Business beyond compliance: The need for human rights action

Human rights issues are gaining heightened attention amid ongoing global conflicts, social justice movements, and exacerbated impacts of climate change [1] and biodiversity loss [2]. Simultaneously, investor sentiment continues to integrate ethical considerations as a risk management component of investment decisions – for example, human rights stands as the second most common issue Australian and New Zealand investors engaged on with investee companies (after climate change) [3]. Meanwhile, consumers are only increasing their demands for greater transparency and ethical practices from brands [4]. Despite this, as the World Benchmarking Alliance Social Benchmark Report 2024 recently highlighted, 80% of companies fail on human rights due diligence [5].

This rapidly changing landscape is mirrored with admittedly slow, but proliferating, legislative efforts worldwide aimed at strengthening human rights due diligence and corporate accountability. Governments worldwide are introducing stricter reporting requirements, compelling companies to address human rights impacts within their operations and supply chains, further solidifying the intersection of human rights and corporate governance.

Since the start of 2024, this trend to regulation is accelerating. In Europe, the Corporate Sustainability Due Diligence Directive (CSDDD) was approved in May. This establishes criteria for large companies [6] (that meet a certain threshold) to address negative environmental and human rights impacts in their operations, subsidiaries and entire value chain.

In Canada, new legislation – the Fighting Against Forced Labor and Child Labor in Supply Chains Act – was approved in January. This mandates reporting about companies’ contributions to the fight against forced and child labour in supply chains.

Meanwhile in Australia the Modern Slavey Act 2018 is being modified with an amendment Bill, notably introducing the figure of the Anti-Slavery Commissioner [7] to strengthen compliance, improve supply chain transparency, and advocate for continuous improvement in policy and practice. Further proposed reforms (not enacted yet) include:

• Implementing and reporting on modern slavery due diligence
• Reporting the number of modern slavery incidents or risks identified and the grievance / complaint mechanisms in place
• Describing internal and external consultation undertaken for modern slavery risk management

While these moves have been welcomed by some, others have criticised [8] the regulations for not sufficiently addressing the complexity of human rights where they overlap with a wider range of issues such as those with Indigenous communities, complex supply chains, or a Just Transition. Concerns include the following:

• As noted in the OHCHR [9], indigenous communitiesare disproportionately impacted by climate change, environmental degradation, high levels of poverty, poor access to education, health, and broader human rights violations. It is because of this that indigenous peoples’ rights must be an integral part [10] of businesses approach to human rights – reversing indigenous communities’ historical exclusions and inequalities.
• Human rights concerns are often magnified further along global supply chains, where complexity increases and visibility decreases. It is vital to have management systems in place that identify, assess and mitigate human rights issues – particularly in high-risk raw materials supply chains.
• As the world transitions to a low carbon economy, businesses must ensure this transition does not exacerbate existing inequalities but enhances all human rights, including (but not limited to) fair labour practices, equitable access to resources, and protection against environmental degradation.

Going beyond concerns as to whether the regulations go too far or not far enough, others are warning that focusing on the rules risks a ‘tick box’ mentality – as Alison Taylor, Executive Director of Ethical Systems, puts it [11]: “turning a strategic issue into a giant compliance exercise may not be the win you think it is.”

In parallel with mounting legislative pressure, some companies are taking action, and finding that moving beyond compliance towards full integration of human rights principles and best practices helps achieve meaningful improvement. Both Unilever [12] and Eni [13] have demonstrated continuous strong human rights performance being ranked amongst the highest (in 2020) companies [14] assessed by the Corporate Human Rights Benchmark (CHRB), an internationally recognised benchmark that evaluates a company’s human rights disclosures.

Australian retailer, Woolworths, is another company that has successfully demonstrated how to move beyond compliance and into action. Woolworths’ Modern Slavery Statement 2023 identified incidents related to modern slavery in its supply chain (going beyond the Act's requirements) but also the remediation processes in place to address such incidents and prevent future risks, including scaling up of human rights due diligence [15] across its value chain.

In contrast, those with poor human rights practices are neglecting to address business risks that can have significant reputational, financial, operational and / or even legal impacts.

To avoid human rights risks, companies should: 

• Make commitments to select international best practices 
• Establish the right policies 
• Identify salient issues and associated remedy 
• Track progress of remedy and publish this data 
• Map out supply chains and hold their suppliers to similar standards 
• Hold leadership accountable for human rights objectives 
• Recognise successes and apologise for setbacks 
• Engage, collaborate and establish partnerships with multiple stakeholders 

Whether mandatory or otherwise, external pressures on human rights underscore the need for businesses to think strategically. Companies with strong human rights due diligence processes, healthy stakeholder relationships and enhanced supply chain visibility are simply mitigating business risks. Further, they are more likely to be able to attract and retain employees, consumers, and investors.

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References

[1] https://www.un.org/en/climatechange/what-is-climate-change

[2] https://education.nationalgeographic.org/resource/biodiversity/

[3] https://responsibleinvestment.org/wp-content/uploads/2023/11/RIAA_benchmark_report_australia_2023_v09.pdf

[4] https://hbr.org/2023/09/research-consumers-sustainability-demands-are-rising

[5] https://assets.worldbenchmarkingalliance.org/app/uploads/2024/06/SB-2024-Insights-Report_28June2024.pdf

[6] Large EU companies: +/- 6,000 companies - >1000 employees and >EUR 450 million turnover (net) worldwide; Large non-EU companies: +/- 900 companies - > EUR 450 million turnover (net) in EU.

[7] https://ministers.ag.gov.au/media-centre/albanese-government-establishes-anti-slavery-commissioner-28-05-2024

[8] https://www.culturalsurvival.org/news/eu-council-approves-csddd-step-right-direction-too-modest-protect-indigenous-peoples-rights

[9] https://www.ohchr.org/en/indigenous-peoples/about-indigenous-peoples-and-human-rights#:~:text=The%20rights%20of%20Indigenous%20Peoples,and%20broader%20human%20rights%20violations.

[10] https://www.ohchr.org/sites/default/files/Documents/Publications/fs9Rev.2.pdf

[11]https://www.linkedin.com/feed/update/urn:li:activity:7169378588146843648/

[12] https://www.unilever.com/sustainability/livelihoods/

[13] https://www.eni.com/assets/documents/eni-report-human-rights.pdf

[14] https://www.wbcsd.org/news/eni-and-unilever-top-the-corporate-human-rights-benchmark-2020/#:~:text=Eni%20and%20Unilever%2C%20two%20longstanding,business%20respect%20for%20human%20rights.

[15] https://www.woolworthsgroup.com.au/content/dam/wwg/investors/reports/2023/f23-full-year/Woolworths%20Group%202023%20Modern%20Slavery%20Statement.pdf