Human rights

Moving from regulation to business responsibility

In an increasingly interconnected world, companies are facing heightened scrutiny over their operations, formally from regulators and informally from their stakeholders. One critical aspect of that is the upholding of human rights throughout the value chain. Companies are now increasingly expected to recognize that the respect for human rights is not just a moral obligation but a strategic imperative that can foster long-term success and resilience for their business.

Every industry and even every company has human rights risks, such as exposure to forced labour, violation of privacy and digital rights, human trafficking, bad working conditions and poor access to basic services, water and sanitation. The risks differ per sector: for instance, product based companies tend to have a higher exposure upstream in their supply chains - that is, with their suppliers. Companies from extractive industries, such as oil and gas and mining, can have a high impact on local communities and their access to basic services. Regardless of the type of human right risks, companies must recognise the impact they have on their value chains, and act to preserve the rights of individuals and communities.

Regulations and standards

Legislation related to human rights and the social impact of companies is growing. Regulations such as the CSRD contain various standards (ESRSs) with regard to the social domain that companies must (gradually) comply with. These standards require disclosures on the impact on own employees, employees in the supply chain, communities and consumers or end users. The EU taxonomy includes the obligation for organisations to conduct human rights due diligence in order to claim taxonomy alignment.

The current regulation is mainly focused on measurement and reporting, however in the near future regulation will come into force that focuses more on doing due diligence rather than only reporting. For example, the draft Corporate Sustainability Due Diligence Guidance (CS3D) focuses on implementation and action plans that include the improvement of human rights across all value chains. Such regulations could also significantly increase corporate legal liability, not to mention the reputational damage that occurs when companies fail to comply with human rights.

Transparency in supply chains

One of the biggest challenges in addressing human rights risks is the ability to measure these risks. Oftentimes the risks manifest with suppliers in countries other than the primary place of operations, or even at suppliers of the suppliers, which makes it harder to track and address.

Building transparency in supply chains is imperative for companies, not only because it helps to minimise the risks of disruptions, but also to identify human rights risks. Building transparency is also needed to comply with (upcoming) reporting regulations, such as CSRD and CS3D. So called social audits on suppliers are not enough and have been heavily criticised for being a one-direction approach that does not help suppliers educate themselves on the subject. Training and upskilling of all actors along the value chain is needed: they must be aware of the importance of the subject and the actions and choices that are in line with it.

Importance to investors

Missteps in the past have impacted companies through reputational damage, adverse market reactions and loss of investors. As the S of ESG comes into focus more, companies are increasingly being held accountable for their impact, especially by investors and financial institutions. There is a growing number of companies that have credit terms dependent on their ESG performance. Ratings agencies also include human rights performance alongside other ESG metrics in their evaluation of companies. Their assessments are increasingly sophisticated and go far beyond a and go far beyond the ‘paper’ policies or declarations of companies. Going forward, companies disclosing their human rights approach will likely see greater access to and reduced cost of capital.

Importance to other stakeholders

Customers and employees expect companies to take a stand on social issues and act in ways that uplift local communities. This expectation has seen a sharp increase in the last decade. It is no longer feasible for companies to solely focus on business and financial targets with only investors and shareholders as the primary beneficiaries of their actions.These high expectations are also driven by young people making demands of a (future) employer in this area: research shows that young people have a preference to work for companies whose values are aligned with their own.

Company values and purpose

Because of stakeholders’ expectations and pressure, organisations have begun to think about their reasons to exist and operate. What does our organisation add to society? What is our position now and in the future? How do we maintain and increase our ‘licence to operate'? These crucial questions are asked in boardrooms, in HR departments, in risk management and in many employee sessions.

The answers are not only about economic value, but much more about creating social value for a broad group of stakeholders, including employees, customers and local communities.A credible purpose must be backed up by actions and decisions. Violation of human rights does not fit into that.