By Ian Lavis on behalf of Praxity
Respecting human rights is set to become critical to a company’s success as pressure mounts on business to be more transparent.
In today’s world of intense media and public scrutiny, companies are under increasing pressure to not only show they respect human rights throughout their organisations and value chains but to clearly demonstrate this support with thorough audits and accurate reporting.
Until recently, the issue of human rights was something business left to governments. This is changing thanks to United Nations guidance, new legislation and consumer pressure which is forcing companies to do more to prevent human rights abuses anywhere in the supply chain.
Richard Karmel, UK Human Rights Partner at global accountancy firm Mazars, says “increased media scrutiny and shareholder activism means that companies can no longer turn a blind eye to human rights risks and impacts arising from their operations. The days when lip service could be paid to the issue of human rights are long behind us; it is now incumbent upon every business to ensure that its policies, processes, procedures and controls are aligned with the United Nations Guiding Principles on Business and Human Rights (UNGPs).”
He adds that the consequences of failing to act now could be disastrous. “If a supplier carries out some form of human rights abuse, it may well be the customer’s reputation that suffers.” He urges companies to be transparent if they are linked in some way to a salient human rights abuse. “We believe it will be beneficial to all stakeholders, including companies, for them to disclose when things have gone wrong and to set out how they have addressed the issue. If they don’t, it is likely someone else will and it may not be as fair and balanced. Companies should view their reporting as a way of building trust between themselves and their stakeholders.”
A classic example is Apple. When a number of workers at a supply chain factory in China were reported to be committing suicide due to working conditions, Apple swiftly introduced exacting new measures to improve the well-being of employees including a comprehensive supplier code of conduct and rigorous monitoring procedures. Whether technology companies such as Apple are doing enough to protect workers’ rights in supply chain countries remains open to question.
The benefits of human rights policies
It goes without saying that forward-thinking businesses should embed respect for human rights across their organisation and down the supply chain if they are to convince shareholders and a sceptical public that they take human rights seriously.
Developing meaningful policies, processes and procedures with respect to human rights is easier said than done, but the benefits are likely to be significant for shareholders, customers and society as a whole. Richard Karmel lists the business benefits as:
- increased likelihood of investment given the growth of ethical funds
- improved reputation risk management
- greater engagement with workers, communities and suppliers
- reduced costs arising from fewer adverse human rights impacts
- attractive to Gen Y recruits
- greater worker retention
The rise of human rights in business
Human rights in business is nothing new. The UNGPs were introduced in 2011. It was followed in 2015 by the United Nations Guiding Principles Reporting Framework, an initiative of Mazars and Shift, a non-profit organisation providing expertise on the UNGPs. The Reporting Framework initiative is regarded as the first comprehensive guidance for companies to report on how they meet their responsibility to respect human rights in line with the UNGPs.
Despite this, companies have largely been reluctant to show that their policies and processes align with the UNGPs or to develop robust procedures to protect the human rights of employees, except when faced with clear evidence of atrocious conditions of supply chain workers around the world.
This reactive approach to human rights in business is set to change. Governments worldwide have begun to adopt legislation making non-financial reporting obligatory. The European Commission has already issued a directive that will impose non-financial reporting upon large, listed companies with a workforce of 500 or more employees. Under the terms of the directive, companies must provide specific information on respect for human rights as well as environmental, social and employee matters. Legislation is only part of it. There is also growing public pressure worldwide on companies to be more transparent.
Richard Karmel welcomes new regulations on human rights reporting and adds that governments have been slow to act, either because they were not prepared for society’s clamour for ever-more transparency or because they believed increased regulation could restrict business growth. However, he points out that companies themselves should be taking the initiative, explaining: “businesses should not approach human rights reporting as an area of compliance but rather as part of overall performance improvement. It is value and culturally enhancing for their employees, suppliers and customers.”
His comments are echoed by James Kallman, President Director of international accountants Moores Rowland in Indonesia and co-founder of the Foundation for International Human Rights Reporting Standards (FIHRRST), an international non-profit organisation to help protect and fulfil human rights.
James Kallman says companies wanted to subordinate human rights affairs to governments, but it became clear that governments acted politically and not from a business perspective. “It wasn’t working”, he adds. “Companies saw that they could not rely on governments and that they should start working with NGOs, and the UNGPs brought everybody together.”
While fully supporting the role of the UNGPs and FIHRRST in putting pressure on companies to act, James Kallman says the real driving factor pushing businesses to be more proactive in respecting human rights is public pressure. “The ultimate regulators are the consumers. They care about things. People are more aware now, and with the rise of social media, if a company makes a mistake in one place the whole world knows about it.”
Accountancy firms like Mazars and Moores Rowland are uniquely positioned to help businesses with human rights audits and consultancy having worked with human rights organisations for many years to develop clear guidance, support and procedures for companies to follow.
Both firms also belong to Praxity Global Alliance, the world’s largest alliance of independent accountancy firms, and through the Alliance they can connect and share expertise on human rights issues with accountancy firms and their clients worldwide. The common thread is to help companies embed a respect for human rights within their organisation and provide support in the complex area of human rights reporting and certification.
Commenting on the importance of a collaborative approach of Praxity Global Alliance on human rights business reporting, James Kallman says: “Together we can embrace a very powerful future and really change the dynamics of human rights in business.”
Richard Karmel adds: “By working within an international team we can reach and advise our clients wherever they are based in the world. We can develop an understanding of how local customs and international law impacts business.”
Moores Rowland Indonesia paved the way by developing a method of certification in 2011 with its MIHRSC indicators of business compliance with human rights as laid out in the UNGPs, which the IAB believed could become a benchmark for global best practice. FIHRRST has since updated these to BHRISC 2011. The accounting firm also played a leading role in developing standards for the audit of human rights for the Indonesian fisheries industry, which are applicable globally, following a shocking case of human rights abuse where foreign fishermen were being treated as slaves and imprisoned on an Indonesian island.
James Kallman says the way forward for businesses in any sector is to show they have a good system in place to prevent any form of human rights abuse, and that the audit process must be:
The will and means for change clearly exist and momentum is growing. “This is going to snowball,” Richard Karmel says. “People want a more caring society and business underpins society.”
The United Nations Guiding Principles Reporting Framework
Mazars and Shift have produced a framework for companies to report on how they respect human rights.
The UN Guiding Principles Reporting Framework comprises 31 questions designed to “enable companies to report meaningfully on their human rights performance, regardless of size or how far they have progressed in implementing their responsibility to respect human rights”.
The Framework is divided into three sections:
- Governance of respect for human rights
- Defining the focus of reporting
- Management of salient human rights issues
The Framework defines salient issues as human rights at risk of the most severe negative impact through the company’s activities and business relationships.
The Framework is cited and recommended by multiple governments in policy and guidance documents. Hundreds of companies have participated in training and outreach on the Framework, and dozens more are using the Framework for both the internal management of human rights as well as for reporting.
United Nations Guiding Principles Reporting Framework:http://www.ungpreporting.org/
The Association for International Human Rights Reporting Standards:http://www.fihrrst.org/
Mazars and human rights:http://www.mazars.co.uk/Home/Our-Services/Consulting/Business-and-Human-Rights
Moores Rowland Indonesia and human rights:http://www.moores-rowland.com/services?p=9OBVWXPEHJMW