As your organization is getting ready for the implementation of EU guideline 2014/95/EU on the disclosure of non-financial information, I hand you a series of blog posts on non-financial topics that business managers might be less familiar with. My aim for this series of posts is twofold. First, to give you insight into concepts that are integral to non-financial frameworks on reporting, such as the Global Reporting Initiative (GRI) framework. Second, to show why and how you should integrate these specific non-financial disclosures into your overall business and risk management strategy.
The first blog in this series discussed climate change. You can read it by following this link.
The second blog of the series will discuss the aspects of human rights you should be familiar with as a business manager. I will discuss what human rights are, what the key drivers for respecting human rights are and, finally, how you can build a supply chain that respects human rights.
Defining Human Rights
What should the relationship between business and human rights be? The United Nations (UN) defines the role of business as respecting human rights; as opposed to states, that must protect human rights. Paragraph 12 of the UN Guiding Principles on Business and Human Rights (UNGP) states:
The responsibility of business enterprises to respect human rights refers to internationally recognized human rights – understood, at a minimum, as those expressed in the International Bill of Human Rights and the principles concerning fundamental rights set out in the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work.
Both the International Bill of Human Rights and the International Labour Organization (ILO) are part of the broader human rights movement that arguably started with the Enlightenment. In the table below, the Bill of Human Rights and the ILO are put into historical perspective. I highlight the texts which are referred to in this post (i.e. Bill of Human Rights, ILO, and UNGP) in blue:
As we can see from this non-exhaustive timeline, human rights are ever evolving and expanding. In the words of Andrew Clapham in Human Rights: A very Short Introduction:
The human rights catalogue will continue to expand as new challenges emerge and new constituencies find it helpful to frame their claims as issues of human rights.
To list all articles in both frameworks (International Bill of Human Rights and in the ILO’s Declaration on Fundamental Principles and Rights at Work) will not be very helpful for managers to develop a first understanding of business and human rights. Instead, I use clusters of human rights introduced by The Economist Intelligent Unit (EIU) in a report on the ‘challenges for business in respecting human rights’ (ranked in the order in which companies scored them as relevant to their activities):
Not all rights are the same explains Clapham. We distinguish between:
- Absolute rights: genocide, crimes against humanity, slavery, and torture are international crimes which are prohibited at all times.
- Rights limited through legal restrictions designed to protect a defined legitimate objective: rights to liberty, fair trial, freedom of expression, belief, assembly, association, and property; any restriction on these rights has to be justified as proportionate to the aims pursued by the restrictions.
- Rights that have built-in limitations: free speech and privacy.
- Social, economic and cultural rights (sometimes called ‘aspirations’ instead of rights): food, education, health, housing and work.
Now that we have an understanding of the historical background of human rights, relevant clusters of human rights for business, and awareness that rights can have limits; we turn to the business drivers of respect human rights that go beyond mere compliance.
Drivers for Implementing Human Rights Policies
Besides compliance (a primary driver), there are a number of reasons why your company should have proper human rights policies in place. These include the protection of the company brand and reputation. Reputational risk is especially high if a firm has complicated supply chains. A 2015 article in the Journal of Business Ethics explains:
Social issues become relevant in supply chains because of the involvement of multiple suppliers who directly affect the reputation of the buying firm. Additionally, an enlightened stakeholder (both internal and external) holding the firm accountable for social issues in supply chains forces the firm to take responsible supply chain actions.
Two examples that are known throughout the business and human rights community are the Rana Plaza disaster and the Rohingya case in Thai fisheries.
In the Rana Plaza disaster in 2013, over a 1,000 garment workers died in the collapse of a factory building in Bangladesh. The EIU report rightfully links it to a failure of respecting human rights:
Spectacular failures of human rights protection still claim headlines. To cite just one of several recent examples, the tragic collapse of the Rana Plaza commercial building in April 2013 led to renewed questions about the quality of companies’ oversight of their suppliers’ human rights practices as well as the role of government in protecting such rights.
How events like these can hurt your companies’ reputation was shown by the bad news coverage Primark, a low cost British garment label, received when it was linked to the disaster (see for example the article Disaster at Rana Plaza in The Economist).
Another example that shocked the world in 2015, was the enslavement of Rohingya (an ethnic people from Myanmar) aboard Thai fishing boats. The Guardian reports:
Rohingya migrants trafficked through deadly jungle camps have been sold to Thai fishing vessels as slaves to produce seafood sold across the world, the Guardian has established.
The seafood was traced to individual leading supermarkets worldwide that had to take immediate action to manage their reputation.
External and internal stakeholder pressure is often mentioned as another driver to implement human rights policies. NGO’s, local communities, investors, and employees can all pressure the corporation into doing more on human rights topics. Risk management might be a fourth driver for implementing human rights policies and procedures. Risks to manage are, apart from the reputational risk already mentioned, risks that stem from disruptions in the supply chain because of issues with human rights (e.g. strikes, bad quality of products, or drops in productivity, etc.). A final driver, which is sometimes overlooked when it comes to human rights policies, is performance improvement. Workers that are well taken care of tend to perform better, which will, in turn, lead to higher output or higher quality of products in your supply chain.
With these five sets of drivers (i.e. compliance, protecting the company reputation, external and internal stakeholder pressure, risk management, and performance improvement) there is surely a business case for implementing human rights policies in your supply chain. We will now discuss how to do just that.
Implementing Human Rights Policy in Your Supply Chain
From all the ESG-topics that firms try to grasp, human rights might prove to be the most difficult one. The head of government relations at Anglo American, a mining corporation, says (in the EIU report):
the notion of human rights abuses is an alien and scary one among technical functions who are more used to ‘impacts’ and structured, technical processes to address them, as opposed to legal ones.
John Ruggie (who drafted the UN Guiding Principles), also in the EIU report, agrees:
It takes time. It takes training. Things have to be translated into operations-speak if they are going to be effectively internalised by people on the ground.
Concluding that implementing human rights policies is not easy, one of the key strategies in implementing those policies is to team-up: involve NGO’s and maybe academia and regulators. In the words of a study published in the Notre Dame Journal of Law, Ethics and Policy:
Human rights are ever evolving so there is a need for open dialogue with government, social groups, NGOs and other stakeholders.
Taking all this into considerations, I propose an eight step approach to implementing human rights policies in your supply chain. This approach borrows insights from the Canadian Network for Business Sustainability, William Bradford’s comprehensive article Beyond Good and Evil: The Commensurability Of Corporate Profits and Human Rights, and Yawar and Seuring’s literature review Management of Social Issues in Supply Chains.
Step 1: Analyze and prioritize. First, perform a risk analysis and determine where your priorities need to be. An example from the EIU report:
Coca Cola conducted a human rights risk analysis of its entire value chain, which identified seven priority risks, ranging from employment and health and safety issues, through to land rights, compliance with transparency and due diligence requirements.
Bradford advises along the same lines:
Corporations should independently perform a rigorous “social audit” to ascertain the current status of their human rights protective practices, the threats to human rights within their spheres of operation, and the internal procedures available to respond to change and rapidly emergent threats.
Step 2: Engage stakeholders. Engage widely with stakeholders and formalize the dialogue. The engagement should lead to a decision on a compliance strategy: a code of conduct or certification scheme that has the support of your stakeholders. Prioritize. Depending on the size of your operations, it might very well be impossible to implement ‘everything everywhere’. On engaging stakeholders, Bradford argues:
With the inputs from NGOs, corporations will be able to further refine their practices and enhance their capacities for compliance while reducing the risks of litigation and injury to reputation.
Step 3: Select suppliers. Select suppliers that are willing to work on respecting human rights. An implementation of virtually anything in your firm can never be just about ‘ticking the box’. Select suppliers that understand what you are trying to achieve and that will work with you in a longer term relationship.
Step 4: Develop KPIs. Develop KPIs together with suppliers and other stakeholders. Again, use the knowledge of your stakeholders. But do not forget to design processes and systems that can actually deliver on your KPIs.
Step 5: Evaluate. Evaluate your suppliers on a regular basis. Since you are implementing something that is also challenging for your firm, you should follow-up frequently to see if expectations are being met and evaluate progress.
Step 6: Enhance performance. Use supplier development strategies to enhance performance. Implement collaboration and training programs at the supplier, invest in assets, or offer technical and financial assistance. Informal evaluations and audits could encourage suppliers to take initiative.
Step 7: Report. Communicate your efforts and results according to the compliance strategy you chose in step 2 or integrate the results in your current ESG-report. Reach out to all stakeholders involved in step 2 and get their feedback.
Step 8: Review. Set-up a quarterly review board. Make sure it is composed of in-house professionals and external academic, NGO expertise, and worker unions. Review performance evidence quarterly to identify patterns and explore possible solutions. Such formal review sessions might prove invaluable to organizations according to Bradford:
Over the last decade, formal and ongoing dialogues have developed wherein corporations, NGOs, government officials, academics, labour representatives, and community leaders meet to discuss issues of common concern, including monitoring of, and compliance with, CCCs [Corporate Codes of Conduct] governing the protection of human rights. Such dialogues afford corporations valuable and low cost information as to the social expectations of important stakeholders in a setting that enables the ongoing (re)negotiation of the details of broadly-based norms and principles that constitute civil partnerships. In exchange, NGOs acquire additional social status, wealth, prestige, and access. Through dialogues, corporations can calibrate their practices, learn how best to uphold their agreements, and retain the material advantages of identification by NGOs as socially responsible.
As I already argued in my blog post The Business Case for Non-Financial Reporting, disclosing non-financial information can lead to insights on how to update your business strategy or improve stakeholder relations. The discussion on implementing human rights policy – as part of the discussion on disclosure of non-financial information – has shown again that implementing sound ESG-strategies can boost your risk management, manage your reputation towards stakeholders, and enhance performance in your supply chain.