building these connections will provide decision makers with important information on social, environmental and climate issues, necessary for the transformation to a just and sustainable future.
Beyond Pride: The Rights of LGBTI People and the Corporate Responsibility to Respect
In every region of the world lesbian, gay, bisexual, transgender and intersex (LGBTI) people face some degree of violence, persecution or discrimination.
From what is said around a family dinner table to who gets to compete in a sports contest; from who is welcome in a bathroom to who is sentenced in a court room; to forced sterilization and harmful medical procedures; and from who gets an apartment, job offer or promotion to who gets imprisoned, flogged or sentenced to death. The contexts for such violence and discrimination are as varied as the people in the LGBTI acronym, and pose a wide range of human rights risks for companies.
Businesses have a responsibility – under the UN Guiding Principles on Business and Human Rights (UNGPs) – to understand and address how their actions, decisions, omissions and business relationships can lead to negative impacts on people. In the case of LGBTI people, that means considering how they could be adding to the risk that they already face on the basis of their sexual orientation, gender identity or expression, or sex characteristics (SOGIESC).
Use this resource to:
- Learn how business activities and relationships can exacerbate risks faced by LGBTI people.
- Understand why risk can vary depending on geographical and cultural context, and what that means for global businesses.
- Explore how companies can understand the particular vulnerabilities experienced by LGBTI people to better identify risks and prioritize action.
- Review what companies are doing to address risks to the rights of LGBTI people, and where the gaps are in existing practice.
- Consider meaningful ways in which companies can engage with LGBTI stakeholders and use their leverage with peers, partners, suppliers, governments and others
Planning for Risk Mitigation: Assessing Human Rights in Strategy Development and Roll out
When human rights practitioners develop strategies to identify and prevent risk to people, they often feel like their hands are tied: the business is already operating in a certain way, in given markets with different levels of risk, selling a line of products that already exists and partnering with suppliers that have already been decided by other functions. They then spend effort and resources trying to superimpose human rights considerations onto an approach that is already wired to impact people.
But what if that were not the case? What if a company could build human rights risk planning into the design of a new strategy, or soon-to-launch product or business model transformation? Companies could develop a product or roll out a strategy with the necessary safeguards in place to mitigate risks to people, to improve company decision-making, and to potentially re-shape business behaviors. Crucially, an early and full view of the potential impacts across the ecosystem in which a new product, service or strategy sits would also enable a company to bring in the right peers and partners to address them.
This ambition shaped Ericsson’s approach – to examine human rights risks connected to the rollout of their new flagship technology: 5G.
5G is the latest evolution of mobile technology standards. While we’ve become familiar with the iterative release of mobile technology innovations, 5G it not just the “latest version.” It promises to exponentially increase the capacity and efficacy of networks and to enable many new user scenarios and capabilities: data will be king (as opposed to voice and SMS); download and upload speeds will be faster, and devices will connect to wireless networks quicker. 5G will also provide the fuel for the Internet of Things (IoT), Augmented Reality, Virtual Reality and Big Data. In short, it is a quantum leap for the ICT sector and, most likely, for all of us as well.
But news coverage of 5G has not always been as optimistic. The legitimate concerns about the way this new technology may affect us – whether due to privacy breaches, the increased automation of jobs and the need for “just” worker transitions, or the potential for citizen surveillance – have often been obscured by various conspiracy theories, including misleadingly linking cell towers to the coronavirus pandemic.
In this context, ahead of the upcoming large-scale rollout of 5G, Ericsson aimed to encourage an informed discussion of these human rights risks and the company’s involvement with them. Along with Shift, the company embarked on a distinct human rights assessment, looking not at what the impacts were, but at what they could be.
The exercise started with desktop research on the new technology, which led to the mapping of the 5G value chain and then layering on the potential impacts on affected stakeholders whose rights could be at risk. This resulted in a set of salient human rights impacts (those human rights at risk of the most severe negative impacts) that could be tested internally with key company stakeholders in a workshop setting, along with a group of expert, external organizations.
Through that exercise, Ericsson was able to identify risks before they happened. For example:
- Through the value chain, Ericsson identified ways in which privacy could be at risk if the new technology enables apps to gather an exponentially greater amount of data without the knowledge or consent of users, and then sell it to digital advertisers to help them target their messaging more effectively.
- 5G will enable machines to take on more specialized and professional work, potentially impacting significant portions of the working population (blue and white-collar workers alike) in the future. This will require a concerted response by businesses and governments to ensure a ‘just transition’ for workers through new skills development.
- 5G technology is also likely to support increased surveillance capabilities, including more precise geolocation data, which could be misused for illegitimate purposes, such as enabling governments to target specific groups or shutdown networks in more discrete ways.
The identified impacts are not necessarily unique, or indeed solely attributable to 5G. But, the potential for many of the impacts is heightened by the way in which 5G breathes life into a myriad of other emerging technologies such as Artificial Intelligence, Virtual Reality, Augmented Reality and Big Data. By understanding this, Ericsson is better prepared to manage and/or mitigate their occurrence.
Proactive, early-stage risk identification comes with its own challenges, specifically because not all potential risks (or the related unintended consequences) can be anticipated until a product or strategy hits the market. A business will have to fine-tune its approach as roll out continues. However, this effort will allow the company to embed safeguards into the product or strategy, identify channels for leverage with other entities, and be better positioned to engage with stakeholders in future conversations.
So, what can other companies learn?
Taking a pre-emptive approach – while preferable – may not always be possible. Yet, there are important lessons from this exercise that practitioners may want to consider regardless of where their company is on their human rights journey:
- Make the business case for why it is important for human rights to get a seat at the table in product and strategy development and rollout. While practitioners may not be able to turn back time, they can make the case for why it is important to identify risk at an early stage of future product and strategy design. A proactive approach can:
- Enable companies to identify potential impacts before they occur and be better positioned to tackle otherwise unforeseen risks, including risks to the business.
- Help identify systemic issues that are often difficult to see through a more traditional audit.
- Help the company build partnerships at an early stage, positioning it as a convener for partners, peers and other stakeholders to use collaborative leverage when needed.
- Show stakeholders who are reticent that the company understands their concerns and is willing to take action.
- Help the company develop a relationship of trust with civil society organizations and other stakeholders that can be essential in the planning, executing, monitoring and evaluation of human rights actions.
- Assessing risk is the foundation, not an end result. While this sort of approach to identify risk is innovative, it will have limited effect if it is not followed by concrete steps to mitigate the identified risks, and consistent efforts to test whether the initial assessment was accurate, or if there are other risks that arise from the actual rollout of the technology.
Ericsson’s assessment was made publicly available on March 2, 2021 and may be found here.
Corporate Activism through the Lens of the UN Guiding Principles on Business and Human Rights
This fireside chat was part of Reuters’ Responsible Business Europe 2020 and aired on October 26, 2020
While respect for human rights and corporate activism are often seen as distinct, in this short video, Business Engagement Director Francis West and Advisor Daniel Berezowsky make the case for companies to use their voice and influence as a key part of their responsibility to respect human rights.
Accountability as part of Mandatory Human Rights Due Diligence: Three Key Considerations for Business
The European debate on mandatory human rights due diligence (HRDD) has gained significant momentum in the last year. A number of national initiatives are coming to a head in late 2020, and the European Commission is launching a formal consultation on a potential EU-wide regime on mandatory human rights and environmental due diligence. We have seen growing business support for mandatory HRDD, from both individual companies and business associations, as well as an increase in joint calls by business and civil society for such measures.
As we approach this critical moment, we have been working hard at Shift to support constructive discussions among government, business and civil society allies about the role and content of new regulation. In particular, we have been engaging with businesses that are supportive of new measures, but have concerns about what shape it might take and what the consequences might be.
In this briefing note, we explore what well-designed mandatory HRDD measures could look like, with a focus on the role of accountability – or consequences – for meeting a new legal standard of conduct. We set out three key considerations that we believe businesses that are committed to meeting their responsibility to respect human rights should keep in mind:
- The legitimate role of liability in implementing the UN Guiding Principles
- Incentivizing robust HRDD through accountability measures that go beyond liability
- Assessing the quality of a company’s due diligence
Using the lenses of LGBTQI vulnerability to identify and prioritize risk
In September 2020, Shift hosted a webinar on LGBTQI rights and the corporate responsibility to respect human rights, under the UN Guiding Principles. In the webinar, advisor Daniel Berezowsky discussed structural vulnerability due to discrimination on the basis of sexual orientation, gender expression, gender identity and/or sex variations. Business Learning Participants can access the full recording in the Business Learning Portal.
Adding Human Rights to the Shopping Cart
Online shopping is booming. In the UK in 2019, average weekly online retail sales rose from £1.45billion in 2019 to £2.2billion in May 2020. Retailers have struggled to keep up with demand during the COVID-19 pandemic, comparing it to the Black Friday and Christmas rush periods. A critical part of the online shopping value chain are logistics companies who fulfill retailers’ delivery to consumers. The industry is fast-changing but many logistics companies rely on couriers who are often self-employed, not provided holiday or sick pay and face fines or don’t get paid at all if an item is not delivered.
Longer delivery windows enable better planning and forecasting, provided that retailers pass on the additional time to their logistics providers, who use it to support couriers. While some logistics providers pay couriers a premium to deliver high-value items, the delivery of these items can also place additional pressures on them. Self-employed couriers tend to only be paid if the item is delivered, which can delay or dilute payment if the courier must make multiple trips.
Shift – through it’s Valuing Respect Project – partnered with the Behavioral Science Group at Warwick Business School to see if behavioral science could suggest some ways to nudge consumers towards longer delivery windows that could reduce pressures on couriers.
Testing Ways to Nudge Consumer Behavior
With that in mind, we ran an online shopping simulation experiment with 2,500 regular online shoppers in the UK. Participants were asked to imagine they were buying a low-value (book), medium-value (coat) and high-value (laptop) product. They were then asked to select their delivery preference for each. Participants were randomized into different groups and shown a range of delivery options, including:
|Same-Day Delivery||Nex-Day Delivery||2-3 Days||3-5 Days|
The control group received no nudge and acted as a point of reference to compare the effectiveness of the groups receiving the nudges. Participants in this group saw a list of delivery options from fast to slow, with the fastest option as the default. This mirrored how many popular online retailers present delivery options. Each of the other groups saw the same list of delivery options as the control group combined with a different “nudge,” as we tested how best to encourage consumers to choose “3-5 day” delivery instead of “same day” delivery. The nudges ( A nudge is a change in choice architecture to influence behavior and decisions in ways that are easy and cost-free and that retain freedom of choice. ) were:
Consumers were given an additional 12-14 day option, in order to make 3-5 days appear more reasonable.
The slowest delivery option (3-5 days) was pre-selected.
The consumer was shown a picture of a courier with a message about how their choice would affect them.
The delivery options were reversed, from longest to soonest, keeping the “same day” option pre-selected.
A message was added saying “Standard 3-5 day delivery is recommended by the Good Courier Network, an alliance of delivery providers who commit to responsible working practices for their drivers”.
A message was added saying, “Over 80% of people who purchase this item choose the Standard ‘3-5 day’ delivery option”.
Our starting point was the control group, where 18% of consumers chose the free, “3-5 day” delivery option. Our experiment then tested how we could bring this number down by nudging consumers. The graph below shows how nudges were effective in lowering the 18% by up to 4 points:
How Nudges Decrease the Number of Consumers Who Opt for Faster Delivery Options
1. Consumers Want More Expensive Items to Arrive Sooner
As the item value increases, fewer consumers choose the free delivery option and more of them go for same-day delivery, even if they have to pay an additional £ 6.49.
Percentage of Consumers Who Chose the Free, “3-5 Day” Delivery Option
Percentage of consumers willing to pay £6.49 to receive their product the day they ordered it
2. The effectiveness of the nudges appears to be dependent on the value of the purchased product
Different nudges were more or less effective depending on what consumers were buying. For instance, when consumers were buying a laptop, they were more susceptible to change their behavior with the ’empathy’ nudge; however, when they were buying a coat, they were more responsive to ordering and recommendation. Interestingly, no nudge had a statistically significant effect on consumers buying the low-ticketed item, which was a book. This is not surprising as data confirmed that people are unwilling to pay for smaller value items to be delivered.
How nudges affected consumer behavior depending on the product they were buying
MOST EFFECTIVE NUDGE:
MOST EFFECTIVE NUDGES:
Ordering and Recommendation
MOST EFFECTIVE NUDGES:
No nudge made a statistically significant difference
It may be that buying an expensive, long-term investment item such as a laptop triggers more analytical thinking and makes the consumer more receptive to the reasoning in the message from the courier.
3. Several nudges that are effective in other contexts, didn’t seem to alter consumer behavior.
Some nudges did not have a significant effect on any of the three products. For instance, changing the delivery option that appeared by default did not significantly alter consumer choice. This was particularly surprising. Defaults are well-established, powerful nudges in behavioral science and in real-world settings. However, in this case, consumers chose to actively move away from the default to select other options.
4. Consumers who identify as women and are 35 or older were more likely to choose the free, “3-5 day” delivery option.
Across the items, consumers who identified as women were 64% more likely to actively select “standard delivery” when purchasing the book than those who identified as men. Age also played a role in consumer behavior. For instance, compared to consumers aged 18-34, those aged 35 and over were 57-80% more likely to choose “3-5 day” delivery.
5. Shoppers may claim to be ethical consumers. That doesn’t necessarily reflect in their behavior.
Almost half of the consumers (48.2%) said they agreed or strongly agreed with the statement: “I consider myself an ethical consumer.” This was particularly relevant in the case of consumers with higher income and younger consumers. However, their behavior showed no difference in actuality from consumers with lower income or older consumers.
So, what does this mean for a business?
- By simply changing the order of how delivery options are presented, retailers can significantly impact the decisions that consumers make.
Changing the order of delivery options led to a decrease in “same day” delivery and a significant increase in “3-5 day” delivery. For the coat, “same day” delivery dropped from 3% in the control group to 0.8%. And “3-5 day” delivery jumped from 85% in the control group to 91% in the order group.
Changing the order is an inexpensive, easy to implement solution that businesses should consider.
- When the price tag is high, empathy is key.
High-ticket items — such as a laptop, are critical to nudge given their potential impact on couriers (a book may be posted through letterboxes, while a laptop will need a signature). Simply showing a humanizing picture of a courier with a message that encourages consumers to consider how their choice could place a burden on them appeared to trigger a more reflective, analytical thought process that leads consumers to choose a longer delivery window.
- Men and young consumers are less likely to choose delivery options that are better for couriers. We need more research to know how to change that.
More research could help us better understand how certain nudges could be tailored to different demographic groups, in order to increase the number of consumers who choose the “3-5 day” delivery option.
- Measuring behavior, and not just stated preferences or attitudes, is critical.
In this experiment, participants were fairly likely to describe themselves as ethical consumers, however, this did not correlate to their actual behavior in all cases. We need to look at what people actually do, not just what they say they will do. Focusing on real-world behavior and decisions is the only way of understanding whether our interventions work.
Over the last few years, Shift has engaged with UK retailers, logistics providers and other stakeholders on the full spectrum of human rights challenges in final mile delivery in the UK. One driver of these challenges is customer choice when buying online and this experiment focuses specifically on the ways that consumers can be nudged to make more responsible decisions in relation to online delivery. A future Shift publication will address the wider human rights issues in final mile delivery and the ways that retailers, logistics providers, trade unions and Government can play a role in building a rights-respecting logistics sector in the UK in the aftermath of the COVID-19 pandemic.
Black Lives Matter: Putting Human Rights at the Heart of Corporate Responses
All businesses have a responsibility under the UN Guiding Principles on Business and Human Rights to take action to respect human rights in connection with their own operations and their extended value chain. This responsibility is a globally acknowledged and expected standard of conduct that is increasingly reflected in national laws, the expectations of investors, NGO and trade union advocacy, the standards set by influential industry bodies and the commitments of companies themselves. In the US, the Department of State actively promotes the UN Guiding Principles to US companies.
We see three main ways in which companies need to grapple with these human rights harms – both the immediate risks to protestors as well as the underlying inequalities that the BLM movement is raising.
- Connections to short-term risks to protestors’ safety and freedom of speech
- Connections between a company’s own operations and racial discrimination over the long-term
- Company involvement in broader advocacy on BLM policy goals