This month marks five years since the adoption of the UN Guiding Principles on Business and Human Rights (UNGPs) - a landmark moment in the acceptance of human rights as not just being a corporate responsibility issue but fundamental to core business practices. The UNGPs define a global standard for preventing and addressing the risk of negative human rights impacts by business activity.
However moving from principles to practice in the last five years has not been easy.
Making good ethics good business
The first achievement of the UNGPs has been to make a strong business case to companies to ensure they manage human rights risks. Companies that proactively manage human rights issues benefit from enhanced reputation, increased business opportunities and reduced exposure to risk. While those that don't can suffer real value destruction, if and when things go wrong. For example in 2012, the share price of South African platinum producer Lonmin dropped 30% the week after 34 workers were shot and killed at its Marikana mine. Another powerful example was cited in a 2010 report of then Special Representative of the Secretary-General John Ruggie that helped launch the UNGPs. That report noted that a major oil and gas company experienced an estimated $6.5bn worth of value erosion from 'non-technical' risks such as human rights issues over a two-year period.
The regulatory environment is tightening
In the last five years we have also seen a greater focus on this issue by regulators with a trend for putting responsibility for oversight of these risks not only on the shoulders of company management but right through to the boardroom. The UK Modern Slavery Act, enacted in 2015, requires every organization conducting business in the UK with a total annual turnover of $36m or more, to produce a slavery and human trafficking statement for each financial year of the organization. Organizations are required to publish this statement on their website and include a link to the statement from a prominent place on the website's homepage.
Investors at risk
Investors have also played their part in pushing corporate action from principles to practice since the UNGPs' adoption. In February 2015 an investor statement in support of the UN Guiding Principles Reporting Framework - a framework for corporate disclosure on human rights - was launched and today has 84 signatory investors managing over $4.8 trillion in assets. One of the drivers for this investor action is the growing risk of reputational damage to investors themselves if their risk management and due diligence procedures for assessing human rights risk are perceived to be weak. In 2013, despite being minority shareholders, two European investors faced censure by the Organisation for Economic Co-operation and Development (OECD) when they were perceived to have applied insufficient human rights due diligence over their investments in POSCO - a South Korean steel company linked to forced evictions and human rights violations in India.
Given the wide range and value at risk, it should be no surprise that investors are increasingly asking the companies in which they invest to know and show how they are managing human rights related issues throughout their businesses from M&A activity and down through their supply chain.
Time to hit the accelerator
A recent report commissioned by law firm Eversheds showed that expectations have shifted. They surveyed 200 in-house general counsels, members of company boards, and human resource directors in 10 industries across 34 countries, and found that over one quarter of organizations are already making positive advances with 33% publicly reporting against the UNGPs. And 47% use their purchasing power to exert leverage on supply chain to support human rights. That is encouraging but still leaves much work to do. In the next five years the focus should be on catalysing even wider change and the Eversheds survey also highlighted two key challenges to this: A lack of awareness and adequate resources to support progress. In total, 43% of respondents give their senior leadership a low rating for their human rights approach and a priority for the coming years should be ensuring that change comes from the top.
Making it simpler in the next five years
We must make it as easy as possible for companies to understand the expectations of investors and others so they can embed good practice in their everyday business. In an age where many companies have global operations and complex supply chains this requires clear and simple guidance.
Fortunately, the response to this challenge was boosted last month by the UK Equality and Human Rights Commission, an independent statutory body of the UK government, and Shift, the leading center of expertise on the UNGPs, who jointly authored 'Business and human rights: A five step guide for company boards'.
As the title suggests this sets out straightforward guidance for directors of UK companies to help them identify, mitigate, and report on the human rights risks and impacts of their businesses. The guide is equally helpful for investors as it facilitates a more productive dialogue with companies around the five steps they should take to ensure the organization and board of directors fully understand the responsibilities laid out under the UNGPs. These obligations need to then be shored up by appropriate employee training, along with resources to drive implementation.
The launch of this guide is an important milestone, one that I hope ushers in strong commitment from businesses - from the boardroom down through their supply chain - to actively respect human rights around the world.
The information in this document should not be considered a recommendation to buy or sell any security.