Which sectors need to lead the way in their respect for human rights?

Richard Karmel is the Head of Global Human Rights at Mazars UK and works to promote the acceptance of the United Nations of the Guiding Principles on Business and Human Rights in business and the wider stakeholder community. 

In his latest blog, he examines which sectors should lead the way in their respect for human rights.

Clear communication is vital in respect of human rights

Whilst it is imperative that all companies need to understand their impacts, or potential impacts, on human rights and report on what they are doing to reduce the possibility of those impacts arising; there are certain industry sectors which can take a lead in defining what best practice reporting will look like.

In order to respect human rights, companies need to communicate this understanding to their relevant stakeholders.

Two sectors leading the way

Two sectors, above all others are leading in this reporting and respect, being the extractives and garment manufacturers.  However, over the past decade these two sectors are where we have had the most widely reported abuses.

Rana Plaza and Tazreen in Bangladesh in the garment industry and Deep Water Horizon and various oil and gas related incidents in Nigeria in the extractive industry.

The latter is a sector which, for the most part, is very dependent on its social license to operate.  Over the last two decades, it has painfully understood that without this social license, projects are put in jeopardy or run the risk of serious increases in unbudgeted costs.

Understanding local concerns will save your company money

One of the big mining companies lost $1m a day for 30 days because it had communicated poorly with the local indigenous peoples.  As a result, the one road into the project, which was in the middle of nowhere, was continually blocked by communities day after day until the mining company properly understood the local concerns and was able to effectively respond to them.

In John Ruggie’s book, Just Business, he refers to a review Goldman Sachs undertook of a US oil major which attempted to calculate the value lost to the business due to social, worker and community issues.

Over two years this value was costed at some $6 billion on profits of $20 billion.  The problem for the oil major was that there was no one line in the profit and loss account from where this amount could be determined; it was spread across many different codes such as staff costs, legal costs, revenue, poor quality supplies etc etc.

Some companies in other higher risk sectors, such as the pharmaceutical and tobacco sectors, are reporting but they are more the exception than the rule.

The banking industry could play a big part

There is one sector, of course, that could single handedly change the face of respect for human rights; the banking industry.

Most of the UK‘s largest banks have already signed up to the Equator Principles.  In essence, this requires banks to ensure that the companies to which it has lent over $10m on infrastructure projects, report annually on the social impact of the project on which it has lent the funds.

The problem is that the Equator Principles are voluntary and there is no oversight for those banks which have signed up.  Furthermore, why aren’t the Equator Principles extended to non-infrastructure projects?

Overnight, this would force the UK’s largest companies to start respecting human rights.  You would have thought that the banking fraternity, whom it could be argued, don’t currently have the public’s greatest trust, could, in one move, start the process of rebuilding that trust.

So why doesn’t it happen? 

The cost of this reporting to the banks would, of course, be at the cost to the company.  Until all banks agree to this, it would be potentially commercial suicide, as customers would go to other banks where the cost of servicing these loans is cheaper.

The irony is, of course, that the companies who embed effective human rights policies within their operations are likely to see profits rise due to the greater respect and engagement it will have with its stakeholders which ultimately leads to greater trust.

Respect is a vital part of any corporate strategy

In conclusion, the business community doesn’t need to wait for the banks.  If companies want to thrive and be there for the long term, respect for their workers, suppliers and communities should be embedded into their wider corporate strategy.

Those sectors, which are high risk and have been much maligned over recent years, have an opportunity to lead the way for other sectors.  Once they realize there is a direct correlation with profitability, everyone will wonder why it has taken companies so long to demonstrate their respect for human rights.

Richard Karmel

Richard.karmel@mazars.co.uk

Mazars LLP