Business and human rights
February 2016 | EXPERT BRIEFING | LABOUR & EMPLOYMENT
Global employment conditions are under increasing scrutiny. Allegations of modern slavery and trafficking, sweatshop factories, dangerous working conditions and child labour have been made against a wide range of companies, particularly among those companies reliant on long and complex supply chains. Increasingly, suppliers are being required to certify their human rights standards and disclose how they are addressing human rights risks.
With two-thirds of consumers saying they would stop purchasing a product if they discovered there was modern slavery in its supply chain, according to a recent survey, and the UK Modern Slavery Act now in force, pressures on businesses to respect human rights in the way they do business continues to grow.
Global business and human rights standards
As a general rule, employers look to national and state regulation in order to understand workers’ rights. However, some countries have weak labour laws or a poor history of enforcement. In response, international bodies such as the UN’s International Labour Organisation (ILO) have developed labour rights with the aim of creating global minimum human rights standards in the workplace. These minimum human rights include upholding the right to associate (the right to join a trade union, participate in union activities and bargain collectively) and eliminating forced labour, child labour and discrimination.
The UN Guiding Principles (UNGPs) on business and human rights are the authoritative global standard in this area; they provide a blueprint for companies to demonstrate respect for human rights and are reflected in the OECD, ISO26000, World Bank and Global Compact standards, as well as being incorporated into country National Action Plans. The UNGPs expect businesses to ‘know and show’ that they comply, which includes embedding a policy commitment to respect human rights and a due diligence process to identify, mitigate and remedy adverse human rights impacts which they have caused or to which they have contributed. The UNGPs apply beyond the business itself, for example, including business partners and suppliers where harm to others is directly linked to those business relationships.
While the UNGPs are not legally binding, businesses are increasingly under pressure to comply. These pressures include: (i) reputational, including the push from governments and stock exchanges for greater corporate transparency on human rights; (ii) legal, including the risk of litigation, complaints to the OECD and breaching ethical procurement terms; (iii) financial, reflecting investor and customer sensitivities and increasing demands for CSR performance data as part of tendering processes; and (iv) operational, arising from labour disputes and disruption to supply chains.
The emerging importance of corporate disclosure
New duties on businesses to publicly report (or ‘show’) the steps they are taking to respect human rights are being imposed by governments, for example as part of annual corporate reporting. By driving up transparency, the expectation is that human rights will be tackled with greater urgency by companies.
One recent example is the UK Modern Slavery Act. This requires medium and large commercial organisations to publicly report annually on the steps they have taken to ensure their operations and supply chains are trafficking and slavery free. The duty applies to partnerships and companies, wherever they are incorporated, providing they carry on business in the UK. While legal penalties for breach are limited, businesses should expect campaigning pressure groups to monitor their compliance. The content of the annual report may include a description of relevant policies including due diligence and auditing processes, any training provided, the principals risks that the business has identified and metrics in place to track the effectiveness of its anti-slavery and trafficking actions. It must be signed and approved at the highest level in the organisation and made accessible on the company’s homepage. A similar modern slavery (also known as forced labour) disclosure provision was introduced in California in 2012.
In terms of broader human rights reporting, the European Union Non-Financial Reporting Directive must be implemented across the 28 Member States during 2016. The Directive requires that ‘public interest entities’ with more than 500 employees report information on their human rights policies and their outcomes, human rights risks management, due diligence and key performance indicators, to the extent necessary for an understanding of the undertaking’s development, performance, position and impact of its activity. In general terms, ‘public interest entities’ include EU listed companies, banks, insurance companies and organisations of significant public relevance.
The Directive builds on the existing UK Companies Act requirement that certain listed companies include in their strategic report information about human rights issues, including information about any related policies and their effectiveness, to the extent necessary for an understanding of the development, performance or position of their business. In addition, France and the US have draft legislation under consideration which would add human rights supply chain reporting duties. Human rights reporting requirements also feature in government procurement, for example the US government has anti-human trafficking requirements for contractors.
Finally, the UN Guiding Principles Reporting Framework is a framework for companies to report on how they respect human rights in line with the UNGPs. While not a legal requirement, it provides an effective tool through which a company can respond to the various regulatory reporting requirements and to the human rights provisions of various global standards such as GRI G4, the UN Global Compact’s Communications on Progress and the Voluntary Principles on Security and Human Rights.
What next for businesses and human rights?
Businesses should expect human rights regulatory reporting duties to proliferate across the world and for greater transparency to become an accepted corporate standard. This is particularly relevant for consumer facing businesses and their supply chains, those tendering for government work and those operating in inherently challenging human rights environments.
To achieve progress, businesses need to view such disclosure as a compliance issue, not a voluntary ‘add-on’ or as philanthropy. In the early stages, engaging and educating top-level leadership is key as is securing funding (for training, advice, audits and other activities) and assembling a team responsible for achieving day-to-day human rights objectives.
A word of warning – when compiling human rights or modern slavery disclosures organisations should ensure that they are accurate and refer to actual steps being undertaken or begun. Litigation in the US against companies on the basis of alleged misrepresentations in such reports underlines how organisations should be realistic, show genuine engagement, take sustainable steps to improve and ensure that all public statements are evidence-based and match practice on the ground. While a cautious approach may not win immediate accolades, it will pay dividends in the long run.
Thomas Player is a partner at Eversheds LLP. He can be contacted on + +44 (0)292 047 7574 or by email: email@example.com.
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