From CSR to Shared Value: How Respecting Human Rights is Actually Sound Business Investment
Respecting Human Rights is a Business Investment
By Philippe Castagnac (Chairman of the Mazars Group Executive Board)
During the 2015 edition of the European Development Days (EDD) in Brussels, a session was held on “Business and Human Rights: from principles to practice, two innovative tools for compliance and reporting”. While the concept of Human Rights has been discussed, debated and even globally institutionalised over the past few decades, it is only recently that we have truly begun to ask ourselves the question: “What role does business have in all of this?” Now, you may quickly want to jump out of your chair (provided you’re not standing, reading this piece on your smartphone), raise your hand and yell out “Corporate Social Responsibility!”, and while you’re not wrong, you’re only answering half of the question. So, let’s take a moment and look at how CSR can really create value for our businesses.
Spending Profits or Earning Them?
Many of us tend to think that marrying Human Rights and business means making sure that the spending of corporate profits is fully in line with Human Rights principles. This is not the case. Integrating Human Rights into corporate thought is not about changing how companies spend their profits but it is about how they earn them. Philanthropy is a good thing, but it’s not what we’re talking about here. Respecting Human Rights means redefining a company’s business model to incorporate basic principles. Human Rights should be approached as any other investment would be approached in a company. While there is relatively little upfront cost, there is absolutely a return on investment. Before a company can even start, it’s important that they fully understand and define what Human Rights mean to them in their business context so that they can identify the right KPIs and monitor this return on investment.
According to the United Nations Guiding Principles Reporting Framework (www.UNGPreporting.org), the first thing that we companies should be asking ourselves is “What are our salient Human Rights issues”. By salient, I mean those Human Rights that are most at risk of causing a severe negative impact. And by severe, I mean the scale – the gravity of the Human Rights that could be potentially violated –, the scope – how many people are actually going to be potentially impacted? – and the remediability – could the lives of the people impacted go back to their previous enjoyment?. Only when a company has identified what ‘Human Rights’ actually means to them can they then start to integrate them into their business model. For example, in the extractive industry, the main Human Rights risks, the salient Human Rights issues, are generally going to revolve around community, environmental impacts, health, safety and security impacts; whereas these risks are likely to be completely different in another sector.
Risks for people and risks for businesses do converge
It’s also important to note that to identify “salient Human Rights issues”, we have to to look at risks as risks to people and not risks to the businesses. If we only looked at business risks, we would be likely to miss some of the salient human rights risks.Paradoxically, though, these risks will converge back to your business. We need to change the lens through which we look at the risks that may potentially affect us.
Once we’ve identified these risks, put the right processes in place and understood the key performance indicators for monitoring the respect of Human Rights, we will begin to see the business return. The latter comes not only in the form of enhanced reputation – as well as minimalizing our reputational risk – but also in the form of increased profitability. For starters, we’re less likely to have lawsuits (and to have to manage them) and the associated legal costs, we may have reduced insurance fees, greater staff retention, less supplier issues…
The roadblocks ahead
So what are the roadblocks in this endeavour? We can identify a few key obstacles.
First of all, businesses must understand what Human Rights means to them and how they relate to them. Generally speaking most surveys show that business executives think that protecting Human Rights is a good thing. A global survey of 853 senior executives and interviews with nine high-profile experts in human rights was published in March 2015 by The Economist Intelligence Unit (EIU); its results show that more than four-fifths (83%) of respondents think that business is an important player in respecting Human Rights. On the other hand, if you ask business executives to elaborate, few can explain how respect for human rights is integrated into their internal management systems and throughout their supply chain.
Secondly, businesses must understand how respect for Human Rights can drive improved performance. The abovementioned survey shows that companies do not see a business case for Human Rights, but rather see respecting Human Rights as helpful in building good relationships with local communities (48%), protecting the company brand and reputation (43%) and serving moral/ethical considerations (41%). Out of these opinions, only one (the second) can be categorised, strictly speaking, as a value issue, which means that greater corporate education is required.
Thirdly, companies must be helped to think beyond short-term profitability goals and to consider the longer term sustainability of their business. Current stock exchange guidance requiring public companies to report quarterly their financial results, drives companies to continually think about short-term profitability. This creates inherent tension in building a company for the longer term. Regulation should be reformed to take account of the unintended consequence of quarterly reporting as this is likely to generate greater value for all stakeholders.
Creating Shared Value
The role of the regulator is without doubt going to become more and more important over the coming years. Major steps have already been taken with the United Nations Guiding Principles (UNGPs) on Business and Human Rights – in place since 2011 –, the Modern Slavery Act – enacted by the UK Parliament in March 2015 –, Bill 501 on human rights and environmental reporting for large companies currently being debated by the French parliament – , and the EU Non-Financial Reporting Directive which will be effective in 2017. The actions of all regulatory bodies appear to be converging around the same philosophy: helping businesses adapting their business models to become more efficient through integrating Human Rights-related risks into their decision-making processes.
In this respect, Mazars, in partnership with Shift – the New York based independent not-for-profit centre for business and Human Rights – launched the UN Guiding Principles Reporting Framework in February 2015. This is the world’s first comprehensive guidance for companies to report on how they respect Human Rights. As of 1st June 2015, the framework’s investor coalition has grown to 81 in size, representing a total of $4.26 trillion in assets under management. The first organisation to adopt the framework was Unilever, which plans to publish its first Human Rights report this summer. Other early adopters include Ericsson – a pioneer which has already reported under this Human Rights Reporting Framework in its 2014 CSR report. H&M, Nestle and Newmont have all publicly stated that they plan to directly apply the Reporting Framework in 2015. To further reinforce the importance of this Reporting Framework, a number of national governments have also begun to examine how the Framework could inform their plans to drive greater corporate accountability on social and environmental issues.
In conclusion, I firmly believe that businesses that respect human rights will be more productive and deliver greater value to all stakeholders. Essentially, underpinning this philosophy lies the requirement for greater stakeholder engagement and understanding: engagement with workers, suppliers, communities, regulators and civil society. In other words, we will all be recipients of greater return through corporate respect for Human Rights. Companies that embed this respect into how they earn their profits will go beyond Corporate Social Responsibility and start creating shared value by aligning the interests of business with those of surrounding communities and the environment.