Which corporate sectors are reporting on their human rights compliance in line with the UNGPs?

On his website, Richard Karmel discusses issues relating to human rights and corporate social responsibility in corporate society. 

Richard Karmel is responsible for Mazars’ award winning business and human rights reporting service line. Richard and his team have devised an innovative solution to help protect the reputation of businesses whilst ensuring compliance with their social obligations.

On his blog today, he examines how different UK corporate sectors report their performance in line with the United Nations Guiding Principles on Business and Human Rights and in conformity with the UK Companies Act 2006.

The UK issues a Nation Action Plan

In September 2013, the UK government published its National Action Plan (NAP) on Business and Human Rights. The government’s NAP outlined its belief that all UK companies should implement the UNGPs in order to promote behavioural change.

Furthermore, the Companies Act 2006 was amended to require reporting by quoted companies on their human rights performance: “to the extent necessary for an understanding of the development, performance or position of the company’s business.

This only became effective as of October 2013, and hence annual reports as at 31 December 2013, should have included sufficient information to comply with this requirement. However, one of the conclusions of the survey is that several companies don’t appear to think that human rights are necessary for such an understanding. Given the sectors that Mazars reviewed, this is potentially an erroneous omission. This may have been due to the short period for reporting, or more likely, a lack of understanding of what respect for human rights means within these companies.

Mazars’ Human Rights team devised a survey based on 35 criteria to assess how closely aligned certain sectors are in their human rights reporting with the UNGPs. Mazars believes that the results of this survey will act as a baseline starting point given only the recent change to legislation.  Mazars anticipates that best practice and other helpful tools, such as the UNGP Reporting Framework, will help bring about improvements to disclosure and reporting within annual reports.

The survey focused on 22 companies within five industry sectors of the FTSE100. These sectors were specifically selected as those that potentially pose the greatest risk to human rights.

  • Mining (seven companies)
  • Retail – excluding supermarkets (five companies)
  • Pharmaceutical (three companies)
  • Oil and Gas (five companies)
  • Tobacco (two companies)

The aforementioned criteria were created to judge each sector’s performance in line with the UNGPs; it covered seven specific areas which were covered in the UNGPs:

  • Section 1: Policy Statement – UNPG 16
  • Section 2: Policy commitment and embedding – UNGP 16
  • Section 3: Human Rights due diligence – UNGP 17 & 18
  • Section 4: Integrating findings, taking action and tracking performance – UNGP 19 & 20
  • Section 5: Communicating, performance – UNGP 21
  • Section 6: Remediation of impacts – UNGP 22
  • Section 7: Grievance mechanisms and their effectiveness UNGP – UNGP 29 & 31

The UNGPs can be viewed online (http://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf)

Restrictions

The survey only considered annual reports when looking at company performance within each sector, as it is these which must comply with the Companies Act 2006.

It is sometimes the case that companies will document their human rights performance using other media such as their website or separate corporate responsibility reports. However, for the purpose of the survey, these weren’t considered as the intention was to focus on Companies Act adherence and also whether to fulfil that requirement, companies aligned their reporting with information anticipated by the UNGPs.

The criteria created were based upon Mazars’ interpretation of the UNGPs; others may interpret them differently and no weighting has been applied to any particular area. A significant omission, on which it has not been possible to ascertain, is the effectiveness of the initiatives and processes that companies have put in place. Mazars believes that reporting on effectiveness will be a key area for corporate behavioural change and reporting.

If the companies within each sector aligned with each one of the 35 criteria’s then a score of 100% would be achieved.

Key findings

Richard Karmel FTSE 100 Sector Survey

Unsurprisingly, of the sectors reviewed, the mining (56%) and oil and gas (51%) were the only ones to achieve a compliance score of over 50%. Both sectors, probably more than others, have been party to widely reported human rights abuses. Consequently, in certain cases, companies appear to have undertaken wider community engagement in order to obtain the social licence to operate which without, can be so detrimental and costly to the business.

Despite their relatively higher compliance rating, it can’t be concluded that the results necessarily suggest that these companies have effectively addressed the ethos of the UNGPs. Whilst some companies like Anglo American specifically state that: “our approach is aligned with the ‘Protect, Respect and Remedy framework’ provided in” the UNGPs, and with Rio Tinto: “our approach is consistent with the due diligence process in” the UNGPs, other companies don’t reference the UNGPs in anyway.

However, we were surprised that these two sectors scored low in respect of reporting on grievance mechanisms (mining 67% and oil and gas 43%). This low level of reporting is particular unexpected given the importance for the company to demonstrate that they are listening to their stakeholders, learning from their feedback and remediating where necessary.

The sector which recorded the largest range of results was the retail sector. It is interesting to note that many companies within this sector produced separate corporate responsibility reports. This would imply that to comply with the Companies Act 2006, much of the disclosure included within these reports should be included in the annual report.

This brings to the fore the debate about a company producing just one report. Please see my blog dated 3 November: ‘Is the separate corporate responsibility report dead?’

In my opinion, the annual report is the ideal conduit to communicate key information to all of its stakeholders, not just one particular group. It will help demonstrate that the company is joined up in its operations and that CSR is not simply a side-show to the main operations of the business.

Out of all of the areas, the lowest compliance was that of the reporting on how companies integrate their findings. These disclosures would highlight the actions a company had taken and how performance had been tracked. More positively, companies are improving the reporting of their policies to respect human rights and their commitment to embed them throughout. However, once again, it was not possible to conclude on their effectiveness.

Conclusions

The difference in levels of reporting across the board highlights how certain sectors believe human rights reporting in annual reports is important, whilst others less so. However, it’s clear that no company has yet to fully report in line with the UNGP philosophy of ‘know and show’.

It would appear that a view still widely held within business is that being open with negative information, will result in further negativity, such as:

  • It could expose the company to litigation
  • It could damage brands and reputation
  • It could lose customers who aren’t willing to associate with the brand

This view, in my opinion, is outdated. It existed before the advent of the internet and especially social media, when what went on inside a company was only relevant to the company.

Nowadays, companies have no option but to be open and transparent. They need to tell their stories in a fair and balanced manner because there are plenty of people out there who will tell it how they see it and engage through social media.

Transparency is a pre-requisite for successful long-term operations and the sooner that companies start being more open, the better. Companies can generate greater trust in themselves if they are seen to be honest about a wrongdoing and then describe what engagement took place to remedy the position and how effective that remedy was.

If the wrongdoing is attempted to be buried, the likelihood is that it will leak out anyway with the commensurate loss of trust, longer term hit on reputation and extra costs as lawyers are called in to inevitably try and protect the company position.

A company’s annual report should be the main source of understanding for its historical performance and strategy for future growth.  I believe that if a company were to focus on understanding what human rights means to them, addressing its behaviours in its respect for human rights and reporting on this, the following will happen:

  • Less harm to individuals
  • Greater trust with stakeholders
  • Better risk management
  • Enhanced reputation
  • Greater profitability
  • Greater access to investor funding
  • Higher staff retention

In the future, it is important that all companies ‘know and show’ rather than ‘hide and hope’.

Richard Karmel

Mazars LLP

Richard.karmel@mazars.co.uk