Business and human rights: Fixing at source
Enhanced corporate due diligence is the key to identifying, mitigating and ultimately preventing the social problems that globalization can bring.
Globalization has raised living standards, widened access to opportunity and brought millions of people out of poverty. But it has a dark underside in the form of child labor, environmental pollution and unsafe working conditions that have proliferated in supply chains. What are companies doing about this?
Knowingly or not, companies across diverse industries, from fashion and cosmetics to electric vehicles, have incentivized, allowed, or failed to prevent their operations from harming the health and livelihoods of people and communities.
Today, that is starting to change. Civil society groups, empowered by the reach of social media, are documenting human rights abuses that might have once been hidden. Investors, regulators, and consumers increasingly expect companies to document their environmental, social and governance (ESG) performance.
“Our metal customers are asking which specific mine has the bauxite come from. This means we need more transparency to identify potential negative impacts,” says Nina Schefte, Hydro’s head of social responsibility.
International institutions have published landmark guidelines that set the bar for corporate responsibility. A major turning point came in 2011, with the publication of the United Nations Guiding Principles on Business and Human Rights (UNGP). Although not legally binding, it set out an expectation that businesses should protect and uphold human rights in their operations.
“You cannot underestimate the importance of the UNGP,” says Stefan Crets, executive director of CSR Europe, a business network. “It set, at that time, the direction of travel. It made clear that human rights are a business responsibility. It was a lighthouse.”
Business and Human Rights – friend or foe? Watch the Real Business seminar discussion on the role of businesses in society with regards to human rights and ESG:
The UNGP was followed by legislative momentum at the national level granting human rights protection a legal footing. The UK was a leader in this respect, bringing into law the Modern Slavery Act in 2015. Norway and Germany are among those to follow suit in the last year with legislation of their own. The Norwegian Transparency Act, which came into force in July 2022, requires companies to annually publish annual reports on human rights due diligence in their supply chain and operations, as well as highlighting the potential negative impacts and how they are mitigating these.
“The legislation has increased the attention on human rights due diligence. It has added great value by making it easier to have internal and external awareness on the role we have as a business to respect human rights,” explains Schefte.
Germany is following the lead set by the UK and Norway. It recently passed the Supply Chain Act, governing corporate due diligence obligations, which is set to come into force in 2023 for large companies (those with at least 3,000 employees), and from 2024 for smaller firms (with at least 1,000 employees). This marks the first time that the human rights responsibility of German enterprises has been given legal footing. Obligations include having a risk management system to identify, prevent or minimize the risks of human rights violations and damage to the environment, and to take the necessary preventive and remedial measures. It also makes complaint procedures mandatory and requires regular reporting.
A growing list of national regulations and the adoption of international best practices such as the UNGP, are welcome trends. But progress is too slow.
Surveys indicate that companies are further ahead in their environmental reporting performance, for instance, than social and governance (see chart). This is a particular challenge given the connection between environmental pollution and human rights.
Partnering for progress
The challenge for companies, especially transnational corporations with lengthy or complex supply chains, is to achieve the requisite level of transparency to ensure none that of their operations are directly or indirectly infringing human rights.
This requires rigorous human rights due diligence. Hydro’s impact assessment is divided into three categories: those working within the organization, those working throughout the supply chain and people living in the communities the company operates in. “The most important thing is to understand where and how you could potentially impact people's rights, where in your value chain that might be and what kind of adverse impacts you could have,” says Schefte.
Companies do not need to act in isolation though. Partnerships with human rights groups and charities can provide independent insight, feedback, and monitoring. Hydro works with groups such as Amnesty, UNICEF, The Danish Institute for Human Rights and the Global Business Initiative on Human Rights, each bringing their expertise on how businesses can promote positive change in their communities.
“Partners have a better understanding of what's happening on the ground as they have local experts following the development in different countries,” explains Schefte. “If we want to invest in a company or a region, it's very valuable to have access to local experts who have a better understanding of the human rights situation in that specific place, and insights into how we can, as a responsible company, support human rights issues in that region.”
Schefte describes Amnesty Norway, who Hydro has a two decade relationship with, as a “critical friend” because “they know how we run our operations.” Amnesty Norway has provided a constructive dialogue on how Hydro should conduct human rights due diligence, and strengthen human rights and local community participation as part of its operations and investment activities.
Crets points out that partnerships between companies, even rivals, can help to simplify and strengthen the ecosystem for human rights due diligence. Take the automotive industry, for example. The average vehicle contains about 30,000 individual components, illustrating the complexity of ensuring ESG good practice. CSR Europe’s Drive Sustainability partnership, which involves 18 automotive companies, has worked on developing common approaches for checking suppliers and a global training program to align supply chain partners on expectations, and for engaging in positive impact initiatives in sourcing of raw materials. This builds capacity which sourcing companies benefit from.
Emerging challenges: A just transition
The human rights landscape is continually in a state of flux, and so businesses, non-governmental organizations (NGOs) and governments have to stay abreast of emerging challenges. For example, in the past, the environment human rights nexus was closely associated with accidents such as oil spills or industrial pollution.
But the shift to renewable technology has brought new risks as companies rush to access critical minerals and metals, which are often sourced from lower income countries.
The Transition Minerals Tracker database contains nearly 500 allegations of human rights abuses from 2010 to 2021 related to commodities such as cobalt, copper, lithium, manganese, nickel and zinc. Population growth will only increase the pressure on environmental systems.
“The world population has doubled since the 1970s, reaching 8 billion, so people see the pressure on nature, and they want to have the right to a sustainable environment. Going forward, we really need to ensure that the transition to more renewable energy considers the impacts on both nature and people. It must be a green and just transition,” says Hydro’s Nina Schefte.
Crets calls on businesses to go further than due diligence compliance in these contexts, as this can lead to a "check-box" approach. He empasizes that businesses must actively engage in the social and economic forces that lead to phenomena such as child labor or mining that is unsafe or adversely affects communities in resource rich geographies. “We need to level the playing field, but you have to also incentivize companies to work together in the value chain to tackle issues, whether in the Democratic Republic of Congo (DRC) or South America.”
Simply cutting off a supplier in the DRC for not meeting standards might not be in the best interest of the low income people working in the supply chain because they have few other options. “We know the green transition means sourcing cobalt from DRC, so how can you do it well? How can you promote a mining company’s suppliers and customers to work together?” says Crets.