The UN Guiding Principles for Business and Human Rights (UNGPs) require companies to prevent and respond to any adverse operational impacts on human rights. In recent years, these principles have been translated into legislation that requires companies to establish due diligence processes to identify, prevent and remediate human rights violations.
The COVID-19 pandemic has highlighted the importance of achieving the UN Sustainable Development Goals (SDGs). It has also provided an unprecedented opportunity for corporates to join a renewed global commitment to addressing the systemic issues affecting our well-being as a society.
Corporates seeking to be socially sustainable must be able to comply with existing and upcoming legislation, mitigate reputational risks, and meet the evolving expectations of their stakeholders.
A changing legislative landscape on business and human rights
December 10th is International Human Rights Day. It marks the day in 1948 when the United Nations General Assembly adopted the Universal Declaration of Human Rights (UDHR). This milestone document set out, for the first time, a common set of global standards to protect the fundamental human rights of all people and all nations”. The UNGPs and the OECD Guidelines further build on the UDHR by emphasizing the corporate responsibility to “avoid infringing on the human rights of others and address adverse human rights impacts with which they are involved”.
Even though the UNGPs were adopted in 2011, compliance with these guidelines is limited. According to Sustainalytics’ own screening of UNGP alignment across 91 companies, 58% scored low on human rights preparedness. This is in-line with the findings of the Corporate Human Rights Benchmark1 (2019), which uncovered that for most companies, human rights due diligence is a key weakness. In fact, 49% of companies assessed scored zero against every indicator in this area.
In recent years, we have witnessed a global trend to translate international guiding principles into national or supranational legislation. France, the UK, and Germany, among others, have already implemented relevant laws, and European-level Directives will likely be finalized in 2022. We expect this trend to strengthen in the years to come. Alongside these initiatives, the regulation on sustainability disclosure in the financial services sector (SFDR) came into force in March 2021. SFDR explicitly mentions respect for human rights as part of the ‘sustainability factors’ financial institutions must report on, further increasing the pressure for companies and stakeholder businesses to address the “S” in ESG.
COVID-19 driving poverty and inequality
“The growth in inequality created by the COVID-19 crisis threatens a legacy of poverty and social and economic instability that would be devastating." - Guy Ryder, Director-General, International Labour Organization2
The World Bank reported that the COVID-19 pandemic pushed 100 million people into extreme poverty in 2020.3 The gap between needs and humanitarian funding is stark in some of the world’s most vulnerable regions. The pandemic is also having a disproportionate effect on income, wages and access to basic needs. It is affecting more women, lower paid workers as well as vulnerable communities that are now facing regular food shortages and famine. Global inequalities are deepening. This is triggering a renewed sense of urgency and commitment from corporates and investors to act, as is exemplified by the global movement to build back for a more just and sustainable future.
Sustainalytics' Human Rights Accelerator – Moving from paper to practice
The time to engage is now. Under the Human Rights Accelerator thematic engagement, we will work with companies to establish effective human rights due diligence systems and build further learnings and collective action to tackle systemic human rights issues in specific sectors and geographies.
The engagement offers the opportunity to mitigate reputational risks in investment portfolios and for businesses to future-proof—where we can jointly learn and attempt to create positive impact.
- “ Measuring 230 global companies on their human rights performance” Corporate Human Rights Benchmark WBA (worldbenchmarkingalliance.org), 16 November 2020 at Corporate Human Rights Benchmark WBA (worldbenchmarkingalliance.org)
- “Responding to the Covid to the Covid-19 pandemic and Rebuilding better”, The world Bank, 2021 at WBG-Responding-to-the-COVID-19-Pandemic-and-Rebuilding-Better.pdf (worldbank.org)
- “Famine Action Letter”, Action Against Hunger , 1 December 2021 at Famine action letter - Action Against Hunger (reliefweb.int)
Banks’ ESG Risks Related to the Russia-Ukraine Conflict on Investors’ Radars
Investor interest in the banking sector remains high as the impact of Russian sanctions unfolds. Based on Morningstar Sustainalytics’ research, total unmanaged risk has increased for both Russian and international banks with exposure to Russian clients. To what extent have sanctions affected banks’ total unmanaged risk?
Leveraging Blockchain to Improve Supply Chain Management - A Case Study for Household and Personal Products Companies
With growing scrutiny from stakeholders—international regulators and regional governments, NGOs, the general public, investors, and financial institutions—companies accused of human rights violations and environmental damage in their supply chains face substantial risks.
ESG Impacts of the War in Ukraine: Global Food Supply
The invasion of Ukraine highlights the fragility of the global food system. The destruction caused by the war and subsequent trade restrictions on Russia, endangers a significant percentage of the global food supply coming from two of world’s leading agricultural commodity exporters, consequently prompting food prices to surpass the 30-year high.
Biodiversity loss and climate change call for a nature-positive economy – Stewardship may lead the way
Financial institutions funding the supply chains affected by biodiversity loss stand to lose right alongside farmers, producers and retailers—and so, in turn, do investors. ESG stewardship continues to be a powerful investor instrument to mitigate risks on a changing planet. With growing expectations of double materiality, it is an opportunity for investors to have a greater societal impact and support the transition towards a nature-positive economy.