The 2018 Corporate Human Rights Benchmark, released earlier this week, gives low scores to a surprisingly large number of the apparel, agricultural and extractive companies it ranks. Questions remain over the robustness of its methodology, but with investors publicly backing it and a growing emphasis on ESG performance in investment circles more generally, the Benchmark is becoming an increasingly important reference point.
This week, the Corporate Human Rights Benchmark (CHRB) released its 2018 findings. Its report ranks 101 of the world’s largest publicly traded companies in the agricultural products, apparel and extractives sectors by tracking how they perform across 100 indicators, derived from the UN Guiding Principles on Business and Human Rights and industry-specific standards.
The CHRB is supported by investors including Aviva Investors, APG Asset Management, Nordea and Calvert Investments, and various NGOs. This is only the second iteration of the Benchmark – and first “full” version – following the launch of the pilot in 2017 (see our previous blog posts here and here).
The report praises a “small leadership group” of high-scoring companies, but gives low scores to a surprisingly large number of those ranked. The average score across the ranking is only 27%, with nearly two-thirds of companies scoring lower than 30%. Introducing the report, Steve Waygood of Aviva Investors said: “[t]he overall picture is deeply concerning” and that the report “should provide food for thought for governments considering the role of legislation in business and human rights and should also serve as a wake-up call for businesses and investors everywhere.”
Detailed observations made in the report include:
- Human rights due diligence is a weak area of performance, with 40% of companies scoring no points at all on relevant metrics.
- Few companies have sufficiently strong commitments to pay living wages to workers within their operations and their supply chains.
- Most companies (more than 90%) do not have public policies to protect human rights defenders.
- More than half of apparel and agricultural companies do not meet the CHRB’s expectations regarding efforts to prevent child labour in their supply chains.
- Across the three sectors, many serious allegations of human rights issues made in the relevant period were not publicly responded to, and less than half of such allegations resulted in meaningful engagement with the affected party regarding remedy.
A developing approach
The report notes that the CHRB methodology was revised following extensive stakeholder feedback after publication of the results of its 2017 pilot. The 2018 report presents the first set of results under the new analytical framework, which the CHRB has published alongside the main report.
This year’s report is unlikely to meet all the concerns some hold about the CHRB’s approach. Aside from the difficulties inherent in trying to compare companies in different types of industry and operating contexts – and facing different forms of human rights risk – the CHRB method is heavily reliant on publicly available information, supplemented by additional company input on the CHRB’s own “Disclosure Platform”. The report itself is open in noting that a low CHRB score “does not necessarily mean that bad practices are present or there is no company action on the issue. Rather, it means that the CHRB has been unable to identify sufficient information in public company documentation to meet the requirements.”
A high degree of transparency will often go hand-in-hand with good performance; but that is not necessarily the case. Questions will inevitably be asked – particularly whilst the CHRB is still in its infancy and its methodology is developing – as to whether the Benchmark over-rewards companies for publishing sustainability or human rights reports that are written to match a particular brief, and is less effective in identifying and evaluating real, on-the-ground human rights impacts (and the operational steps companies are taking to address them).
Yet, as we have previously noted in this blog, what companies state in their human rights reporting has increasing legal resonance. Transparency is key but overstatement in reporting, without a firm evidence base and robust policy implementation to back it up, can become a problem for companies – including engendering litigation and reputational risk.
The CHRB therefore puts the companies subject to its rankings in something of a difficult position. If they are concerned about a low CHRB score, they may wish to develop further human rights policies (or at least publish more detail on their existing measures) in a way that is aligned with the CHRB’s methodology, in order to move up the rankings. Yet they must do so in a way that is cognisant of these wider concerns, and ensures that whatever is said would withstand wider external scrutiny (possibly even in a courtroom, should a human rights issue later come to light).
A tool for investors
The CHRB is not the only organisation conducting comparative analysis of corporate human rights performance; we have discussed the other benchmarks that have sprung up in the wake of the introduction of the UN Guiding Principles in a previous blog post. However, the CHRB is notable for its close links to several major investors that have very publicly endorsed it.
Indeed, the investors named at the beginning of this piece – Aviva, APG, Nordea and Calvert – have all confirmed that they will use the CHRB in their investment decisions. Of course, it remains to be seen exactly how much of a role the CHRB will play and how many others will follow their lead. But with ESG (Environmental, Social and Governance) indicators becoming a core element in many mainstream investors’ decisions, the CHRB may become an increasingly important reference point.