In November 2020, the World Benchmarking Alliance published the 2020 Corporate Human Rights Benchmark ("CHRB"), which ranks the human rights performance of 230 companies.1 The CHRB has been increasing in prominence since its inception in 2017. The publication of the 2020 CHRB comes at a time when investors, shareholders and lenders are increasingly looking for meaningful data to measure the Environmental, Social and Governance ("ESG") performance of companies – particularly "Social" factors, where performance has traditionally been harder to measure.
Benchmarks such as the CHRB can also have internal business benefits: they represent an independent assessment of a company’s human rights programme and areas for potential improvement; and provide an opportunity for the legal and compliance functions to highlight the growing importance of human rights and to make the case for programme reinforcement.
Companies may well take issue with the CHRB findings. Certainly, benchmarks such as the CHRB are not conclusive and do have their limitations – companies that report fully and apparently meet CHRB expectations may not in fact be adequately addressing human rights abuses occurring in their operations or supply chain. Equally, some companies may not report publicly on their human rights programme in as much detail as others, but may in fact have a better programme than appears at face value.
Nevertheless, increased regulation, investor and other stakeholder expectations will mean that businesses will have to report in ever more detail on their human rights programmes – and in particular their human rights due diligence processes – which will then be subjected to increasing external scrutiny, commentary and benchmarking.
How does the CHRB rank companies?
- The CHRB assesses the human rights disclosures of 230 global companies across certain sectors, being: agricultural products, apparel, extractives, ICT manufacturing and, for the first time, automotive manufacturing. The CHRB is likely to develop overtime to encompass more sectors.
- The CHRB Methodology focuses on companies’ policies, processes, practices, as well as how they respond to serious allegations. The Methodology is grounded in the United Nations Guiding Principles on Business and Human Rights ("UNGPs") (see more on the UNGPs in our previous briefing) and covers over 80 indicators. This year, the CHRB methodology was slightly altered to take into account the impact of the COVID-19 pandemic on many companies.
The 2020 CHRB – some trends
Three key trends are particularly of note:
- Many institutional investors are paying close attention to the CHRB
In response to the 2019 CHRB assessment, a group of 176 international investors representing over USD 4.5 trillion in assets under management sent a letter in March 2020 to the 95 companies that failed to score any points on the human rights due diligence indicators , calling for urgent improvement2. That letter stated:
"As investors, we expect companies to demonstrate their respect for human rights across their operations and value chains, including through (1) the disclosure of strong public commitments on human rights, (2) explanations of rigorous human rights due diligence processes, and (3) transparent mechanisms that enable remediation of negative impacts. We believe these actions can ameliorate risks to business, including operational delays, reputational harm, financial loss, and legal liabilities".
These investors will doubtless be reviewing the 2020 CHRB data against companies’ 2019 scores. Accordingly, companies would do well to consider if they can “demonstrate their respect for human rights across their operations and value chains” – meeting the above expectations, which echo the standards identified by one of the largest funds in the world, the Norges Bank Investment Management: see their human rights expectation document here.
A growing number of companies are getting better at the fundamentals, but many still lag behind
On average across all sectors, companies improved their score on approximately two out of the 13 CHRB core UNGP indicators. The indicators that saw the most improvement were public commitments to respect human rights and grievance channels for external individuals and communities.
The lowest areas of improvement relate to the human rights due diligence process. Human rights due diligence is a fundamental expectation of the UNGPs and is increasingly being translated into "hard-law" with remedies. In particular, the European Commission has committed to tabling a mandatory human rights due diligence law by 2021; there are indications that this law would apply to any EU company or company selling goods or providing services in the EU, and that it would contain sanctions for non-compliance.3 The UNGPs are the prevailing international standard on human rights due diligence, and will likely form the basis for the EU's proposed law and other anticipated laws, including a proposed law in Germany (see more on emerging legislation and the UNGPs in our previous briefings, available here and here).
A global treaty on business and human rights is also on the cards, with a second revised draft released by the Intergovernmental Working Group in August 2020.4
The CHRB reveals that companies should be considering whether their human rights due diligence processes are sufficient to meet upcoming mandatory obligations – including by carrying out the steps we outline at the end of this article.
- Companies need to move from commitments and processes to impacts on the ground
Despite progress from a number of companies, with some meeting most of the fundamental requirements of policy commitments and human rights due diligence, the CHRB Report asserts that there is "a concerning disconnect between these commitments and processes and impacts on the ground". This demonstrates that many companies require a great deal more human rights due diligence and audits to address the disconnect between their public facing commitments and real human rights impact. In any event, going forward, companies should expect greater attention on their public statements from investors, stakeholders and consumers.
What can companies do to improve their human rights risk management strategy?
As companies report more fully on their human rights programme and related activities they must ensure that policy commitments are audited and verified, so that they can be confident that representations reflect reality.
As well as auditing policy commitments, best-in-class companies are applying the below strategies to continually improve their human rights risk management:
- Closely monitoring legislative developments relating to mandatory human rights and environmental due diligence.
- Carrying out a human rights impact assessment and taking proportionate counter-measures, as well as communicating internally and externally on what measures have been taken.
- Reviewing and reinforcing complaints mechanisms and speak-up programmes, and ensuring the business is well equipped to deal with "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.
- 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 environment.
3 For example, the European Parliament's Committee on Legal Affairs published a draft report in September 2020, annexing a Draft Directive on mandatory human rights and environmental due diligence. The scope of this Draft Directive is wide, and would apply to companies incorporated in an EU Member State, as well as a company incorporated outside of the EU but with activities in the EU: