By Tim Bovy and Ian Hodges
A criticism of Environmental, Social, and Governance (ESG) over the years has been that it is so broad as to be meaningless. We would argue that, on the contrary, it needs its breadth to capture the interlinking qualities of ESG, which is more like a Venn diagram than a set of neatly contained boxes. Human rights provide a good example. Although, as the UN’s Principles for Responsible Investing points out, human rights “are the foundation of the ‘social’ pillar within the term ‘ESG’”, they also pertain to the environmental issue of climate change, since climate change has a “significant impact on human rights.” Chatham House has observed, “It is now widely accepted that the climate crisis is also a human rights crisis, perhaps the most consequential of all time.” The Global Reporting Initiative (GRI) also takes a broad view: “Human rights impacts are hugely important as they form the basis for wider reporting across the entire ESG spectrum.”This pervasiveness of human rights requires a thorough analysis in defining ESG strategy and in developing a comprehensive learning programme.
In preparation, some questions an organisation might ask itself include: How robust are the organisation’s due diligence processes necessary to detect human rights abuses in the company’s own workforce, in its value chain, both upstream and downstream, and in the communities in which it operates? How comprehensive are its policies and procedures for applying the UN’s Ruggie principles to protect and respect human rights and to provide a remedy when abuses are uncovered? How well trained are employees in understanding the core elements of human rights within the ESG framework?
In defining and communicating strategy, human rights presents a particular challenge to businesses because it is a more abstract concept that requires a clear definition in order to manage its risks, opportunities, and impacts. Both the European Union and GRI have helped in this regard by incorporating the UN’s Guiding Principles on Business and Human Rights (UNGP) and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct into their ESG reporting frameworks. A starting point for organisations should be mastering their content, both for formulating strategy and for preparing robust human rights due diligence guidelines. The UN’s document itself says: “These Guiding Principles should be understood as a coherent whole and should be read, individually and collectively, in terms of their objective of enhancing standards and practices with regard to business and human rights so as to achieve tangible results for affected individuals and communities, and thereby also contributing to a socially sustainable globalization.”
The UNGP, in turn, incorporates the International Bill of Human Rights and the principles concerning fundamental rights set out in the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work. So, these too should be thoroughly understood in analysing the many ways that human rights affects strategy. As GRI has noted, the UNGP “have become an authoritative global reference point. As a result, companies now have a better understanding of their responsibilities, which they can consequently incorporate into reporting.” For GRI, the reporting is voluntary. For the EU’s Corporate Sustainability Reporting Directive it is mandatory, meaning that the 1,183 UK companies to which the European Sustainability Reporting Standards apply must file reports in 2025 for their 2024 financial year.
Effective reporting, of course, requires a knowledgeable workforce, which is responsible for contributing reliable non-financial information to the reporting process. To achieve this necessitates developing a company-wide learning programme based upon the documents noted above, as well as upon the organisation’s unique ESG human rights obligations, defined through its own internal human rights due diligence exercise. The programme would also need to be monitored to stay up to date with changes in human rights laws and regulations, as an integral part of the organisation’s continuous improvement policy.
All of this requires a commitment to accurate, comprehensive and transparent reporting that will inevitably add costs to business, particularly in the early stages of constructing robust reporting frameworks. There is no doubt that many enterprises are concerned by rising costs. Richard Sterneberg, head of global government relations at DLA Piper, has been quoted as saying compliance costs are high and that legislation is having an impact on investment flows into Europe.
However, as with the General Data Protection Regulation (GDPR), both the exterritoriality of the new EU regulations and the likelihood of them influencing similar legislation across the world cannot be ignored. This has recently been described by Financial Times columnist Gillian Tett as “an oft-ignored point about our 21st-century world: as big companies increasingly straddle borders, globalisation is not always synonymous with a ‘race to the bottom’ and a loosening of rules.” Instead it can often be and, in the case of ESG-regulation, has become “a ‘squeeze to the top’. As reforms are unleashed in one jurisdiction, they are spreading to other regions in surprising ways”, she writes. The United States Congress has recently identified breaches of the 2021 Uyghur Forced Labour Prevention Act from car makers BMW, Jaguar Land Rover and Volkswagen. Costly errors that may point to weaknesses in internal reporting.
These developments allied with increased public concern over the slow and faltering steps made so far in addressing climate change and its impact on societies globally should make reluctant companies think again. There are significant commercial advantages to compliance with the potential to offset many of the costs. Companies can demonstrate their commitment to good practice both in highlighting examples of it and in demonstrating progress towards it in areas of weakness. They could also divest of suppliers not meeting appropriate human rights conditions if they have the reporting in place to demonstrate breaches of either contractual or legal obligations. And, through these and similar actions, they can strengthen their brand.
Climate change and human rights are inextricably linked. It is impossible to control the former without incorporating the latter into an organisation’s ESG strategy and learning. Being cynical about the relevance of ESG risks commercial sustainability. To return to Gillian Tett’s observation above, reforms unleashed in one jurisdiction are spreading to other regions in surprising ways. Think of this process as a vast body of water, which is continuously adding tributaries until it covers the entire globe, resulting in remedies to human rights abuses whose outcomes steadily erode the impact of climate change. An organisation can either tap into this process, making meaningful contributions to it and benefiting from it commercially, or it can remain on the outside, looking in from the wrong side of history.
About the Authors
Tim Bovy has over 35 years of experience in designing and implementing various types of information and risk management systems for major law firms such as Clifford Chance; and for international accountancy firms such as Deloitte. He has also developed solutions for organisations such as BT, Imperial Tobacco, Rio Tinto, the Kuwaiti government, The Royal Household, and the US House of Representatives. Tim is an elected member of The Royal Institute of International Affairs, Chatham House, an Independent Think Tank based in Central London, and holds a BA degree, magna cum laude, from the University of Notre Dame, and MA and C.Phil degrees from the University of California, Davis.
Ian Hodges has worked in a variety of information management roles over a twenty-year career. He has designed and implemented records and information management systems at a national scale, developing parts of the digital archive at The National Archives (UK). At a corporate level he’s undertaken information management projects with The Royal Household and Her Majesty’s Treasury. Ian also has information rights expertise developing policies and procedures for Freedom of Information and Data Protection compliance and working as a Data Protection Officer. In addition to CISM, CIPP/E and CIPM certifications, Ian holds a BA degree from the University of Southern Queensland, a postgraduate diploma from Deakin University, Melbourne and an MA from Birkbeck, University of London.
