The impact of businesses on human rights has been rising up the public consciousness as emotive stories about sweat-shop conditions and the environmental harm caused by some corporations. But the signs are that human rights are still being overlooked by many companies.
This is something that needs to change, and quickly as doing so exposes a company to a plethora of risks: reputational, financial, operational and legal. A picture or comment on social media from a local subsidiary far from the company’s headquarters can transform its reputation in a flash. By the time awareness of a human rights risk reaches the board, it is often too late to act.
In the UK, the Modern Slavery Act has come into force, compelling large companies to report on steps they are taking to eradicate slavery and human trafficking in their supply chain. The EU’s Non-Financial Reporting Directive (which the UK is obliged to adopt into national law by 2017 – before Brexit!) requires large companies to report on their human rights due diligence processes and later this year, the first Corporate Human Rights Benchmark will be published.
However, a recent study by the British Institute of International and Comparative Law (BIICL) and global law firm Norton Rose Fulbright, surveying over 150 companies around the world, has found that many businesses are still not getting their human rights due diligence right.
It’s vital to appreciate that human rights due diligence is not the same as the common forms of general due diligence. General business due diligence considers the risk to the company of actions such as acquisitions and investment, and is often voluntary or subject to limited regulation. Human rights due diligence, on the other hand, examines the risk to individual rights-holders of the activities of a company. They include a wide set of stakeholders - not only employees but also local communities, indigenous peoples, workers in supply chains and others. Many of these groups are simply not being considered.
Our research shows that only 19% of companies that considered human rights indirectly as part of non-human rights processes (e.g. health and safety, non-discrimination, labour) identified human rights impacts; and only 29% identified adverse impacts linked to third party relationships. In contrast, 77% of companies which carried out specific human rights due diligence identified actual or potential human rights impacts; and over 74% identified impacts linked to third party relationships.
So what’s next? Human rights impacts have to be recognised at the operational level: on the factory floor; the construction site; the overseas operations; in the laboratory; and when supplies are procured. Our study suggests that this can only be achieved by putting in place holistic human rights due diligence processes. To do this, companies must first look at their activities through a human rights lens. They need to, for example, move away from due diligence processes that only look at employees and internal stakeholders to a wider human rights due diligence process covering all stakeholders and all operations. Training and consultations with internal and external stakeholders and regular human rights impact assessments are also potent tools.
Codes of conduct and contractual provisions can be a useful method of supply chain risk management, but they are most effective in pre-contractual stages. At that point the bargaining power of the purchaser can bring about change in supplier behaviour. Ignoring the potential for change before a contract is signed misses the main goal of the obligation of companies to respect human rights – in this particular case, the improvement of lives of millions of people in supply chains globally.
Boards and risk departments that don’t put adequate measures in place could start to find the heat rising sooner than they expect. It’s something that business simply cannot afford to ignore any more.
Professor Robert McCorquodale is director of the British Institute of International and Comparative Law (BIICL) and Milana Chamberlain is a partner at Norton Rose Fulbright
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