Pressure to address human rights is increasing: Are companies prepared to meet the new demands?

Post Date
11 August 2023
Author
Rupali Patni
Author
Laura Burroughs
Author
Heba Megahed
Read Time
4 minutes
  • ESG advisory

Media attention has kept the topic of human rights and labour rights in the limelight. Covid-19 lifted the lid on underlying socio-economic inequalities and, in many cases, intensified disparities in working conditions, health, education and economic status. We are also seeing that human rights abuses are not unique to emerging markets. Our June Monthly Briefing revealed that child labour is increasing in the United States, with the number of children illegally employed by US companies growing by as much as 70%, according to the US Department of Labor.

Legislators and investors are beginning to respond to these trends, and the demands for companies to address human rights will continue to ramp up.

Recent examples include:

Legislative requirements

Human rights legislation such as the US-Mexico-Canada (USMCA) labour agreement mandating increased worker rights across North America.

The EU is accelerating pressure on companies to conduct human rights due diligence. In June, the European Parliament approved the draft EU Corporate Sustainability Due Diligence Directive which will ensure that businesses address any adverse human rights impacts of their actions, including in their value chains inside and outside Europe.

Shareholder demand

An increase in human rights-related shareholder proposals in 2022, with issues ranging from forced and child labour to freedom of association and human rights due diligence.

Rater and ranker criteria

An uptick in human rights requirements within frameworks such as the UN Guiding Principles on Business and Human Rights and the Organisation for Economic Cooperation and Development (OECD) Due Diligence Guidance for Responsible Business Conduct.

Several ratings and disclosure platforms (Just Capital, Corporate Human Rights Benchmark, Dow Jones Sustainability Index, Sustainalytics) are deepening their approach to human rights.

Companies that are ahead of the curve, have not only made clear commitments to international standards and company-wide human rights policies, but are also putting commitments to action through talking to stakeholders, implementing due diligence processes, working to remedy negative human rights impacts, and building processes to avoid future human rights abuses. They have enhanced transparency and disclosure, and have built human rights performance into leadership incentives and remuneration.

However, this kind of approach is by no means universal. A recent assessment by the World Benchmarking Alliance, found that “84% of US companies scored zero on human rights due diligence, compared with 59% of companies from other G7 countries”. This is not surprising! Addressing human rights brings many challenges: regulations are changing rapidly, human rights cover a wide range of topics, global companies with human rights impacts will span geographies with differing regulatory jurisdictions.

Human rights concerns are often magnified further along global supply chains, where complexity increases and visibility decreases. Labour rights issues, including freedom of association, safe working conditions, forced labour and fair wages, are often compromised across borders and within higher tiered suppliers. A 2020 United Nations Global Compact report shows an 18% increase in human rights abuses and labour rights violations in the lower tiers of the supply chain, compared to direct suppliers.

Despite these challenges, business will need to act. A “wait and see” approach will leave businesses open to reputational risk and lagging behind both regulatory requirements and investor and stakeholder expectations.

Here are some key steps that businesses can start to take:

1. Have commitment from the top

Put in place board/executive leadership-level accountability for human rights, and link human rights performance to executive responsibilities and remuneration.

2. Establish the right policies

Internal policies, grounded in international best practice, are the foundation of a robust approach to managing human rights risks and expected by raters and rankers.

3. Identify, prioritise and address salient human rights issues

Mapping salient issues (ie those that are the most severe and widespread with the highest likelihood, and the most irremediable) is key to managing human rights impacts effectively. This allows companies to focus on tracking, reporting and remedying the most significant human rights issues within operations and across their supply chains.

4. Engage stakeholders and suppliers

Complex supply chains make it impossible for companies to address human rights issues in silos. Effectively combating and preventing human rights abuses requires collaborating across the supply chain, and with rights-holders and other stakeholders that can inform companies on how to advance human rights.

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