Human Rights – time to refresh your corporate policies and procedures?


As legislators and regulators increase their focus on human rights and good governance, the UN Principles for Responsible Investment ("UNPRI"), an international organisation that works to promote the incorporation of environmental, social and governance (ESG) factors into investment decision-making, announced at the end of last year the creation of a new collaborative stewardship initiative, Advance.

Advance, which focuses on human rights and social issues, is reported to have over 220 investors collectively representing US$30 trillion in assets under management (AUM) involved. At the time of writing, 109 of those investors are listed on the UNPRI website as having committed to actively engaging with an initial 40 companies in respect of human rights in their operations and value chains.

With an objective to "advance human rights and positive outcomes for people through investor stewardship" (the "Advance Objective") this briefing looks at how Advance's endorsers and participants plan to fulfil their commitments and meet the Advance Objective, focusing in particular on the first of three key expectations of those initial 40 companies relating to the implementation of the UN Guiding Principles on Business and Human Rights.

We will also consider how legislative developments and wider public and investor pressures are pushing businesses towards similar responsible business objectives and practices, including, in particular, making a public statement of commitment to meeting their responsibility to respect human rights and implementing supporting policies and procedures to put this commitment into practice.

Advance and its objectives

Advance's signatories are designated as: (i) endorsers – those investors that publicly endorse the initiative by signing the public investor statement, signalling their support for the objectives and strategy of Advance but not necessarily actively participating in the initiative's engagement activities themselves ("endorsers"); and (ii) participants – investors who engage with companies as part of the initiative, either as a "lead" or a "collaborating" investor (together referred to as "participants"). All participants are also endorsers. 

A number of high risk/ impact companies have been selected as initial targets for Phase I of Advance (or, as described by the initiative, as "engagement focus companies for the initiative") for participants to "influence" to "advance respect for human rights through stewardship". For now, an initial 40 focus companies have been selected from two sectors, mining and metals and renewable energy, and include, by way of example, Anglo American, Nippon Steel, Goldfields and Orsted. The companies have been selected on the basis that they operate in sectors where human rights impacts and risks are most severe, and where participants may be able to influence behaviours through stewardship. Selection as a focus company does not necessarily indicate that the company has a poor human rights record, as selection is based on the ability for investors to make a difference. Companies with "systemic importance" in their sector were also included. Company selection also aimed to ensure regional diversity both in terms of where the company itself was headquartered and the geographical spread of its value chain.

Between 1 and 7 of the initial 109 participants are assigned to work with each focus company. This highly organised structure and prescriptive implementation is unusual for a voluntary initiative, and it will be interesting to see whether measurable progress will be made as a result.

Advance sets three key expectations for the 'focus companies' to progress the Advance Objective, namely to:

  1. Implement the United Nations Guiding Principles on Business and Human Rights ("UNGPs");

  2. Align their political engagement with their responsibility to respect human rights;

  3. Deepen progress on the most severe human rights issues in their operations and across their value chains.

Little more is disclosed at this stage about how these expectations are anticipated to be driven and measured in practice by the participants. That said, it is likely that Advance will use existing guidance to inform its approach, including that contained in the OECD's Guidance on 'Responsible business conduct for institutional investors'. In addition, tools at participants' disposal including (proxy) voting, escalation and use of any investment powers are all likely to have a role. Further details are expected to be included in an Advance assessment framework methodology set to be published by PRI in 2023 (which will set out the basis for measuring progress of the engagement of focus companies against the company expectations).

Key Expectation 1: Implementing the UNGPs – what are the requirements?

The first key expectation encourages 'focus companies' to implement the UNGPs.

The UNGPs are a set of guidelines with voluntary application to all States and to all business enterprises, regardless of their size, sector, location, ownership and structure. The UNGPs created the first global standard for preventing and addressing the risk of adverse impacts on human rights linked to business activity, and they cover three pillars:

(i) state duty to protect;

(ii) corporate responsibility to protect; and

(iii) access to remedy (both at a State and, to a lesser extent, at an organisational level).

Within each pillar, the UNGP's are split into 'Foundational' and 'Operational' principles. For businesses, the former covers the core human rights principles and statements that businesses should adhere to, with the latter covering the practical steps (including policies and procedures) that should be taken by businesses in order to meet the 'Foundational' principles.

To meet their responsibility to respect human rights, Foundational Principle 15 of the UNGPs states that business enterprises should have in place policies and processes appropriate to their size and circumstances, including:

a. A policy commitment to meet their responsibility to respect human rights;

b. A human rights due diligence process to identify, prevent, mitigate and account for how they address their impacts on human rights; and

c. Processes to enable the remediation of any adverse human rights impacts they cause or to which they contribute.

The UNGPs include a description of the practical steps businesses are expected to take to operationalise this principle, requiring that the human rights policy commitment flagged in Foundational Principle 15:

a. is approved at the most senior level of the business enterprise;

b. is informed by relevant internal and/or external expertise;

c. stipulates the enterprise’s human rights expectations of personnel, business partners and other parties directly linked to its operations, products or services;

d. is publicly available and communicated internally and externally to all personnel, business partners and other relevant parties; and

e. is reflected in operational policies and procedures necessary to embed it throughout the business enterprise. (Operational Principle 16)

For a participant to be able to leverage their position and encourage the focus company to implement the UNGPs, the participant must first understand what the UNGPs are and what steps are required to implement the same. It is logical, then, that Advance sets an initial requirement at a participant level that, if they have not done so already, those investors involved in engagement agree to develop their own human rights policy and human rights due diligence process, to be ready within one year of joining the initiative.

While the UNGPs themselves are not legally binding, their incorporation into voluntary initiatives like Advance, and their engagement in wider EU legislation (both existing and proposed) is beginning to set a common standard against which companies can be measured. This is explored further below.

Human rights policies and due diligence – international and legislative drivers

While UK legislation drives implementation of policies and supporting procedures relating to corporate governance matters, including employee health and safety, anti-bribery and corruption, anti-facilitation of tax evasion and, for some companies, modern slavery, there is currently no legislation requiring the implementation of a human rights policy or supporting procedures that are in-line with the UNGP's recommendations.

Though ESG remains at the top of many corporate agendas, businesses and legislators, both in the UK and EU, have largely focused on the "E" in ESG. For example, in the EU, the European Commission's sustainable finance strategy has been kicked off with a Taxonomy categorising 'green' investments (see our briefing here). The UK has focused for now on a staged implementation of climate-related reporting in accordance with the Taskforce for Climate-related Financial Disclosures (TCFD) (see our most recent briefings here and here) and is considering proposals around the development of a UK Green Taxonomy. That said, pressure to engage with the "S" continues to mount, with initiatives like Advance joining a wide range of voluntary initiatives and schemes (like the long-established UN Global Compact and the Global Business Initiative on Human Rights) for businesses to sign up to, as a public declaration of their commitment to the protection of human rights.

Voluntary initiatives

The UNGPs (including Foundational Principle 15 set out above) were incorporated into the OECD Guidelines for Multinational Enterprises ("OECD Guidelines") in 2011. The OECD Guidelines set out recommendations from governments to businesses on how to act responsibly across a wide range of areas including in respect of their impact on the environment, the prevention of bribery and corruption, labour rights, human rights protection, fair competition practices and tax compliance (among others). We are seeing both a voluntary uptake of and commitment to the OECD Guidelines and UNGPs, as well as external pressure on companies to publicly commit to the same. A commitment to adherence to the OECD Guidelines and UNGPs, and signing up to initiatives like the UN Global Compact (which incorporates a number of the same principles), will therefore require businesses to work towards the implementation of a human rights policy commitment and supporting due diligence procedures (as set out in the UNGPs and described above). The distinguishing, and interesting, feature of Advance is that it involves investors committing to use their leverage (i.e. their ability to influence their investments) to advance human rights through their stewardship activities with their specific 'focus companies'.

Regulatory developments – indirect drivers

In addition to the voluntary initiatives described above, regimes like the EU's Sustainable Finance Disclosure Regulation ("SFDR") and the Taxonomy Regulation are likely to drive adoption and implementation of human rights policies and procedures, albeit via a less direct route. This is for a number of reasons, including the fact that, under the SFDR, investors and asset managers reporting on principal adverse impacts across their investments will be required to disclose those investments that have failed to incorporate the principles within the OECD Guidelines and UNGPs into their policies and procedures. In addition, under the Taxonomy Regulation, an economic activity may only be considered "sustainable" if it meets all relevant, stringent requirements set out in the legislation, including that the entity carrying out the relevant activity has implemented procedures to ensure alignment with the OECD Guidelines and UNGPs (the so-called "minimum safeguards"). The question of alignment with OECD Guidelines and UNGPs is also engaged in respect of those Article 8 plus (so-called 'mid-green') and Article 9 funds that commit to make 'sustainable investments' (as defined in Article 2(17) SFDR).

As discussed in our recent briefing on the Platform for Sustainable Finance's ("PSF") report on "minimum safeguards" under the Taxonomy Regulation, recent guidance from the PSF is that to measure alignment with the "minimum safeguards", investors should consider four areas of compliance:

(i) human rights and employee rights;

(ii) bribery and corruption;

(iii) fair competition; and

(iv) tax compliance.

A company that is able to provide evidence of appropriate policies and procedures, including a human rights policy, and demonstrate effective implementation of it, will give confidence to its investors that it aligns with the OECD Guidelines and UNGPs. Indeed, these are the companies that are more likely to be able to provide evidence of compliance with "minimum safeguards" requirements, advancing the likelihood of Taxonomy alignment and providing data needed for the detailed report of "principal adverse impacts" (or lack thereof) under the SFDR. As a result, companies proactively embracing these voluntary initiatives are positioning themselves well to be seen valuable investments for more ambitious asset managers and other investors.


Upcoming regulatory developments – direct drivers

In tandem, two key EU proposals are getting closer to implementation – namely the Corporate Sustainability Reporting Directive ("CSRD"), coming into force in January 2023 and applying in Member States beginning in 2024, and the Corporate Sustainability Due Diligence Directive ("CS3D"), still currently in proposal form. Notably, both extend to companies based outside the EU but which have significant operations in the EU, and the CS3D in particular is expected to capture not just corporate entities in the strict legal sense but a number of other legal forms, including asset managers, and in respect of the latter, may also impose significant obligations with regard to their portfolios.

  • CSRD: The CSRD sets detailed mandatory sustainability reporting requirements for in-scope companies in respect of "environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters" in-line with mandatory European sustainability reporting standards ("ESRS"). While the ESRS have yet to be formally adopted, they have been approved by the EFRAG advisory body and EFRAG does not expect them to be altered materially before adoption. The ESRS are made up of twelve reporting templates, four of which address the "S" elements of ESG and include a requirement for the undertaking to describe its human rights policy commitments and explain how such policies are aligned with internationally recognised standards, including the UNGPs (see our briefing for further details on the scope and implementation of the CSRD).

The ESRS will require companies to describe their "human rights policy commitments" in relation to its own workers, its value chain, "affected communities", and consumers/end-users where relevant; these data points are explicitly intended to address the requirement under the SFDR for financial market participants to disclose what proportion of their investments do not have a human rights policy.

  • CS3D: The CS3D (as explained in our earlier briefing when it was originally proposed back in 2022) is aimed at tackling human rights and environmental impacts across a company's value chain by imposing a corporate duty of due diligence on in-scope large companies operating in the EU. These due diligence measures include a requirement to identify, prevent and mitigate human rights and environmental impacts connected with companies' own operations, as well as those of their subsidiaries and in their value chain.

The CS3D draft text expressly refers to the human rights due diligence as proposed under the UNGPs and OECD Guidelines and requires (as set out under these instruments) that companies integrate such due diligence into their policies and risk management systems, have in place a due diligence policy, and publicly communicate the same. The draft CS3D would also require companies (and their subsidiaries) to have in place a code of conduct describing rules and principles to be followed by the company's employees and subsidiaries and where relevant, its direct or indirect business partners.

It is envisaged that companies in the scope of both the CS3D and the CSRD will report their due diligence behaviours and other information required by CS3D under the CSRD mandatory reporting standards. For those companies who are not captured by CSRD, companies will be required to publish a statement on their website on their compliance with CS3D.

In addition to the above, other legislative drivers highlight a trend towards greater regulatory focus on human-rights and responsible business conduct by companies. For example, the UK has seen proposals to strengthen the UK's Modern Slavery Act 2015 reporting requirements to require more detailed reporting on steps taken by a company to combat modern slavery in its operations and supply chains and including considering further enforcement options for non-compliance (see our briefing for more details). The use of trade controls and sanctions targeting specific products and parties have also been used to influence corporate behaviour and are likely warrant a review of corporate risk and compliance management processes for many businesses. For example, following ongoing calls for action in respect of allegations of the use of forced labour and other human rights abuses in China, the US has implemented, and the EU has proposed similar legislation, designed to end the sale of products made by forced labour in the US/ EU (see our briefing for further details).     

These drivers, then, are not only pushing companies towards the creation and implementation of a human rights policy but, more significantly, making such a policy publicly available. This development brings with it clear litigation and wider reputational risks for businesses (see our previous articles on this point highlighted in respect of corporate due diligencecorporate reporting and wider value chain litigation trends).

The proliferation of requirements, whether voluntarily adopted or legally imposed, to adopt policies on human rights matters merits a holistic review of what should and can realistically be said in such policies. Over-promising carries considerable risk, tempting though it may be to cater to discerning consumers and investors. There is also value in streamlining policies by ensuring that all legal requirements are captured within just one or two policies, which mitigates the risk of them not being adhered to (often because of internal regulatory overload).

Advance – an investor point of view

On the global stage, legal requirements and investor expectations have not generally extended to human rights as a standalone requirement at a business level. However, as investor tastes change, and the corporate conscience grows, initiatives like Advance allow businesses to get ahead of legislators and proactively assume a leadership role in protecting human rights. Such leaders will however need to get their own house in order, so as to avoid any backlash or accusations of hypocrisy.

Advance, then, represents yet another force driving businesses towards not just making a commitment towards human rights, but putting that commitment into practice with formal policies and procedures and board level responsibility. If "greenwashing" was a key ESG buzzword in 2022, in 2023, get ready for "social washing" to enter the corporate vocabulary. There is no shortage of NGOs willing to expose companies engaging in such practices, which are arguably easier to uncover than environmental harms, though potentially just as difficult to control from the business's perspective. Both make attention-grabbing headlines, unfortunately for any business that finds itself involved, no matter how remotely, in a controversy.

What makes Advance particularly interesting is what can be described as a "change or be changed" approach; potentially large reputational gains are at stake for both investors bringing about change via their engagement, and large focus companies influencing entire sectors through changes in their own behaviour. It will be interesting to see the PRI's analysis of the success of engagement, and whether that will eventually build enough momentum across sectors to drive meaningful and lasting improvements in human rights matters.

Making human rights a board issue for all businesses

It is clear that both legislators and groups like PRI have ambition to extend the "S" obligations beyond the largest economic actors, and ensure all businesses are taking appropriate and proportionate steps to safeguard human rights in their operations and supply chains. Even without these legislative developments, wider reputational risks and recent UK litigation shows that businesses are being challenged in respect human rights incidents not only in their own operations but also in their wider value chains. These developments and pressure points mean all businesses should, on a best practice basis, be considering their policies and procedures with respect to human rights.


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