The TakeAway: Several sustainability milestones were reached in June, but the greatest of these was the UN Human Rights Council endorsement of the Guiding Principles for Business and Human Rights, which established human rights as both a moral and material consideration for economic enterprise.
It’s the end of June, and time to break out the sunscreen and flip-flops. Before sipping those sangrias, we thought it worth reviewing the major milestones occurring this month, which advance sustainability and justice. Among the markers are those involving human rights; sustainability impact; integrated / sustainability reporting; and sustainability ratings. This progress signals the maturation of a movement that has ancient roots, yet continues to be challenged by those with parochial beliefs in unlimited growth and the supremacy of coins and paper over people and planet. And, they point to new frontiers in need of civilization, particularly regarding stronger integration of sustainability and justice into socio-political systems and an emerging world economy. Today and tomorrow, we’ll provide a recap before commencing flag-waving and fireworks.
Human Rights: A Moral and Material Business Concern
First up: the landmark June 16th UN Human Rights Council (HRC) endorsement of the Guiding Principles for Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework. The HRC action further establishes human rights as both a moral and material part of economic enterprise, extending a principle that’s been around (but not widely accepted) for decades. (Reminder: South African apartheid and the Sullivan Principles, or Northern Ireland discrimination and the MacBride Principles.) The Guiding Principles were proposed by Harvard Kennedy School professor John Ruggie, the Special Representative of the Secretary General (SRSG) on human rights and transnational corporations. We think it’s among the most important milestones in the recent era of corporate responsibility and sustainability, particularly given its emphasis on stakeholder engagement and collaboration among government, business, and civil society.
“Human rights are at stake—and so, too, is the social sustainability of enterprises and markets as we know them,” Ruggie told members of the UN’s Human Rights Council (HRC) at its late May meeting in Geneva when he presented the Principles. “I am pleased to report that multilateralism works. Human Rights Council Special Procedures can make a significant difference even where discord and contention once prevailed.” Ruggie’s submission of the Guiding Principles capped an extraordinary six-year, two-stage process that was “intensely consultative and rigorously evidence-based,” he said, and “not driven by doctrinal preferences…. They provide a common global platform for action, on which cumulative progress can be built, step-by-step, without foreclosing any other promising longer-term development.” (Ruggie’s presentation appears on the HRC video archive website.)
The Protect, Respect, and Remedy Framework and Guiding Principles build on earlier efforts to codify human rights as applied to business institutions, a separate branch on the human rights accountability tree. Governed by what Ruggie calls “principled pragmatism”, they were deliberately designed as a high-level guidance, leaving room for specific tailoring at the company and industry level.
Although the HRC stopped short of creating a global standard or oversight structure – thus drawing legitimate criticism from human rights groups, who claim there should be strong follow up – it did establish a working group consisting of five independent experts to be appointed by the HRC this September. The Working Group will host an annual Forum on Business and Human Rights for governments, business, and others to gather and examine how the Guiding Principles are being carried out.
Along with important caveats issued by Human Rights Watch and Amnesty International on moving forward, the Guiding Principles have received widespread support, the result of extensive stakeholder engagement. (All commentaries received on both the proposed and final draft can be viewed on the Business and Human Rights Resource Center [BHRCC] website, which has a dedicated portal for Ruggie’s work.)
Meanwhile, now that the UN mandate has ended, Ruggie and his team are expected to form a nonprofit entity to advise governments and NGOs on how to move forward. Ruggie also will continue his teaching and research at Harvard.
The Long and Winding Road
Stage one of Ruggie’s mandate began in 2005, as he put it, “amidst divisive debates among stakeholders and little consensus among States” regarding business and human rights. Three years later in 2008, he presented the Council with the “Protect, Respect, and Remedy” Framework, backed by full stakeholder support. Unanimously endorsed by the HRC, “that Framework addressed the ‘what’ questions: What do States and business enterprises need to do to ensure business respect for human rights?” Ruggie said. It’s since been applied by numerous states, organizations, investors, and multistakeholder initiatives throughout the world, and rests on three pillars:
- The state duty to protect against human rights abuses from third parties, including business, through policies, regulation, and adjudication;
- The corporate responsibility to respect human rights, implementing due diligence to avoid infringement and address adverse impacts;
- Access to effective remedy for victims of human rights abuses.
At the Council’s request, Ruggie then embarked on the second stage of his mandate in 2008, to address the ‘how’ question—meaning “How we move from concept to practical, positive results on the ground?” That process, extraordinary in its breadth and depth, included 47 international consultations on every continent; more than 20 site visits to business operations and communities to learn from “the diverse experiences of affected individuals and groups, local leaders, civil society and company representatives”; and expert volunteer analysis and advice from all regions—including pro bono research from more than two dozen law firms throughout the world.
According to Caroline Rees, director of Harvard Kennedy School’s Corporate Social Responsibility Initiative’s Governance and Accountability Program who works closely with Ruggie, the Guiding Principles primarily focus on the Responsibility to Respect (Pillar 2). “All international human rights are the reference point that business needs to look at,” she told a group gathered at the Tellus Institute in May. “This is politically sensitive territory, because states have ratified human rights conventions differently.”
The Guiding Principles represent a movement from “naming and shaming” to “”knowing and showing”, she said; a key part of approach addresses the question of verification. Companies will have to show they have in place “human rights due diligence” policies and procedures. These include:
- assessing actual and potential human rights impacts;
- integrating and acting upon the findings; and
- monitoring and communicating progress on how they’re addressed.
Action Research: Putting Principles Into Practice
The effort also included four main pilot projects undertaken by several companies, with help from “Team Ruggie”, to design or revise their grievance mechanisms within the context of the Guiding Principles. The twin purpose of the undertaking: help companies improve their grievance processes and generate insights on how the Principles could be improved to reflect practical realities. Companies involved in these projects included:
- Carbones del Cerrejón, a coal mine in Colombia;
- Tesco stores Ltd, a United Kingdom-based multinational supermarket chain, working with suppliers in South Africa;
- the Sakhalin Energy Investment Corporation, an oil and gas company in the Russian Federation; and
- the Esquel Garments Group, a Hong Kong based garment company working with its wholly owned supplier in Vietnam.
In addition, an adjunct project with Hewlett-Packard and two of its suppliers in China retrospectively analyzed their collaborative efforts to enhance suppliers’ grievance mechanisms and reviewed them in light of the Guiding Principles. An analysis of these action research projects appears in Piloting Principles for Effective Company-Stakeholder Grievance Mechanisms: A Report of Lessons Learned, published in late May. Written by Caroline Rees with annexes authored by Doug Cahn, Stephan Sonnenberg, and Luc Zandvliet, this must-read report reinforces the critical importance of stakeholder collaboration and continuous learning.
“The range of sectors (oil and gas, mining, garment manufacturing, food, electronics), geographical and political contexts (Russian Federation, Colombia, Viet Nam, South Africa, China) and the scale of companies (major transnationals, factory with around 3,400 workers, supply farm with less than 50) in which these pilot projects took place was extremely valuable in ensuring that the Special Representative’s principles for non-judicial grievance mechanisms were well tested,” Rees writes.
Clearly, there are other contexts in which the principles could also usefully be tested, including pharmaceutical and ICT companies, and there are still lessons to be gained from how the mechanisms in this pilot work in practice in the months and years to come.
However, the pilot projects have generated valuable learning. They repeatedly confirmed the value and importance of the overarching concepts represented in the principles themselves. They also added some clarifications and nuances to how those principles should be understood and applied in practice, regardless of the situation.
…For all of the participant companies, the pilot process was only the start of a longer process. The project team looks forward to seeing how their efforts, and those of their stakeholders in these projects, develop in the future
Supplementing this large-scale action research endeavor, the CSR Initiative also set up the BASESwiki, a collaborative tool for sharing information and learning about how dispute resolution between business and society works around the world.
The key implementation challenge for companies: creation of assessment mechanisms that are industry-appropriate and suit the scope of operation. This is easier said than done: most firms are new to this form of operational environment scanning, but it’s now part of a larger pattern of risk management and “materiality”. Corporate financial reporting typically has been the lens through which material issues have been identified. (A common rule of thumb to consider those issues material that could potentially impact financial results by more than 5 percent.)
But as sustainability becomes recognized as an important driver for business success (and a popular choice among ambitious young graduates) it challenges prevailing assumptions about “material” risks and opportunities. In February 2010, the U.S. Securities and Exchange Commission published an interpretive guidance regarding its existing disclosure requirements as they apply to climate change. This ruling opened the door to a new interpretation of material risk, in furtherance of its regulatory role.
“Environmental and social issues have not typically followed the rigor of a materiality interrogation,” says Jean Rogers, managing director of Rogers Associates LLP and a sustainability materiality expert. “Environmental disclosures have historically been viewed through the lens of contingent liabilities due to the enormity of the fines they represented. Corporate reporting on environmental and social issues from a materiality perspective continues to evolve.” She and Steve Lydenberg of Domini Social Investments and Harvard’s Initiative for Responsible Investment (IRI) develop this idea in their report, From Transparency to Performance: Industry Based Sustainability Reporting on Key Issues, an IRI white paper that examines materiality within industries and identifies key performance indicators.
Meanwhile, human rights expert Liz Umlas uses the term “social materiality” to describe the incorporation of environmental, social, and governance (ESG) considerations into business and investment decisions. “ESG issues are not ‘non-financial’, the term preferred by mainstream investors a few years ago, but often financially material, as a growing body of research shows,” she wrote in a Guest Commentary for the Murninghan Post last October. Umlas believes social materiality captures those corporate impacts that are vital to stakeholders’ well-being.
The Guiding Principles for Business and Human Rights advance this interpretation of materiality. Writing on the CSR and the Law blog published by Foley, Hoag LLP, longtime sustainability expert Sarah Altschuller noted, “As observed in our earlier commentary, while the Principles are not law, they are likely to influence national law and policy in jurisdictions around the world….In our experience advising companies on how to identify, prevent, and mitigate the adverse human rights impacts of their operations, Professor Ruggie’s work has been a key reference point since the outset of his mandate. The Principles provide high-level guidance applicable to all business enterprises, and many companies have already begun the hard work of interpreting how best to apply this guidance to their specific activities.”
Faris Natour, director of human rights for Business for Social Responsibility (BSR), agrees that the Guiding Principles will foster the emergence of human rights management systems. “Already, governments such as Australia, Canada, the EU, and the UK have applied the UN Protect, Respect, Remedy Framework in their public policy,” he writes in a guest blog for Business Ethics. “We can expect governments to begin implementing the principles’ many recommendations directed at them, including, for example, encouraging or requiring corporate human rights disclosure.
They’ve got their work cut out for them: There are tens of thousands of transnational corporations, but “according to the Business and Human Rights Resource Center’s list, only 271 companies have human rights policies,” Natour says.
Other commentaries on the Ruggie submission and the UN HRC decision, as well as background and links to relevant analyses, tools, and news updates, appear on the BHRRC platform.
We hope that firms respond to the Guiding Principles without segregating human rights into a separate category. “So much is about lenses or vocabularies,” Rees told the Tellus group. “Food crises, environmental issues—we need to make sure they don’t exclude the human rights lens, or concerns. I was at an environmental meeting the other day, and it was all about wind farms and renewables, with no reference to human rights. There was no people reference.”
“The UN Principles on Business and Human Rights is a major milestone in the evolution of the organization’s relationship with the business community,” Allen White, Tellus vice president and co-founder of the Global Reporting Initiative (GRI), told us. “This journey began in the 1970s with the Center for Transnational Corporations and accelerated with the launch of the Global Compact a decade ago.
The next decade is pivotal. Will UN norms remain purely voluntary, minimally monitored, and loosely enforced? Or will they rise to the level of de facto standards through national law, regulation, stock exchanges and other mechanisms, with strong accountability mechanism and broad-based uptake among the world’s 75,000 transnational enterprises and millions of SMEs?”
Time, and due diligence, will tell.