Fundamentals of ESG: Understanding Human Rights (Part 1)

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July 7, 2022 - As environmental, social, and governance (ESG) initiatives become a top priority among shareholders and investors, companies are re-evaluating how they manage their supply chain relationships and risks, particularly within the context of managing workplace and supply chain responsibilities. However, the social portion of the term ESG can be deemed as vague and not sufficiently understood or effectively addressed within an organization.

Part of the social aspect of ESG includes human rights. There’s plenty to cover, so let’s address some of the basics.

There are a few foundational documents that define human rights and its intersection with business. We often hear the phrase ”human rights” and may take the concept for granted or think that it’s been in existence forever, but in reality, the idea is actually fairly new. The concept was only defined in a credible and consistent way as recently as 1948 in the Universal Declaration of Human Rights.

This concept was extended to the role of business in 2011 with the publishing of the UN Guiding Principles on Business & Human Rights. The guiding principles provided the first global standard for preventing and addressing the risk of adverse impacts on human rights linked to business activity, and they continue to provide the most internationally accepted framework for business practices regarding human rights.

The three pillars of the UN Guiding Principles are as follows:

  • Pillar 1: Defines governments’ duty to Protect Human Rights. This means that they have an obligation to protect people’s rights within their jurisdiction from harm, and that they need to maintain the legal and judicial systems to do so.
  • Pillar 2: Defines the business community’s responsibility to respect human rights.
  • Pillar 3: Defines the role of government, business, and civil society in supporting appropriate remedies when human rights abuses have been discovered.

There has also been a significant rise in local laws requiring companies to disclose their practices related to human rights due diligence. In addition, there are increased expectations from stakeholders (including customers, investors, and employees) relating to how human rights issues are actively managed.

Corporate Responsibility with Respect to Human Rights

Companies must avoid infringements on human rights that result from their business activities. What exactly does that mean within the context of complex business operations and value chains? It’s important to understand the direct and indirect ways that a company’s activities can cause, contribute, or be linked to human rights abuses.

A company can directly cause negative impacts. For example, if employees are injured due to unsafe working conditions or if a company pollutes a river because of poor wastewater management, both of those activities result in infringement of human rights of workers or community members. Whether or not a company knows about the impacts or intentionally caused them doesn’t matter. The company should have systems in place to identify and prevent this from occurring.

A company can also contribute to impacts. Let’s say an organization receives a last-minute order that results in a supplier using a subcontractor to fulfill the order. If the subcontractor utilizes forced labor, this is an instance of a business’ activity contributing to the infringement on human rights even though the organization had no prior knowledge of it. This applies even if it did not take place within its direct operations.

Lastly, a company’s operations, products, or services can be directly linked through a business relationship to abuses. For instance, if child labor is used at a supplier site in the making of one of its products, even if the company didn’t cause or contribute to the abuse, it is directly linked.

Practicing Human Rights

How exactly does a company put the idea of respect for human rights into practice? Companies have a responsibility to maintain effective management systems and due diligence practices to identify, mitigate, and remedy potential human rights risks.

A mature management system that can support this includes:

  • A policy commitment to meet their responsibility to respect human rights. (We’ll be discussing how you can develop this type of policy within your organization in part 3 of this series.)
  • A due diligence process to identify, prevent, mitigate, and account for how to address impacts on human rights.
  • A remediation process to rectify any negative human rights impacts they cause or contribute to.

In cases where a company does identify activities that may be associated with human rights abuses, they should respond by:

  • Meaningfully engaging with the individuals or groups who are impacted as well as other relevant stakeholders, which may include civil society organizations or governmental agencies who can support the process.
  • Understanding where they can influence how issues can be effectively prevented, mitigated, or remedied, and exercising leverage where it exists.

Follow along with Ryan Lynch’s Fundamentals of ESG three-part series to better understand the implications of human rights risks as part of your organizations environmental, social, and governance planning efforts. For insight on building an organizational ESG plan, check out Ryan Lynch's Tackling Decarbonization series installment on ESG Planning Strategies.