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Pushing for greater transparency on companies’ human rights due diligence

Pushing for greater transparency on companies’ human rights due diligence

16-01-2019 | Article

Several developments have turned a spotlight on the “S” in ESG investing, which is heavily populated with human rights-related elements. Drivers include internationally recognized human rights standards such as the United Nations’ Guiding Principles on Business and Human Rights (UNGPs) as well as asset owners’ and asset managers’ growing interest in the UN’s Sustainable Development Goals (SDGs). Through its annual Corporate Sustainability Assessment (CSA), RobecoSAM helps to drive improvements in this area.

  • Companies must conduct adequate human rights due diligence (HRDD) to avoid or mitigate risks related to the violation of human rights within their organization and value chain
  • Given insufficient regulatory pressure, other levers must be used to convince companies of the need to improve their HRDD processes and reporting in the interest of investors
  • Through its annual Corporate Sustainability Assessment (CSA), RobecoSAM helps companies to understand how to report on HRDD, and to provide the right information to investors

As part of their responsibility to implement the United Nations’ Guiding Principles on Business and Human Rights (UNGPs), companies must have systems and practices in place enabling them to know and show that they respect human rights. Crucially, these include an ongoing risk management process to identify, prevent, mitigate and account for how a company addresses its adverse human rights impacts. This human rights due diligence (HRDD) includes four key steps: assessing actual and potential human rights impacts; integrating and acting on the findings; tracking responses; and communicating about how impacts are addressed.

However, in frequently weak legislative environments, the pressure on companies to conduct and report on their HRDD may be insufficient to ensure this actually happens. In these cases, there are multiple levers of change that can be used to create an environment where HRDD happens alongside, or in spite of (rather than because of), regulation. At a recent panel on this topic at the United Nations in Geneva, Edoardo Gai, Head of Sustainability Services, RobecoSAM, highlighted the role RobecoSAM plays in convincing companies of the strong investor interest in a rigorous approach to HRDD. RobecoSAM’s CSA helps companies to understand how to report on HRDD, and to provide the right information to investors, enabling them to evaluate their efforts.

The CSA as a driver of change

As part of its annual review of the CSA criteria, RobecoSAM decided three years ago to extend the human rights criterion by adding a section on human rights due diligence. Since the introduction of this section, we have observed growing interest in tackling human rights issues on the part of participating companies, which has been reflected in improved average scores for this criterion across all industries and regions. 

At the same time, a comparison of publicly available data and the information provided by the nearly 1,000 companies that actively participate in the CSA has shown that more and more companies are implementing HRDD processes, but many do not actively communicate this.

“This is something we frequently observe when we introduce new criteria into our evaluation” explains Edoardo Gai. “Companies first address the new issue by defining relevant policies and reporting on them. All the while, they start working on processes and defining KPIs, but will only disclose their progress once they really feel comfortable with the results.”

Based on its experience with this common pattern, as well as the past few years’ CSA results, RobecoSAM expects companies to report more extensively on their human rights due diligence in the near future. Investors will appreciate this. Greater transparency in this regard will provide them with important information for their decision-making as the human rights performance of companies that have an effective HRDD process in place can be expected to improve over time.