Author: Linas Bartusevicius, business development analyst, Forensic Risk Alliance

Human rights are increasingly becoming a more relevant topic for international companies. With growing international awareness of human rights issues and intolerance of abuses, companies have notable reasons to identify and implement effective human rights compliance programmes. For example,one area of growing commercial force is consumer activism, and in response to this companies market their products as sustainable and ethical, requiring a strong human rights compliance programme to support such claims. Socially Responsible Investing (“SRI”) requirements together with external pressures from NGOs, communities, and other stakeholders and interest groups also raise the risk profile, and increasing scrutiny from external stakeholders, combined with the growing access to the internet and social media in many developing countries, increases the likelihood that disregard for human rights will be flagged in the public domain. Finally, a good human rights record is particularly relevant when entering important new markets. We note with interest that past human rights and environmental violations by US shale gas companies have been an obstacle when trying to enter new European markets[1].

International law

Many instances of human rights violation take place in developing countries, where international companies have outsourced production facilities.  International law recognizes full corporate responsibility,including supply chains and other business partners[2].The United Nations Guiding Principles (“Guiding Principles”) on Business Ethics and Human Rights framework of ‘Protect, Respect, Remedy’ requires businesses to proactively implement measures to ensure that respect for human rights is upheld, especially in their supply chains. Guiding Principles also state that the responsibility to respect human rights goes beyond the corporation itself and extends to its supply chains and business partners.International businesses therefore implement measures such as human rights due diligence and remediation policies to protect human rights; this is often done in the context of corporate social responsibility (“CSR”)initiatives.

Fundamentals

Proactive human rights compliance programs are assisted by the development of reporting frameworks, standards, indicators and certification processes.Compliance programs are risk-adjusted and are often focused on supply chain management, as supply chains are perceived to be a risky and difficult to manage business process. Complexity, lack of transparency and staff training, business culture risk, and weaknesses in controls are some of the examples of the challenges within a supply chain.Risk assessments,and thereafter the design of appropriate policies, should take into consideration the nuances within the organisation’s businesses,existing policies and procedures, jurisdictional and regulatory requirements, as well as industry,- geography- and cultural-specific compliance risks.Many companies have set up production and manufacturing operations in developing countries to tap into local resources as well as the ability to produce at a lower cost. However, labour rights abuses are widespread in these developing economies; having effective internal whistle-blowing procedures allow grievances to be aired in an anonymous fashion and dealt with systematically. Oil and gas companies often receive complaints from indigenous communities with respect to land and property rights violations, for example the Mapuche communities in Argentina alleged in 2014 that they were not consulted, in accordance with the International Labour Convention 169, by state-run YPF or Chevron (partnership) regarding the use of the controversial fracking method on lands on which they reside. Instances such as these illustrate the need for companies to have effective policies for engaging with local and indigenous communities. Moreover, to be able to deal with human rights issues effectively, businesses must track information and trends relating to a continuous development human rights compliance policy. This requires constant auditing and screening of the supply chain, often with a focus on specific supply base risks.In addition, human rights must be discussed and understood by the management of the company; a top-down approach is appropriate when implementing human rights compliance programmes.

The beginning

The first step in human rights due diligence is the most important:the performance of a risk-focussed audit, including contractors, suppliers and other business partners, to identify current status regarding human rights is likely to be an extensive exercise. This includes gathering data through questionnaires and interviews, and where relevant through supply chain visits.Once the nature of the business and its operations are properly mapped, and after consulting local communities and organisations specialising in the particular field,experts and managers can identify the key risk areas. The Human Rights Reporting and Assurance Framework Initiative refer to these as‘salient issues’[3], i.e. those which could have the most severe negative impact.Audits should include a review of the company’s human rights record and resolution of previous negative impacts, where the information is then used to evaluate the effectiveness of existing human rights policies.

Implementation

Once performance against key human rights policies has been evaluated, the company must identify and prioritise the business segments requiring improvement. For instance, in its very first human rights report under the Reporting and Assurance Framework Initiative, Unilever identified eight salient issues: discrimination, fair wages, forced labour, freedom of association, harassment, health and safety, land rights and working hours. The company then focused on policies to tackle those issues,or at least to mitigate their impact.Implementation should not be limited to in-house processes only, and should be extended to encompass business partners and third party suppliers as they are effectively an extension of a company’s operation. While focusing on salient issues and geographical factors help mitigate identified risks, companies need to remain constantly alert to the emergence of other unprecedented or unforeseen human rights issues and impacts. In fact, many of today’s industry leaders have chosen to mitigate their risks by constant promotion of strong compliance cultures internally as well as with their supplier and partner networks.

Continuous improvement

It is important to understand that the creation of human rights policy and compliance program effectiveness go hand-in-hand.Policies and implementation should be reviewed periodically to determine the accuracy of the risk assessment performed and the continuous effectiveness of the compliance program as human rights issues are not static. The tone at the top should be set by senior management through actively promoting the awareness and adherence with the policy; else the policy and program will not be effective post-implementation. Furthermore, reporting on compliance with human rights should include feedback from affected stakeholders, information which is valuable when evaluating the company’s human rights practice.

Conclusion

Corporations have been, and increasingly are, under increasing pressure from and scrutiny by stakeholders and consumers to respect human rights in their operations. It is clear that delivering products to consumers at target cost and quality levels is no longer sufficient for success; consumers also want products to be sourced and produced in an ethical and environmentally friendly way. According to BusinessWire, by 2017 the millennial generation will outspend Baby Boomers[4]; the trend indicates that smart companies will adapt their strategies to appeal to the characteristics of both groups. Some of the brands most favoured by “millennials” have good sustainability records and take pride in respecting human rights and the environment, thus proactive and positive reporting on human rights and sustainability,accompanied bythe implementation of effective compliance programmes,provides a competitive advantage for multinational companies.

[1]http://www.europarl.europa.eu/RegData/etudes/BRIE/2014/542167/EPRS_BRI(2014)542167_REV1_EN.pdf

[3]http://www.ungpreporting.org/wp-content/uploads/2015/02/UNGuidingPrinciplesReportingFramework_withimplementationguidance_Feb2015.pdf

[4]http://www.businesswire.com/news/home/20131024006116/en/Millennials-Outspend-Baby-Boomer-Catching-Retail-Industry#.Va4QdvlViko