By Lauren Compere
Last week a $4trn coalition of major investors from North America, Europe and Australia came together to urge companies to use a new guide to help them report human rights risks. The investors, led by Boston Common Asset Management, included large mainstream institutions such as APG Asset Management, Aviva Investors, and BNP Paribas Investment Partners; as well as faith and SRI funds such as Church of Sweden, ICCR and Calvert.
The new guide, entitled the ‘UN Guiding Principles Reporting Framework’, is a significant step forward as it provides companies with clear and comprehensive guidance for reporting. It uses a ‘smart’ question format allowing companies to identify only those issues salient to their business, and then helps them to ‘know and show’ how they manage those issues throughout their operations. The new framework has already been adopted by the likes of Unilever – the first adopter – plus Ericsson, H&M, Nestlé and Newmont.
This is a big help for investors. Institutional investors don’t have the resources to undertake due diligence on all activities by all companies they invest in – but we rightly face criticism if we do not take action to ensure our investee companies are managing their human rights risks. This new framework helps to solve this dilemma as investors can now say to their investee companies: “please pick up this guidance and use it as a straightforward way to start improving your controls and disclosure on human rights.” It also cross references and supports other non-financial reporting initiatives such as the Global Reporting Initiative (GRI), UN Global Compact and the FTSE for Good and Dow Jones Sustainability Index (DJSI) metrics.
Beyond ethics
Perhaps the main reason that the framework has attracted the support of so many investors is because there is now significant evidence to show that the management of human rights issues can create or destroy value.
Just one example is platinum producer Lonmin whose share price fell 30% in one week after 34 miners were shot and killed at its Marikana mine. Another example came only last month when Apple announced that either they or their suppliers will repay workers nearly $4m in excessive recruitment fees in order to avoid bonded labour in its supply chain – which had been exposed by a BBC investigation.
The new guidance also comes at a time when legislative requirements for companies to report non-financial issues is increasing. For example, the 2010 US Dodd Frank Act focused on conflict minerals and the EU Directive on the disclosure of non-financial information in 2014 both compel thousands more companies to release information on human rights performance.
Investors themselves need also beware public censure if they fail to implement robust procedures to assess risks related to human rights at investee companies. In 2013 two large European investors were rebuked by the OECD for failing to apply adequate human rights due diligence to their minority holdings in South Korean company POSCO. POSCO’s plans to develop a steel plant and mine in the Indian state of Odisha had drawn criticism and allegations of human rights violations including forced evictions.
Later in 2015 the same investor coalition will launch a follow-up collaborative investor engagement to ask a select group of companies in in high-risk sectors – such as extractives and apparel – to consider adopting use of the Reporting Framework. We hope other investors will see take this opportunity to join the coalition.
Lauren Compere is a managing director at Boston Common Asset Management and sits on the governing board of the Interfaith Center on Corporate Responsibility.
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