Many companies are starting to feel pressure from stakeholders’ growing demand for better-quality information around human rights. Some companies and investors are also realizing that human rights are fundamental – and not secondary – to companies’ market value. This is because human rights create business opportunities, attract investment and give companies license to operate.
The World Business Council for Sustainable Development (WBCSD) conducted research on the current landscape of human rights reporting through the Reporting Exchange database that includes over 1,800 environmental, social and governance (ESG) reporting requirements and resources covering the world’s largest economies and 93% of the world’s GDP.
The research shows there has been an exponential growth in the number of human rights-related reporting requirements across all regions, increasing from 25 in 2010 to 94 in 2017 in 54 of the 65 countries in the database. In addition to reporting requirements, there are 137 reporting and management resources. This indicates that there is a broad range of supporting material and guidance which can help improve the quality and coverage of human rights related reporting.
The fastest development has been in Europe and North America, with South-America and Asia-Pacific now following suit. WBCSD expects further developments soon; several countries such as Canada and the Netherlands are drafting laws governing business and human rights reporting and many others are expected to develop National Action Plans or to translate their existing plans into national legislation.
The scope of reporting requirements varies across countries. Some concentrate on specific issues within the human rights domain; for example, modern slavery and human trafficking are the key topics of the California Transparency in Supply Chains Act. Many other reporting regulations integrate human rights issues broadly into sustainability reporting requirements. The India Companies Act, Germany’s CSR Directive Implementation Act and the European Union’s (EU) Non-Financial Reporting Directive are all examples.
43% (40) of the human rights-related reporting requirements require companies to disclose information about their policies, processes and impacts on human rights issues into the mainstream, annual reports. This is important because it ensures the information is available to all stakeholders, including investors. 38% (36) require disclosure through specialist systems. Although specialist systems allow for technical and specific information to be submitted to governing bodies and others, the information is not always publicly available limiting the integration into investors and customers’ decision-making processes.
In Europe, Asia-Pacific and South America, there is a clear trend towards mandatory reporting such as the United Kingdom (UK) and Australia Modern Slavery Acts. Mandatory reporting requirements represent just over half (51, id est 54%) of all requirements in the dataset. Many requirements target larger companies and high-risk sectors, which potentially limits human rights reporting in other areas. The mandatory approach ensures that companies that disclose ESG risks and other information are not disadvantaged.
Voluntary frameworks represent 16% of reporting requirements and resources. The most influential international voluntary framework is the United Nations Guiding Principle on Business and Human Rights (UNGPs), unanimously endorsed by the United Nations (UN) Human Rights Council in 2011. This is supported by frameworks such as the OECD’s Guidelines for Multinational Enterprises and the Global Reporting Initiative (GRI) Standards.
The use of comply or explain is still very limited, representing only five reporting requirements, all in Europe. They include Article 225 of Grenelle II in France, which covers human rights and an array of other sustainability aspects.
So what does this mean for business?
The number of reporting frameworks has increased significantly with the recognition from governments and society that business has a vital role to play in the human rights space and reporting is one way to assess how companies stack up. There is a clear push to include human rights in mainstream reports and to make it mandatory as some argue that current legislation is too ambiguous to push for meaningful change beyond minimum compliance.
As a response to this social and regulatory pressure, more companies are starting to report on human rights. In 2018, WBCSD conducted its annual Reporting matters research by assessing the sustainability reports of 158 member companies. Of these, 63% consider human rights as material and 49% prioritize human rights among their highly material topics, indicating that human rights have a prominent place when it comes to evaluating business risks.
However, the results of the Corporate Human Rights Benchmark (CHBR) demonstrate that the quality of human rights reporting still has a long way to go. 2018 showed an alarming low average overall score of 27% including nearly two-thirds of businesses scoring under 30% with over a quarter of companies scoring under 10%.
Business has a pivotal role to play in proactively strengthening the quality and usefulness of human rights reporting in this fast-evolving field. Companies who are advancing their efforts to implement and report on voluntary frameworks such as the UN Guiding Principles on Business and Human Rights will be ahead of the regulatory curve. Effectively reporting on a companies’ efforts to embed respect for human rights in companies’ operations and value chains is the most effective way to build trusting relationships with the stakeholder that business relies upon to operate and grow – including governments, investors and communities.
Beyond the push of regulation, transparent reporting to a range of stakeholders can help business to see human rights not simply as a compliance issue, but as an opportunity to build business value through stronger value chains, lower cost of capital, license to operate, talent acquisition and employee retention. Additionally, embedding human rights in corporate strategies ultimately represents one of the most significant opportunities for business to contribute to the Sustainable Development Goals (SDGs) and deliver long-term value for business and society.