Putting people before profit helps businesses tackle human rights abuse

21 May 2018 Consultancy.uk 6 min. read
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As human rights violations continue to unfold globally, businesses have often been implicated in historic abuses. In order to avoid this, a new report suggests that companies must put human rights at the core of their business strategy, while also shifting the question of risk, to one where a business’s potentially abusive impact on the rights of people and their environment is centred, rather than the risks from consequences of such abuses on business outcomes.

Recent scandals implicating formerly trusted organisations, including Oxfam and Save the Children, have illustrated how any business can ultimately fail and betray the rights of the people it supposedly serves, while the Cambridge Analytica gate rumbles on having allegedly compromised the right to free and fair elections in several major Western democracies. This is nothing new, however. Concerns around human rights violations within businesses and their supply chains has simmered for decades; sweatshop labour, unsafe and unfair labour practices, and environmental degradation, are key concerns, with various levels of protections afforded by global best-practice and ethical frameworks aimed at limiting abuses. However, the oversight of companies regarding their supply chain partners often remains – while abuses continue to take place – in part driven by a fixation on reducing overheads at almost any cost.

A new report from Big Four firm KPMG considers how companies can put human rights at the core of their businesses, and overcome this problem. Rather than focusing on the consumer’s responsibility to “vote with your wallet”, as has been the traditional approach by various boycott and divestment campaigns, KPMG’s study focuses more on the supply side, suggesting that businesses themselves need to be more proactive in setting clear standards, auditing their supply chain partners for abuses, interrogating ‘too good to be true’ offers, and cutting suppliers or lobbying governments to improve standards, where there are clear violations.

Human rights impact on businesses

According to KPMG, signs are encouraging in this respect, with the consultancy suggesting that member firms have seen growing client demand for advisory support in this space. This includes Banarra (now KPMG Banarra), a world-leading human rights consultancy based in Australia, which joined KPMG in 2015. However, more can still be done.

For example, companies may also need to consider that protections afforded by governments fall short of international standards, with claims like ‘we follow the national law’ actually not sufficient to meet ethical standards – a recent analysis of apparel labour showing that in many countries pay is far short of living wage standards, while workers continue to see excessive exploitation, violating their basic dignities. New technologies are also creating new risks, with recent scandals showing the dangers and downsides of poor risk management in implementation.

High stakes

Aside from international standards, such as the UN Guiding Principles on Business and Human Rights, which mandates that corporates globally are responsible for the abuses of their supply chain partners, various jurisdictions have introduced legislation requiring companies to prevent abuses in their supply chains, such as the Modern Slavery Act in the UK. The former, while not legally binding, set basic standards of ethical behaviour, whether for labour or sustainability, even if there are higher costs associated with such mitigation. Issues persist however, with unfair competition from companies that flout the standards, creating an uneven and unfair playing field – often at the expense of workers’ rights and sustainable stewardship.

Improved reporting from multiple stakeholders mean companies face deepening scrutiny, including from investor and creditors, as well as a host of other interested parties, including the fourth estate, civil society, labour unions, employees and customers.

Richard Boele, Partner, KPMG Banarra and Head of KPMG’s Global Business and Human Rights Network said, “Further external stakeholder engagement is needed, for example, when companies are closing operations which could have significant consequences for host communities. By considering risks to people, the human rights lens can add significant value to the standard ERM process.”

Creating a human focused human rights culture

To meet global standards – assuming respect for human rights – companies need to take a broad approach to human rights. This includes company-wide human rights policies or statements, with awareness at board and executive level, to meet those standards in the company and with suppliers right down to the last worker. Depending on the type of organisation, work may require companies to lay down clear standards for their suppliers as well as audits, while on the financial side, lenders’ technical due diligence regarding the standards of the lender and its suppliers may be required.

At every level, companies need to engage in due diligence procedures to identify, prevent, mitigate and account for adverse human rights impacts. They would, furthermore, engage with stakeholders to understand which people are affected by the operation of the business, and how they are affected. Cultural impacts from such a business need to be considered, and tough choices – such as not engaging, intervening or lending – need to be taken seriously.

Asking hard questions

The report suggests that risk managers may need to shift their focus away from identifying risks to the businesses from human rights abuses, such as the bottom line, and instead focus on the risks the business poses to the people it affects. Such a change of perspective provides a simple check, and makes it much more difficult for companies to act unethically – it may also require different kinds of risk managers, ones able to consider the broad implications of the businesses operation, whether on people or their wider environment.

Risk management is only one part of the story however, with operational managers also required to have a deep understanding of human rights risks, with many on the front line having knowledge about the places where sometimes difficult questions need to be asked.

Adrian King, Global Head, Sustainability Services, KPMG International, said, "Risks to people lead to risks to the business. So companies need to have a clear view of both and to develop a common language and understanding that links human rights specialists with corporate risk managers."