On 21 November 2022, the World Benchmarking Alliance – a non-profit organisation that develops benchmarks to hold companies to account for their part in achieving the United Nations Sustainable Development Goals – published its 2022 Corporate Human Rights Benchmark Insights Report (the "2022 Report").
Compared to previous iterations (which we have discussed in a previous blog post here), the 2022 Report devotes more attention to companies' efforts to ensure that human rights are respected within their operations and supply chains, rather than simply focussing on the human rights-related commitments that companies have made. The 2022 Report also focusses on companies' stakeholder engagement, their business models, strategies and risks, and whether they prohibit forms of forced labour.
In applying this revised methodology, the 2022 Report concludes that companies are better recognising their human rights-related responsibilities and have improved their human rights-related risk management strategies. However, the 2022 Report also highlights that the pace of this improvement has been very slow.
Companies may well take issue with the 2022 Report's findings, since benchmarks are not conclusive and do have their limitations. That said, increased human rights-related legislation and demand from investors and other stakeholders for companies to address human rights issues (for more information on these trends, please read our previous blog posts here and here) are meaning that companies are increasingly being required to report on their human rights programmes – and, in particular, their human rights due diligence ("HRDD") processes – which are then subject to external scrutiny, commentary and benchmarking.
How does the 2022 Report assess companies?
The 2022 Report assessed the human rights performance of 129 companies across three sectors: (1) food and agricultural products; (2) ICT manufacturing; and (3) automotive manufacturing. The 2022 Report's assessment methodology was composed of five measurement themes, each of which contained indicators that focussed on different aspects of how companies seek to respect human rights across their operations and supply chain. These measurement themes, which are grounded in the United Nations Guiding Principles on Business and Human Rights ("UNGPs") (read more about the UNGPs in our previous blogs here and here), were as follows:
- Governance and policy commitments;
- Embedding respect for human rights and conducting HRDD;
- Grievance mechanisms and access to remedies;
- Performance: practices to prevent human rights impacts; and
- Performance: responses to allegations of serious negative impacts on human rights.
Key findings of the 2022 Report
The 2022 Report has five key findings, namely:
- Corporate respect for human rights has gained momentum – the stage is set for regulation to speed things up and close gaps of inaction.
Since the first iteration of the Corporate Human Rights Benchmark Insights Report in 2017, the 2022 Report highlights that the proportion of companies scoring zero on key human rights-related indicators has decreased and that 66% of food and agriculture companies, 65% of ICT manufacturers and 57% of automotive manufacturers have improved their scores.
- Elevating human rights responsibilities to the board and senior management level appears to be key for better action on HRDD.
The 2022 Report found that companies who improved their HRDD scores did so on the initial steps of a due diligence process, but not on tracking and communicating human rights-related actions. However, almost 50% of all companies assessed did not meet the requirements for the initial steps of the process, and the majority of those that improved their scores from zero only made incremental progress.
In addition, the 2022 Report shows a strong positive correlation between companies' scores on assigning board responsibility and allocating resources for addressing human rights-related issues, and overall HRDD scores. Of the companies that improved their HRDD scores the most, 75% had board level responsibility for human rights and allocated resources for the day-to-day management of human rights within their operations and supply chains. Conversely, 70% of the companies that scored zero on HRDD did not have similar measures in place.
- Companies need to translate their commitments to stakeholder engagement into meaningful action.
The 2022 Report highlighted that 71% of companies scored zero on their approach to engaging with affected stakeholders on a regular basis. In relation to HRDD, the 2022 Report also found that only 25% of companies described how they engaged with affected stakeholders when identifying their human rights-related risks and impacts.
- Companies are taking a hands-off approach to human rights in their supply chains.
Although many companies were found to be placing human rights-related expectations on their suppliers, the 2022 Report showed that the vast majority of these companies had failed to support their suppliers and monitor progress. For example, 33% of companies included the issues of child and forced labour, land rights, women's rights and living wages in their supplier codes of conduct and contractual agreements, but only 11% actually worked with suppliers on these issues.
- In the face of the climate crisis, companies with an effective human rights approach are better equipped to plan for a just transition.
The 2022 Report found no correlation between climate-related and human rights-related performance. The majority of companies that demonstrated they are taking action to address climate change, such as adopting greenhouse gas emissions reduction targets, disclosed little information about how they manage human rights, and vice versa. However, the 2022 Report found a clear positive correlation between a company's human rights score and its performance in the 2021 Just Transition Assessment (for further information on the 2021 Just Transition Assessment, read our earlier blog post here). This is demonstrated by the fact that eight of the ten highest-scoring companies from the automotive sector were also among the ten highest scoring on just transition indicators, for example.
What can companies do to improve their human rights-related risk management strategies?
As companies report more fully on their human rights programme and related activities – whether in response to mandatory legislative requirements or stakeholder pressure – they must ensure that their policy commitments are audited and verified. In addition to auditing their policy commitments, companies may wish to apply the below strategies to improve their human rights-related risk management strategies:
- Ensuring that they have processes in place at a board level to translate human rights-related commitments into positive action;
- Closely monitoring legislative developments relating to mandatory HRDD;
- Integrating meaningful stakeholder engagement in all steps of their HRDD process;
- Carrying out a human rights impact assessment and taking proportionate counter-measures, as well as communicating internally and externally on what measures have already been taken;
- Reviewing and reinforcing complaints mechanisms and speak-up programmes, and ensuring they are well-equipped to deal with human rights-related "crises";
- Reviewing the extent to which their board is equipped to address supply chain risks, including through training executives and seeking independent support and advice; and
- Reviewing the role, resources and expertise of the legal and compliance functions, who should play a key part in addressing these new challenges.
Mayer Brown lawyers are available to help clients in this increasingly complex and evolving regulatory landscape.
This blog post is only intended to provide information for the benefit of global businesses and clients who may value knowing about this NGO initiative.
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