Human Rights Due Diligence – An Essential Step for Corporate Social Sustainability

The UN Guiding Principles for Business and Human Rights (UNGPs) require companies to prevent and respond to any adverse operational impacts on human rights. In recent years, these principles have been translated into legislation that requires companies to establish due diligence processes to identify, prevent and remediate human rights violations.

The COVID-19 pandemic has highlighted the importance of achieving the UN Sustainable Development Goals (SDGs). It has also provided an unprecedented opportunity for corporates to join a renewed global commitment to addressing the systemic issues affecting our well-being as a society.

Corporates seeking to be socially sustainable must be able to comply with existing and upcoming legislation, mitigate reputational risks, and meet the evolving expectations of their stakeholders.

A changing legislative landscape on business and human rights

December 10^th is International Human Rights Day. It marks the day in 1948 when the United Nations General Assembly adopted the Universal Declaration of Human Rights (UDHR). This milestone document set out, for the first time, a common set of global standards to protect the fundamental human rights of all people and all nations”. The UNGPs and the OECD Guidelines further build on the UDHR by emphasizing the corporate responsibility to “avoid infringing on the human rights of others and address adverse human rights impacts with which they are involved”.

Even though the UNGPs were adopted in 2011, compliance with these guidelines is limited. According to Sustainalytics’ own screening of UNGP alignment across 91 companies, 58% scored low on human rights preparedness. This is in-line with the findings of the Corporate Human Rights Benchmark¹ (2019), which uncovered that for most companies, human rights due diligence is a key weakness. In fact, 49% of companies assessed scored zero against every indicator in this area.

In recent years, we have witnessed a global trend to translate international guiding principles into national or supranational legislation. France, the UK, and Germany, among others, have already implemented relevant laws, and European-level Directives will likely be finalized in 2022. We expect this trend to strengthen in the years to come. Alongside these initiatives, the regulation on sustainability disclosure in the financial services sector (SFDR) came into force in March 2021. SFDR explicitly mentions respect for human rights as part of the ‘sustainability factors’ financial institutions must report on, further increasing the pressure for companies and stakeholder businesses to address the “S” in ESG.

COVID-19 driving poverty and inequality

“The growth in inequality created by the COVID-19 crisis threatens a legacy of poverty and social and economic instability that would be devastating." - Guy Ryder, Director-General, International Labour Organization²

The World Bank reported that the COVID-19 pandemic pushed 100 million people into extreme poverty in 2020.³ The gap between needs and humanitarian funding is stark in some of the world’s most vulnerable regions. The pandemic is also having a disproportionate effect on income, wages and access to basic needs. It is affecting more women, lower paid workers as well as vulnerable communities that are now facing regular food shortages and famine. Global inequalities are deepening. This is triggering a renewed sense of urgency and commitment from corporates and investors to act, as is exemplified by the global movement to build back for a more just and sustainable future.

Sustainalytics' Human Rights Accelerator – Moving from paper to practice

The time to engage is now. Under the Human Rights Accelerator thematic engagement, we will work with companies to establish effective human rights due diligence systems and build further learnings and collective action to tackle systemic human rights issues in specific sectors and geographies.

The engagement offers the opportunity to mitigate reputational risks in investment portfolios and for businesses to future-proof—where we can jointly learn and attempt to create positive impact.

For more information about the Human Rights Accelerator thematic engagement, watch the replay of Sustainalytics' Human Rights Accelerator Webinar on demand or contact us.

_Sources:

1. _{“ Measuring 230 global companies on their human rights performance” Corporate Human Rights Benchmark WBA (worldbenchmarkingalliance.org), 16 November 2020 at Corporate Human Rights Benchmark WBA (worldbenchmarkingalliance.org)}
2. _{“Responding to the Covid to the Covid-19 pandemic and Rebuilding better”, The world Bank, 2021  at WBG-Responding-to-the-COVID-19-Pandemic-and-Rebuilding-Better.pdf (worldbank.org)}
3. _{“Famine Action Letter”, Action Against Hunger , 1 December 2021 at Famine action letter - Action Against Hunger (reliefweb.int)}