Human Rights

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By Knowledge Hub

Since its launch, the Framework has allowed companies to successfully integrate the UNGPs into their business operations. These Principles were unanimously endorsed by the UN Human Rights Council in 2011. They clarified the responsibility of governments and businesses regarding the impacts businesses can and do have on people and how companies should provide or enable remedies to those harmed. The UNGPs are the most authoritative guidance and the blueprint for embedding human rights practices in business. Since 2011, the EU has required all of its 28 states to prepare ‘national action plans’ setting out how companies need to align with the UNGPs.

In today’s interconnected world, wherever people are harmed by business, some form of media is likely to have reported the event. Therefore, it seems inconceivable that companies which spend billions of dollars on building up their brands and reputations would pursue and conduct business practices without putting in place processes to protect people, be they customers, workers at suppliers, the broader communities in which their factories operate, or their own employees, to name but a few.

One of the fundamental philosophies behind the UNGPs is ‘know and show’. Companies need to (1) understand how they can potentially harm people and put processes in place to mitigate against those risks happening in practice (the ‘know’ part) and (2) report on what those risks are and what they are doing about them (the ‘show’ part).

So, eight years since the endorsement of the UNGPs and four years since the release of the Reporting Framework, how meaningful is human rights reporting? By looking at public reports (annual reports, sustainability reports, human rights reports), this article sets out some of the trends that can be seen by industry and by region, and the areas in which companies are reporting well and those with which they are struggling. This is not a definitive study but is the author’s perception, who has worked in this area over the past eight years.

The big picture

There is an upward trend in the number of companies reporting separately on human rights. In 2015, only 13 companies had separate human rights reports. This figure rose to 52 by 2017 (Forbes, 2018), still a drop in the ocean considering the number of publicly listed companies, but with global companies such as Unilever, Nestlé and ABN AMRO addressing this area, their leadership is proving invaluable for others to follow. Indeed, they have each produced more than one report, so they have been able to demonstrate and report on progress, successes, and challenges.

Regarding industries with more mature reporting than others, the extractives (oil, gas, and mining) and the apparel sector appear to be leading with those with an agricultural element, such as tobacco or cocoa and are also making notable improvements. Ironically, the two industries that significantly impact people’s 21st-century lives are lagging; financial services and media technology industries haven’t yet meaningfully got to grip on how best to report on the risks they are potentially contributing to or being linked with. There are exceptions, such as ABN AMRO and Microsoft, but they are a minority within their sectors.

Nevertheless, the overall quality of human rights reporting still needs to be more meaningful and prolific. It is pleasing to see many companies stating publicly that they are aligning behind the UNGPs. On the other hand, reporting is at such an embryonic stage that it is difficult to see whether they are actually doing so in practice. On the whole (there are some notable exceptions), reporting is currently not robust enough. Indeed, analyses of company reporting of many large and listed organisations across several sectors reveal only five per cent are classed as ‘leading’ on human rights reporting. Nearly half of companies fall into or below the improving category.[2]

Many companies struggle with embedding respect for human rights because they are less easy to quantify than environmental issues. It is easier to place sensors and meters in factories’ waste outflow than to measure the impact of not paying a living wage. For human rights reporting to be meaningful, it requires a narrative. For example, to address improving working conditions in a factory, a company may train all its managers, and the company will report that it is addressing improvement in factory working conditions through training. On the face of it, this reads well. However, as readers, we are not the wiser about the effectiveness of this training; we don’t know the outcomes for the impacted workers or the business itself.

A fundamental ethos behind the UNGP Reporting Framework is straightforward: Companies shouldn’t report on every human rights issue; they should report on those salient issues where the business poses the most significant risk to people. Doing this provides the company with a methodology for prioritisation and focus. However, only eight per cent of the companies reviewed actually identify salient issues, which leads to less mature reporting.[3]

Sector differences

It can also be seen that sectors with inherent issues, such as tobacco and oil and gas companies, perform better than others. For example, in the tobacco sector, several large companies are not only addressing how they are producing less harmful products but also how they are working with governments and others to eradicate child labour in their supply chains.

Despite the lack of robust reporting, the general trend remains upward. In this sense, some sectors are pulling away from others with differences in reporting maturity between industries. The apparel sector has continually improved its human rights reporting in recent years. H&M, Marks, and Spencer have produced solid reports for the last few years, but others in the sector are catching up. In fact, Adidas now sits at the top of the Corporate Human Rights Benchmark (CHRB, 2019) after improving its previous reporting. Spanish multinational clothing company Inditex has also enhanced as companies in the sector compete on human rights.

The impact of the clothing industry—think GAP and Nike at the end of the last century—has been well-known for a while. It is only now that it is becoming more mainstream for consumers to turn to more sustainable clothing sources. Fast fashion’s environmental and human rights impacts are now becoming unacceptable to consumers, and companies within the sector must put more extraordinary efforts and resources into combating the negative consequences.

Food and beverages also perform higher than other sectors, with Unilever, Nestlé, and Coca-Cola all providing strong reporting. Mondel¯ez appears to have taken note and is starting to produce improved reports.

However, one of the significant issues we have recently seen in the media is the impact of human rights on the online world. They might not be classed or referred to under the umbrella of human rights, but they are. Three of the biggest companies in the world significantly influence our daily lives yet are not keeping up with their human rights reporting and, one assumes, performance. If you look at Facebook, Google and Amazon, you will struggle to understand what they see as their critical risks to people. The rapid emergence of online technology has led firms in this sector to almost bypass their responsibilities regarding human rights, and governing bodies are now scrambling to keep up with appropriate and effective laws. Microsoft, however, appears to be bucking the trend, producing a detailed human rights report that identifies its salient issues and tells us how it is tackling them.

Regional differences

Whilst there are differences between sectors, there are also differences within regions. From our findings, location is an even more significant determinant of the maturity of human rights reporting. By this, we mean the location of the company’s headquarters rather than the location of its operations since most companies will cover several geographical regions. Law has played a part in this, such as the UK Modern Slavery Act and the Duty of Vigilance law in France. In addition, improvements to the UK Modern Slavery Act, the government’s National Action Plan (NAP) for implementing the UNGPs, and a new NAP on Business and Human Rights in Germany are expected to emerge in 2019. “Companies with a strong human rights performance will become the companies of choice for the future.”

When it comes to meaningful financial reporting, the Netherlands is a leading country. Finance and banking are sectors globally lagging in addressing human rights issues or, at least, reporting what they are doing. There is minimal meaningful reporting from UK and German banks. However, banks headquartered in the Netherlands are bucking the trend. ABN AMRO, in particular, has substantial human rights reporting. ABN was one of the first companies to engage and report against the UNGPs, and with its 2019 public reporting releases, it has made significant steps.

Furthermore, ABN has become a leader in pushing human rights reporting onto the agenda for business. Yet, it is far from the only Dutch bank that addresses human rights proactively. ING Group, De Volksbank and Rabobank are all improving their reporting. Human rights reporting at banks is crucial; they have much influence, not only as corporate lenders but also as investors. In fact, this is part of a more comprehensive process of the Dutch ministries of Foreign Affairs and Economic Affairs, which create sector-based covenants to ensure human rights are at the core of business processes.

We similarly see governments influencing reporting in the extractives sector. Due to the UK Modern Slavery Act, Anglo mining firms have more substantial human rights reporting than many Canadian mining firms, where human rights reporting is weak and human rights abuses are widespread. The exception is Newmont, which is far ahead of its regional peers. Total, the French oil company, outperforms other oil firms in human rights reporting. The French Duty of Vigilance Law is probably a key driver in this and helps it sit above its American and Asian competition. Indeed, our general view on human rights reporting is that European companies produce more mature human rights reports than their American and Asian counterparts. Once again, there are exceptions – Coca-Cola, Citi, Microsoft in the States and Ajinomoto Group in Japan.

Conclusions and recommendations

The general trend in human rights reporting is upwards. That being said, it’s coming from a shallow base. While more companies report on human rights in some way, much of the reporting is superficial, ticking a box and lacking depth and purpose. Compared to others, even the companies with the most mature reporting know that they still have more to do and are generally not afraid to state this. Most companies, though, are yet to get to the start line.

Perhaps this is where laws, regulations, and voluntary guidelines are starting to have more significant influence. Many people are sceptical of the law’s role in human rights reporting, believing it will make it a compliance target rather than one of commitment. However, the difference in reporting maturity in different regions suggests that the law has a role to play. At the very least, it crystallised recognition in companies that they needed to commit resources to this area and gave them a baseline.

At Chathams, we have been helping organisations better understand their actual and potential impacts on people. It brings a new way of thinking about business’s role in 21st-century societies. The more enlightened companies are already addressing this, bringing value to themselves and their stakeholders. Just because an area that at first glance appears complex doesn’t mean it shouldn’t be addressed.

Overall, good reporting can drive improved human rights performance and potentially reduce negative impacts on people. Helping to improve lives provides a tremendous opportunity for companies. Investors need to take note and encourage companies to address this area in order to reap the rewards. Companies that have strong human rights performance will become the companies of choice for the future.

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