Mainstream but Muted
Investor engagement and regulation have helped to improve corporate human rights commitments, but progress remains patchy.
The concept of human rights due diligence and responsibility has now become “mainstream” in the corporate world – led in part by investors’ efforts to engage on the issue, and under the impulse of regulation.
It is almost 76 years since the UN Universal Declaration of Human Rights (UDHR) promised dignity, freedom and justice for all, but the responsibilities of corporates toward this aim are far more recent.
“The UDHR was primarily about states’ responsibility to respect the human rights of its citizenry and people,” says Anita Dorett, Director of the Investor Alliance for Human Rights (IAHR). “But for the first time in 2011, the UN Guiding Principles on Business and Human Rights (UNGPs) articulated companies’ responsibility for upholding human rights in their operations and throughout their value chain.”
Seven years later, the UN Data Protection and Privacy Principles came into play – introducing a defined instrument for corporate responsibility, unanimously approved by the UN Human Rights Council.
The same year, the Organisation for Economic Development and Co-operation (OECD) adopted its Due Diligence Guidance for Responsible Business Conduct – adding another major item on the list of voluntary initiatives designed to push corporate action on human rights.
“Over the past 13 years, the corporate responsibility to respect human rights has been widely adopted by both companies and investors because they now view it as a material risk that can impact the value of a company over the long term,” Dorett adds. “To achieve sustained and resilient value creation over the long term we need all stakeholders to be involved. That includes the companies themselves, the investors, as well an enabling regulatory environment with a mix of mandatory measures and incentives.”
This, she explains, includes the companies themselves, the investors, as well an enabling regulatory environment mixing mandatory measures and incentives.
That regulatory effort has largely been led by the EU, which recently introduced the two most comprehensive pieces of legislation to date in this space – in the form of the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD).
“Investors have been asking companies about their human rights commitments and policies, and with legislative efforts coming into picture, the C-suite are now taking business and human rights commitments much more seriously,” says Namit Agarwal, Social Transformation Lead at the World Benchmarking Alliance (WBA).
He adds: “It is becoming much more mainstream, with more questions in the public domain and companies feeling the risk that doing nothing might affect their reputation. It’s a combination of all those things that is nudging corporates to move forward and make those commitments.”
Mixed picture
In the latest iteration of its Corporate Human Rights Benchmark (CHRB), which assesses more than 240 companies, the WBA reported that although corporate accountability is steadily gaining momentum – progress remains uneven and too slow.
“We have definitely seen improvement, with companies having made more commitments to global frameworks such as the UNGPs or the OECD guidance,” says Agarwal. “Companies are also embedding business and human rights in their management systems and culture – which specifically means having roles and responsibilities clearly articulated, resources allocated, and oversight at the board level to implement.”
Over five iterations of the CHRB, 64% of the companies assessed showed measurable progress on implementing the UNGPs. But while they made headway across all areas of human rights, progress was often superficial.
“Overall, we haven’t seen a lot of improvement across all the stages of due diligence, but in the first two stages – identifying risk in operations and supply chains – companies are taking leadership,” Agarwal explains. “However, some concrete actions are still missing when it comes to creating positive impact on workers and communities. We need companies to start looking at how are to implement the commitments they have made.”
About a third of companies (33%) only improved “minimally”, meeting up to 10% more of the human rights expectations set out in the CHRB compared to their first assessment. Around 23% met 10-20% more expectations since the first iteration, while 9% of companies made “significant strides” – improving on more than 20% of CHRB expectations.
In contrast, 36% of companies either stagnated or even regressed – highlighting yet again an unequal pace of progress.
“Our assessment shows that while there is improvement on commitments and due diligence, there is very little on responsible purchasing practices – which in effect, contradicts progress made in other areas,” says Agarwal. “Whether it’s investors or policymakers, they need to make sure companies are implementing their own commitments – especially in the responsible purchasing practice areas.”
A report from London-based fintech ClimateAligned also revealed inconsistent social impact reporting – specifically in emerging markets and developing economies. Arguing for a “technology-led, scalable approach” to simplify sustainable development impact disclosures, the fintech noted that reporting on social dimensions such as SDG 10 (reduced inequalities) remained sparse.
“Addressing these gaps is essential for holistic contributions to UN Sustainable Development Goals,” says Amy Hepburn, CEO of the Investor Leadership Network – a CEO-led group composed of 13 global institutional investors with over US$10 trillion in AUM. “We can no longer overlook the role of public-private partnership in driving positive impact in climate change and sustainable development. We need investors at the table early to co-create solutions.”
Leading by engagement
The WBA’s CHRB also provided clear evidence that stakeholder engagement has been a major pull in leading companies to improve their human rights scores.
Companies engaged on human rights by their investors through the IAHR, for instance, progressed 15% faster than those that weren’t. Similarly, those that engaged with the CHRB on their assessment saw accelerated progress, with 90% of the fastest-improving entities having responded to CHRB research queries at least twice.
“It’s also a learning curve for investors: we published guidance earlier this year, following feedback that they needed to build their capacity and recruit analysts who can then engage on these subjects,” says Agarwal. “Now that companies have taken the initial steps of human rights commitment, investors need to start asking questions on the next stages, as that will raise the bar in terms of accountability.”
Beyond the IAHR, other investor-led initiatives include the UN Principles on Responsible Investment’s (PRI) Advance, as well as the Investor Initiative on Human Rights Data – launched in March this year by the Church Commissioners for England alongside Aviva Investors and Scottish Widows.
“There is a clear recognition on investors’ behalf that human rights represent material financial risk, with the likes of the Global Reporting Initiative (GRI) and the Sustainable Accounting Standards Board (SASB) introducing reporting requirements,” says Dorett. “You can’t make responsible investment decisions if there isn’t disclosure. Investors are pushing for these regulations and for more transparency and accountability as part of their own responsibility to conduct human rights due diligence.”
Institutional investors’ growing appetite to address human rights and associated social issues has also been driven by portfolio-level impacts. Last month, insurance and asset management group Allianz launched ‘Power of Unity’ – a programme aiming to counter the erosion of trust in societal institutions and strengthen confidence in a better economic future.
Based on Allianz Research’s fourth ‘Social Resilience Index 2024’, which showed that social unrest has increased in many countries, the programme looks to support organisations in engaging constructively through research, thought leadership and events.
“Polarisation slows economic growth and threatens our sense of security and optimism,” says Oliver Bäte, CEO of Allianz. “Our customers and shareholders tellsus that they see this as damaging to their economic prosperity and personal wealth. Thus, it is clear to us that Allianz has a responsibility to strengthen common ground.”
Accountability is key
Although progress has been registered in a number of areas, there is still a healthy amount of scepticism as to corporates’ accountability on human rights.
Michael Posner, Director of the NYU Stern Center for Business and Human Rights – which recently published a study on the subject – argues that corporate disclosures are not improving, with performance still hard to evaluate due to poor data.
“Efforts such as PRI’s Advance and the UN Global Compact’s Forward Faster initiative on achieving a living wage are worth tracking – though early progress has been slow,” he says. “The CSDDD and other EU rules have the potential to create greater corporate accountability. But to be effective, they need to establish meaningful sectoral standards and a mechanism for enforcement.”
The GRI’s 2024 ‘Carrots & Sticks’ report shows a continued trend favouring voluntary over mandatory reporting frameworks – with the former now accounting for 58% of sustainable policies globally.
With Donald Trump due to return to the White House as of 20 January, one may wonder whether US companies’ accountability on human rights will take a hit – but it may be reassuring to some that, even in a jurisdiction where this is seemingly less regulated than in the EU, certain principles may simply be too enshrined globally to recede.
“A lot of the US investors we are speaking to are talking about human rights due diligence – regardless of whether legislation is being developed,” says Agarwal. “Again – the concept has very much become mainstream.”
In the meantime, legislation and shareholder engagement should continue to shape corporate practice in the coming decades.
“The issue of addressing human rights risks in investments and businesses will continue to evolve over the next 100 years – it will be an iterative process where we keep striving for higher standards,” says Dorett. “There has been very notable movement in this space, with investors being vocal about the need to mitigate human rights risks and safeguard returns for all stakeholders.
“The ESG backlash, however, has definitely had a chilling effect on public statements around these issues by investors.”
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