The first-ever ranking of companies on human rights raised eyebrows by giving Rio Tinto and BHP Billiton top marks alongside Marks and Spencer. While the methodology has been criticised, it is seen as filling a vital gap for investors
Six years have passed since the UN Human Rights Council endorsed the Guiding Principles for Business and Human Rights, after years of research and consultations led by UN Special Representative and Harvard professor John Ruggie.
The principles were designed to ensure that companies “do not violate human rights in the course of their transactions and that they provide redress when infringements occur”. They outlined how companies could use the UN’s protect, respect and remedy framework in order to better manage their human rights challenges.
The principles are aligned with the 10 principles of the UN Global Compact (UNGC), which bears the signatures of more than 12,500 companies and organisations from around the world.
A November 2016 report commissioned by the Business and Sustainable Development Commission said: “There is no more pressing or more powerful way for business to accelerate social development than by driving respect for human rights across their value chains. The proposition that all companies not only can contribute at scale to development through these networks of business relationships, but that they have a responsibility to do so, is the quiet revolution that sits at the heart of the UN Guiding Principles on Business and Human Rights.”
Last month companies and trade unions agreed to a renewed Bangladesh Accord. The Accord, created in response to the terrible Rana Plaza fire in 2013, is a legally binding agreement to make factories in Bangladesh safe for workers. It was due to expire in May 2018 but will now be extended to 2021.
And at the G20 labour and employment ministers meeting in May, ahead of this month’s Hamburg summit, pledges were made to promote sustainable global supply chains by“fostering the implementation of labour, social and environmental standards and human rights in line with internationally recognised frameworks.”
The complex issues of human rights in the workplace – from labour rights to modern slavery and trafficking – continue to present challenges to companies of all sizes. “Third-party labour provision, which is in everybody’s global supply chains, is where a lot of the vulnerability sits,” said John Morrison, chief executive of the Institute for Human Rights and Business, speaking at Ethical Corporation’s Responsible Business Summit in June. During the same session, Oxfam GB CEO Mark Goldring urged buy-in from the top level in order to tackle these issues: “It’s about organisational health, not just formal compliance.”
While frameworks, initiatives and legislation regarding corporate human rights abound, measuring actual performance is a little murkier. Launched in March, the Corporate Human Rights Benchmark (CHRB) is the first-ever public ranking of corporate human rights performance. Led by investors and non-profit groups,the benchmark’s methodology is the result of extensive multi-stakeholder consultation around the world over two years, involving representatives from over 400 companies, governments, civil society organisations, investors, academics and legal experts.
Supported by 85 investors, accounting for $5.3trn in assets under management, the benchmark currently analyses 98 companies from three industries that are high-risk in human rights terms: agriculture, apparel and extractives.
Magdalena Kettis,head of thematic engagement at Nordea and a member ofthe CHRB steering committee, said although the pilot covers fewer than 100 companies, “it provides a starting baseline and will over time be developed through subsequent iterations across more industries to encompass 500 companies.”
Mark Wilson, Aviva chief executive officer, said at the launch of the benchmark: “We are in the grip of a classic market failure – a lack of transparency and imperfect information means that the true cost of business behaviour – good or bad – is not actually accounted for,” says Wilson. “This is where benchmarks like the CHRB come in. This is about more than setting standards, it’s about ranking companies, it’s about making this data public and, importantly, free.”
Companies are scored on 100 indicators across six measurement themes and in this pilot, most of the companies did poorly. A clear majority, 63 out of 98 companies, scored less than 30%. “This is something that should concern every investor,” said Lord Bates, minister of state at the Department for International Development, speaking at the CHRB launch event.
Perhaps more surprising than the overall poor results (the average score was only 28.7%) are the companies who scored well. Up at the top, alongside Marks & Spencer Group, which is known for its firm commitment to sustainability, sit mining companies Rio Tinto and BHP Billiton; these three companies comprised the very small group of leading performers, scoring between 60% and 69%. Nestlé, Adidas and Unilever scored between 50-59%. At the other end of the spectrum, McDonald’s, Petrobas and Wal-Mart Stores scored in the 10-19% range, while companies like Grupo Mexico, Macy’s and Costco Wholesale only managed a measly 0-9%.
Morrison believes that rights-respecting companies are the ones investors want to do business with, that governments want to champion, that consumers want to buy from, and that talented people want to work for. “Ultimately, respecting human rights should be a competitive advantage,” he says. “By making corporate human rights performance transparent and understandable, the CHRB is seeking to achieve this.”
Fiona Reynolds, managing director, UN PRI, agreed. “Investors are hungry for information and disclosure,” she said. “We are seeing a lot more questions around human rights.” PRI has a collaboration platform where investors can share information, and the past year has seen engagement on a range of human rights issues, from LGBT rights in Texas to indigenous peoples’ rights at the Dakota Access Pipeline.
“We expect this will continue to grow,” says Reynolds. Within ESG (environmental, social, governance investing), she said, “ ‘S’ issues have been the poor cousin to the ‘E’ and the ‘G’, but now they are coming to the fore, with more investors engaging on them – and we expect that to go forwards, not backwards.”
Erinch Sahan, from Oxfam GB’s private sector team, described it as an objective tool that “asks uncomfortable questions, and cuts through the PR around sustainability and CSR. A comparison of company approaches allows everyone to hold companies to account on where they're falling behind, and give praise to those that are leading the way.” Critically, he continues, it means that no one can become complacent.
But while companies and NGOs alike have welcomed the benchmark, some said its methodology needs some development.
“It’s somewhat disappointing to see an average score of 30%, which most would regard as failure,” said Tom Butler, CEO, International Council on Mining and Metals). He believes competition is a particularly strong incentive for extractives companies, which could explain their better performance. “My members are a competitive bunch and they do pay attention to benchmarks such as this. But it’s important to get the structure right, in order to instil the ambition to do better as opposed to conveying a sense of failure.”
For the benchmark to gain traction, he said, companies need to feel that it is fair. “The challenge for a benchmark like this is that you need to become a reliable proxy, then everyone starts using you.”
While the International Trade Union Confederation also supports the initiative, Sharan Burrow, ITUC general secretary, would like to see the methodology include critical indicators for workers, such as freedom of association and collective bargaining. “It must also cover the supply chains of a company where up to 94% of the workers who generate profit for major multinationals can be effectively a hidden workforce,” she says. “We understand the methodology will be reviewed so these indicators and others can be included.”
If the benchmark becomes more comprehensive, ITUC’s Burrow believes the CHRB will be a game-changer in driving human rights performance in the business sector, as companies see the reputational risk of failing to apply the UN Guiding Principles. “The best outcome would be that the index is upgraded to provide a comprehensive picture with the capacity for companies to seek support to ensure that human rights violations are taken out of competition, as now called for by the G20 labour ministers,” she says.
The benchmark is based on publicly available information only, so the human rights performance score depends not only on how companies behave but also on their disclosure.
One drawback to this approach is that companies that publicise their work in the area of human rights will score more highly than those who may also be addressing it, but not shouting it from the rooftops.
In the apparel category, Next only scored in the 20-29% range, despite a strong commitment to human rights. The firm has 47 people in its global code of practice team, who are responsible for undertaking remediation work on the ground as well as auditing its factories. As signatories to the Bangladesh Accord and the Action, Collaboration, Transformation (ACT) project, human rights is an area the company does not take lightly.
Chris Grayer, Next’s head of supplier ethical compliance, believes the CHRB’s methodology is flawed. “We have worked incredibly hard for three or four years on slavery and it’s critical to understand the supply chain,” he said “The fact that CHRB overlooked the Bangladesh Accord and the ACT project was a significant shortfall in their recognition of valued work that brands are undertaking in improving human rights in the ready-made garment industry.”
“The CHRB only took cognisance of what is reported, with no opportunity or interface to see what companies are actually doing,” continues Grayer. “If we had been given just an hour, we could have shown how all our work fits together, rather than into the CHRB’s pre-ordained format. Consultation would have been a much better approach.”
Kettis of Nordea said the index is a work in progress. “The methodology will continue to develop over time, in part through stakeholder consultations.”
But Oxfam’s Sahan points out that no benchmark will give the full picture on human rights performance in supply chains. “We know so little about how workers, farmers and communities are treated in global supply chains. Transparency and traceability is sorely lacking. The CHRB gives an idea of whether companies are completely ignoring these issues, or are trying to grapple with them. This is useful, and will lead to tangible change, but a complete picture is a long way off.”
This article is part of a series on corporate human rights. See also:
Human rights briefing: Marks & Spencer leads the way
Companies keep human rights agenda alive in US depite Trump
Kellogg serves up best practice on human rights