How companies should report on the United Nations Guiding Principles, by Richard Karmel

In Richard Karmel’s latest blog post, he looks at how companies should report on the United Nations Guiding Principles (UNGPs).

Richard is responsible for Mazars’ award winning human rights reporting line. Richard and his team have devised an innovative service to help companies and banks manage the risks to their reputations whilst ensuring compliance with their social and environmental obligations.

Reporting Framework draft published

Last week the Reporting and Assurance Framework Initiative published the first draft of its Reporting Framework. This initiative, commenced in 2012 by Mazars and Shift, is based on multi-stakeholder involvement and is non-propriety.

Its aim is to help companies implement the United Nations Guiding Principles on Business and Human Rights (UNGPs). The UNGPs are widely recognised as the authoritative reference point for companies to respect Human Rights.

Key facets of the Reporting Framework

Three key elements of the reporting framework are:

1. The Framework must be viable for companies to implement and to produce information that is meaningful to read.

2. The Framework must be meaningful for a company to report against. For example, the company must not only see the value in the reporting, but it needs to understand the benefits of why it should implement monitoring mechanisms to produce reportable data.

3. Implementation of the Framework should not be seen as a burden to the company, but seen as an investment for the future sustainability of the business.

It’s aimed at all companies and it is written in a way that enables all companies to respond. The overall framing is one of posing smart questions to the company rather than prescribing specific indicators.

Firstly, it would have been challenging to come up with indicators common to all companies and, secondly, it is important that the embedding of respect for human rights in a business does not fall foul of becoming a checklist.

Materiality

The Reporting Framework has also cleverly dealt with the difficult issue of materiality.

Materiality is defined by a number of initiatives; however, each of these initiatives has specific stakeholders in mind. The Reporting Framework is very clear in that the company should report on its salient risks.

Saliency is defined by the severity of the potential impact, the likelihood of it arising and its prevalence across the wider activities of the business. It is therefore intuitive that saliency is seen as being relative to other human rights risks, but not to any one particular stakeholder.

Human rights reporting has the wider stakeholder base in mind, and isn’t aimed at one specific group of stakeholders.

It’s also important that the company considers these human rights risks by not looking at itself, but by considering the risks to the individual. It might end up that the risks to the individual are the most important risks to the company; but if the human rights lens is not looked through in this direction, there is potential for salient risks to be missed.

For example, if there was discrimination in the supply chain, then this is clearly important to the individual who was discriminated against.

Question: is it important to the company?

If it was a one off incident then, whilst it is important to be addressed, it is not so key as to fall into the saliency category. However, if there was found to be systematic discrimination then this may well be a salient risk given the number of people impacted.

Severity is defined as the gravity, scope and ability to be remedied; for example, is the position capable of being restored to the position it was prior to the abuse?

The term ‘human rights’

Of course one of the major barriers to adoption is a company’s understanding of what human rights means in its business context.

We all have views on what we think human rights means to us personally. However, put it into a business context and we seem to stumble.

It’s therefore important that early on in the process each company identifies what it believes human rights means and communicates to its wider stakeholder base. Without doing this, the company runs the risk of human rights remaining intangible and lacking in understanding throughout the business activities.

Regulation

Finally, regulation is coming.

In the UK, whilst the Companies Act 2006 was amended last year to include a human rights reporting provision for quoted companies, disclosure was only required “to the extent necessary” for providing a greater understanding of the business.

Of course, this ‘get out’ clause has rendered this provision useless which is evidenced by the paucity of subsequent meaningful disclosures. Despite the lack of effectiveness of the Companies Act 2006, the EU’s non-financial reporting directive was passed this year and will come into force in two to three years.

This will require meaningful disclosures and it may just be that the RAFI’s Reporting Framework has the answer to help companies in its compliance.

Richard Karmel

Richard.karmel@mazars.co.uk

Mazars LLP