Gauging Corporate Human Rights Performance

Neil Hodge


September 1, 2015

corporate human rights

Spurred by tragedies like the 2013 Rana Plaza disaster, a new benchmark is being developed to rank businesses on their human rights records and, hopefully, drive improvements for workers around the world.

Increasing corporate accountability, particularly in emerging markets, has become a key issue following workplace disasters dating as far back as India’s Bhopal gas leak 31 years ago. More recent tragedies like Bangladesh’s November 2012 Tazreen Fashions factory fire and April 2013 Rana Plaza building collapse, which killed more than 100 and 1,100 workers, respectively, have prompted industry to take action, and accept at least some measure of responsibility. For example, the subsequent Bangladesh Accord on fire and building safety, signed in May 2013, has improved industry transparency by prompting companies to publicly report on factory inspections.

But voluntary agreements are dependent on corporate backing, which does not seem to be a reliable long-term strategy to ensure participation. Indeed, the Bangladesh Accord only lasts until 2018, and what happens after that is unclear. Furthermore, it took a full 18 months for the Donor Trust Fund to hit its $30 million target in voluntary contributions from companies to provide compensation for the workers and families impacted by the Rana Plaza disaster. On the second anniversary of the tragedy, workers’ group the Trade Union Advisory Committee (TUAC) of the Organisation for Economic Cooperation and Development (OECD) reported that only about one-third of the 32 companies with links to the factory complex had contributed to the fund.

Consequently, many are looking for effective ways to further increase scrutiny of corporate actions at home and abroad. To that end, a group of investors and corporate accountability advocates announced last December that they were going to launch a rating system to rank companies on the basis of their human rights performance. Five hundred of the top global companies from four key sectors—agriculture, information and communications technology, apparel, and extractives—will initially be researched and ranked for the Corporate Human Rights Benchmark (CHRB). Established by Aviva Investors, Calvert Investments, investment researcher EIRIS, Dutch institutional investment body VBDO, and advocacy groups the Business and Human Rights Resource Centre and the Institute for Human Rights and Business, the project aims to provide investors, trade unions, governments and activists with more detailed information on how the world’s biggest companies’ approach human rights.

The finer points of the CHRB are still being developed, but according to Stephen Hine, deputy CEO at EIRIS, the group aims to have the first public launch of the finalized benchmark go out in spring 2016. Soon thereafter, it hopes to make reports publicly available on the first 300 companies, with the remaining 200 reports coming out in 2017.

“The bar will be set quite high so that it is not easy for companies to move position without making a concerted effort to improve their human rights records,” Hine said.

The initiative faces several challenges, however, as those involved in developing the project have very different stakeholders to consider. Institutional investors need to consider shareholder concerns, for example, while human rights organizations prioritize the needs of victims and those affected by a company’s operations.

Other challenges include how to incorporate supply chain issues into the research methodology and ratings, and what other industry sectors should be examined next. These could include pharmaceuticals, consumer goods, and food and beverage manufacturers. Private security contractors—often widely accused of human rights violations, including extrajudicial killings—are also conspicuously absent.

There has been little reaction from businesses thus far. A spokesperson for U.K. pro-enterprise lobby group the Confederation of British Industry (CBI) said it is too early in the process to discuss the impact of the benchmark or whether it is likely to be a fair indicator of business conduct. Some of the companies that are likely to be included in the initial rankings have welcomed news of the benchmark, however. “Human rights is an integrated part of all our business activities and operations,” said a spokesperson for European apparel retailer H&M. “We welcome such initiatives as we believe in promoting transparency in how businesses conduct their operations. Benchmarking is one way of promoting transparency as it enables corporate actors to share practices and experiences, which is beneficial for all.”

Meanwhile, a spokesperson at Swedish telecom giant Ericsson said, “In general, we welcome global benchmarking, given they have fair and transparent criteria,” but noted, “we will continue to build upon what we have learned to actively address human rights issues in line with our commitment to responsible business, rather than to meet benchmark criteria.”

Many experts have also welcomed the initiative. “It will encourage more companies to consider reporting publicly on the impact of their activities on human rights, and this should end up being a positive step for all,” said Stéphane Brabant, partner and chair of the Africa group at global law firm Herbert Smith Freehills.

James A. Sweeney, professor of human rights law at Lancaster University in the United Kingdom, also sees the new benchmark as a means of encouraging companies to improve their conduct and comply with best practices. “Rules have proven to be difficult to enforce with regard to human rights and corporations, so principles are probably the best way forward,” he said. “There has always been a problem bringing human rights legal cases against companies. Human rights law was established to prosecute crimes committed by states rather than corporations, so there is no direct mechanism to prosecute or regulate [companies] for suspected violations.”

He added, “I’m also supportive of the careful approach that these bodies have taken: They are consulting widely, and are not making rash decisions or trying to curry favor to achieve a set deadline. The way they are working together is more likely to produce a benchmark that works and a methodology and approach that is both credible and accepted by businesses, investors, NGOs, labor organizations, human rights groups and charities.”

Perhaps one of the best endorsements comes from John Ruggie, Berthold Beitz Professor of International Affairs at the Kennedy School of Government, affiliated professor of international legal studies at Harvard Law School, and author of the United Nations’ Guiding Principles on Business and Human Rights. Endorsed in 2008, these principles rest on the three pillars of “protect, respect and remedy.” They establish a duty for the state to protect against human rights abuses by third parties, including businesses, and establish a corporate responsibility to respect human rights. They also give victims greater access to effective remedy, both judicial and non-judicial. These principles have become widely accepted as “soft law,” meaning that, while they are legally unenforceable, they have become the expected standards upon which companies operate.

“Benchmarks can have a catalytic effect in getting top-level company attention and driving changes in behavior,” Ruggie said. “We’ve seen some successes in benchmarking a handful of leading companies within single industries on a small cluster of human rights issues.”
Other Human Rights Indices

The Corporate Human Rights Benchmark is not the first index created to shine a light on the activities of the world’s largest corporations in developing countries.

The Access to Medicine Index ranks the 20 largest research-based pharmaceutical companies’—including GlaxoSmithKline, Novartis, Johnson & Johnson, Pfizer and Takeda Pharmaceutical—on their efforts to improve access to medicine in the developing world. Established by Dutch entrepreneur Wim Leereveld and funded by the Bill & Melinda Gates Foundation and the U.K. and Dutch governments, the index has been published every two years since 2008. It has supported advances in the industry’s approach to providing and pricing medicines for poor people suffering from a range of diseases from HIV/AIDS to tuberculosis.

The index is not intended to “name and shame,” but to encourage Big Pharma to improve its conduct, and to recognize these changes in practice.

Meanwhile, Oxfam’s Behind the Brands campaign focuses on the activities of 10 food and beverage giants—Nestle, PepsiCo, Unilever, Mondelez, Coca-Cola, Mars, Danone, Associated British Foods (ABF), General Mills and Kellogg’s—in the developing world. Its scorecard looks at seven themes, including transparency at a corporate level, the number of female farm workers and small-scale producers in the supply chain, the sustainable use of land and water, and the rights of small local farmers to access those resources.

Unlike the Access to Medicine Index, Oxfam does use a “name and shame” approach. The campaign’s website makes it easy to enable direct stakeholder action: People can check a company’s results on the website, download posters detailing the findings, and share this information on Facebook and Pinterest. They can also tweet the company directly with calls to change its policies.

But benchmarking is not easy. “The challenge in benchmarking general human rights performance in hundreds of companies operating and trading across the globe is to make sure you don’t use metrics that are easy to measure but don’t capture the essential features of human rights challenges, and that, in practice, might actually drive the wrong performance,” he said.

A metric based on how many complaints are received against a company could imply that a high number of complaints means bad performance, as opposed to indicating that the company is working to improve its complaint mechanism as a way to get issues addressed, he explained, Such a metric also risks driving staff to suppress complaints to improve the company’s rating, rather than encouraging complaints as a means to address issues early and improve performance. “At the same time, you can’t just flip that and say that lots of complaints are a good sign” he said. “It may indeed be a bad thing—context will dictate the interpretation.”

In another example of driving the wrong performance, a company that reports child labor problems in its supply chain and makes an effort to address them could be seen as worse than a company that has similar problems but does not report them. “The company that is the subject of a media/NGO report on forced labor issues is graded down relative to the company that just doesn’t happen to be targeted the same way, but has equal or greater issues,” Ruggie said.

Other experts have reservations about how the benchmark will work in practice. Focusing on industry sectors is not a bad idea, Brabant said, as the exposure to human rights issues can be very different depending on the sector and, thus, are not easy to compare. This approach may be difficult to account for, however. “An apparel company will source from overseas suppliers, so it will not, in most cases, be directly involved in the production locally,” he said. “However, a mining company will be involved at a local level and will have more of a direct influence on operations. Should these companies be judged in the same way?”

There could also be difficulties in ranking companies that have complex supply chains. “It can be difficult to know if the ranked company has control over its supply chain or not and, thus, whether that company has contributed to the violation or is merely linked to it,” he said. “This might be the case for mining companies involved in huge infrastructure works for which third-party companies are responsible. Between the mining company and the company constructing the infrastructure, who should have the lower rating in case of a violation of human rights? Similar difficulties may arise in the forestry sector, which can also involve many contractors with activities below the radar. And what about financial institutions: Will they be ranked based on violation of human rights by companies they finance?”

If any ranking is going to be successful, Brabant believes that it must take into account the supply chain and the degree of control the company in question has over it, which could involve very delicate judgments.

While the benchmark is set to probe the source of goods and services, some experts also want to know if it will take into account where the finished products are sold and to whom. Several companies have been criticized for where their products wind up, such as construction machinery firm Caterpillar. The company is often targeted by activists and investors for selling its bulldozers to the Israeli Defense Force, which has in turn used them to demolish Palestinian homes and other buildings. Confectioners and carbonated drink manufacturers, meanwhile, have been criticized for selling their products in schools and hospitals.

“Increased scrutiny on where and how products are sourced and made is obviously welcome, but it is just as pertinent to review where these products are sold, and in what circumstances they are being used,” said Toby Duthie, founder and partner at accounting and investigations firm Forensic Risk Alliance.

The success of the benchmark may also depend on just how broadly the issue of human rights is defined. “How do you measure abuse, and how do you rate one violation over another?” Duthie said. “One of the problems the creators of this benchmark face is that there is an automatic geographic bias. Those companies that operate in high-risk, developing countries with poor governance and rule of law are much more likely to be exposed to human rights abuses, either directly or through their supply chain. Contrast that with a food retailer based in Sweden and sourcing 90% of its goods from the EU.”

He explained, “If the focus of the benchmark is companies that have ‘significant’ exposure to developing markets, then this excuses the overwhelming majority of businesses that are based in major markets like the United States and European Union whose labor and human rights records in those countries can also be criticized, such as using ‘zero hour’ contracts, paying below minimum wage, sacking pregnant or sick workers, and bullying staff to meet targets.”

Brabant agreed that there will always be concerns regarding any index of human rights performance. “This benchmark is certainly a positive development, but there are some issues regarding its implementation,” he said. “Does everyone share the same concept of human rights? Does it mean issues like slavery, human trafficking and child labor, or does it refer to—and include—the rights of indigenous people and land rights, or uprooting communities to make way for your operational activities? Also, where is the dividing line between labor rights and human rights, or do they overlap? Many companies often concentrate on only some aspects of human rights and neglect others, or simply dismiss the idea that their activities could impact some human rights.” This benchmark may change this—at least for these 500 companies, he said.

“If the benchmark is going to be accepted and maintain credibility, it will need to have strict criteria and use recognized standards and metrics that companies are aware of and can adopt or follow,” Brabant added. “Otherwise, any rating will be open to question.”
Neil Hodge is a U.K.-based freelance journalist and photographer.