Investors, consumers and society at large have been paying closer attention to companies’ social impacts, particularly in the area of human rights. And over the last few years, a number of frameworks and initiatives have emphasized companies’ role in respecting human rights. We spoke to Dante Pesce, Member of the United Nations Working Group on Business and Human Rights, to find out how much progress companies have made in this area, where there is room for improvement, and to discuss the role investors can play in encouraging companies to respect human rights.
Member of the United Nations Working Group on Business and Human Rights;
Founder and Executive Director, VINCULAR Center for Social Responsibility and Sustainable Development at Catholic University of Valparaiso, Chile
RobecoSAM: Published in 2011, the Guiding Principles on Business and Human Rights (Guiding Principles) clearly established the obligation of the State to protect human rights, and the responsibility of companies to respect human rights. How have the dynamics between these two actors evolved since then? What has been the greatest achievement for companies during this time?
Dante Pesce: Governments have been developing National Action Plans (NAPs) on Business & Human Rights with the aim to provide a framework and set of expectations for businesses on how to behave. Eleven governments have published NAPs, including Italy, Switzerland and the US. Most OECD countries are on their way to developing NAPs, but adoption by developing countries’ governments remains slow. For the most part, we face governance and capacity gaps. In any case, we are observing positive development in all regions across the world.
Regarding business, there has been much progress in adopting the Guiding Principles among large listed companies, investment institutions and global business associations. We have reached a critical mass of pioneers, but we still lack scale. We want and need to move faster from global business associations to national ones, from headquarters to subsidiaries and value chains, and from large companies to small and medium-sized enterprises. We still lack sufficient traction among state-owned enterprises, which represent 23.8% of the largest 500 companies, and we continue to push them to adopt the Guiding Principles with the expectation that they will lead by example.
We are making progress in showing the positive relationship between respecting human rights and economic success. Respecting human rights is not only the right thing, but also the smart thing to do.
For many companies, the business case for implementing human rights policies seems to focus more on risk mitigation than on a proactive benefit-oriented approach. How can we motivate companies to go beyond a risk averse to a more benefit-oriented mentality?
Most companies still follow a risk mitigation approach to protect the company itself and not necessarily to mitigate human rights impacts. This is an area for greater improvement on how to “do no harm first.” Beyond avoiding negative impacts, there is still much scope to lead a progressive agenda that promotes human rights linked to the Sustainable Development Goals (SDGs) and targets, for instance. The 2030 Agenda for Sustainable Development calls for a global partnership to combine efforts by development actors in which companies play an important role in contributing to development, but also to benefit from this. However, trust is a fundamental prerequisite for building a sustainable and strong partnership, and can only be achieved to the extent that actors show respect for each other and for the rights of every human being. We are making progress in showing the positive relationship between respecting human rights and economic success. Respecting human rights is not only the right thing, but also the smart thing to do. Of course, we realize that there is need for greater evidence, but we are getting there.
Companies should provide a clear, overarching statement that they respect human rights in all aspects of their business and value chains.
Some companies argue that they already address human rights through their supply chain management policy or code of ethics. How can we convince companies that human rights should be an overarching topic that requires a dedicated policy?
While supply chain policies or codes of ethics are important commitment statements, they each only address a part of the whole picture. It is essential that companies provide a clear, overarching statement that they respect human rights in all aspects of their business and value chains.
Are the Guiding Principles more relevant to some industries than others?
The Guiding Principles are relevant to ALL industries, since any business, irrespective of its size, location, or sector, has the potential to impact human rights. Some industries have greater real or potential impacts on human rights of different stakeholders such as workers, communities or those involved in their supply chains, than others. However, the essential component of the Guiding Principles is the due diligence process for identifying exposure to human rights risks, and this is applicable to all companies.
There have been discussions about introducing a legally binding international instrument enshrining the protection of human rights into law and regulating the activities of transnational companies. What is the probability of such an instrument coming into force, and how would it impact companies? Is there a need for such an instrument?
In 2014 the UN Human Rights Council decided to create an open-ended Inter Governmental Working Group (IGWG) with the mandate to elaborate an international legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises. The first session was held in 2015 and the second session in 2016. The third IGWG session taking place from October 23 to 27, 2017, is expected to prepare elements for discussing a legally binding instrument. While parties increasingly agree that the elaboration of a legally binding instrument and the implementation of the Guiding Principles are complementary to each other, at this stage there is less consensus on what this entails in practice and what are the draft elements for discussion on a binding instrument.
The UN Working Group on Business and Human Rights (UNWG) does not have a formal role in the IGWG process. Generally, the UNWG supports efforts by states to improve business respect for human rights and strengthen access to remedy for victims affected by business activities, and believes that any efforts to strengthen international standards should build upon and be complementary to the Guiding Principles on Business and Human Rights. The IGWG process is subject to discussions and negotiations between governments.
How can the Sustainable Development Goals (SDGs) help make the business case for human rights and how can companies help achieve the SDGs through the implementation of the Ruggie Framework?
In his inaugural address to the annual United Nations Forum on Business and Human Rights in Geneva (November 2016), Professor John Ruggie emphasized the need to explicitly link the UN Guiding Principles (UNGP) to the SDGs, stating that “the UNGP are the foundation of the social aspects of the Sustainable Development Goals.” There is an emerging risk that companies are cherry-picking the SDGs that are most attractive to them or those where they see an opportunity to create shared value. However, this approach assumes compliance and ethical standards are already being upheld and thus the focus can be on positive impacts. Sadly though, this is not the case, and thus the UN Guiding Principles are critical to ensure that companies first do no harm. It is crucial that companies analyze their impacts (whether positive or negative) on the Sustainable Development Goals through a human rights lens.
How would you advise companies that face a moral dilemma when addressing human rights violations − such as child labor − they have identified in their supply chain? Is terminating the relationship with the supplier the right decision if that child’s household depends on her income for its livelihood? Given such difficult decisions, how can we motivate companies to be more transparent about how they tackle human rights issues they encounter during the course of their due diligence activities? How can we reward disclosure?
Although the logical response may be to terminate the relationship with a supplier that has been identified as having violated human rights, this does not resolve the abuses occurring and simply shifts the problem to other parties. Companies should be encouraged to work with these suppliers in order to find sustainable solutions to the human rights problem. In order to continue to make progress on eliminating human rights violations, we need to highlight examples of companies that have proactively identified human rights issues in their operations or supply chains and that are taking responsibility for rectifying these impacts. Instead of “naming and shaming” these companies, we need to applaud them for their honesty, transparency and commitment to tackling these issues head on. Various platforms and organizations such as the UN Global Compact, the WBCSD, the UNWG on Business and Human Rights, among others, can help highlight these positive examples and get all stakeholders talking about the issue.
Investors need to explicitly start asking companies about their human rights commitment.
What is the role of investors in encouraging companies to respect human rights and implement human rights policies?
Investors need to explicitly start asking companies about their human rights commitment, due diligence process and management structures. Just as asset management companies such as RobecoSAM use the annual Corporate Sustainability Assessment (CSA) to ask companies for information on how they are managing labor, social and environmental issues, investors also need to ask companies for details on their human rights management. The CSA is a very good example of this, and the incorporation of four detailed questions focusing on human rights in the 2016 questionnaire is definitely a step in the right direction. Investors also need to give companies a clear signal showing them that they are taking these issues seriously, and that if companies are found to be committing human rights violations or allowing them to occur within their commercial relationships, then investments will cease.