By Jonathan Isted and Emily Holland
The 2018 Corporate Human Rights Benchmark (CHRB) – a private sector-led initiative that aims to furnish a comparative, annual snapshot of large, listed companies’ performance on human rights – is underway. Yesterday, the CHRB released a report offering observations on the 2017 pilot and the revised methodology, as well as detailed case studies and perspectives from companies, investors and other stakeholders, including Freshfields. Here are five key takeaways.
Corporate uptake is evident but uneven
While some benchmarked companies are focusing increased attention on issues relating to human rights performance (primarily at the corporate level) and reporting changes, a number of benchmarked companies have yet to engage with the CHRB or respond to a letter from an investor coalition representing $5 trillion in assets that has endorsed the Benchmark. For companies that are participating, increasing business transparency on human rights issues and improving the quality of external reporting are top of mind; securing leadership from the top and implementing policy and process changes continue to prove challenging.
Investor interest is growing but use is limited
Encouraging investors to consider the social cost of investing has long been a CHRB goal. While some investors are using the CHRB rankings and underlying research in their ESG analyses and engagements with portfolio companies, including at the board level, the limited dataset available – both in terms of the number of companies and sectors being assessed, and also the fact that results are of relatively recent vintage – restricts the CHRB’s integration across the investment process. The Benchmark is cooperating with ratings agencies to improve the quality of existing, paid-for human rights indicators in products used for fund management and capital allocation purposes.
Broader impacts still being realized
Although it is early days, evidence suggests that the Benchmark’s impact – predicted to be significant – is growing. The CHRB has been used to develop at least one regional benchmark. Some companies not included in the Benchmark due to size, sector, private ownership structure or otherwise have nonetheless employed the tool to assess their probable performance against indicators and themes. Most significantly, the UK government’s report to the Joint Committee on Human Rights last December concerning the revision of the UK National Action Plan (NAP) endorses the CHRB as a useful tool in identifying businesses that are taking human rights due diligence seriously. It cites the CHRB as one of the sources it will employ – a list that includes the UN Guiding Principles Reporting Framework and other countries’ NAPs – to inform the next iteration of the UK NAP in 2020.
Overall approach remains the same, but key changes to benchmarking methodology introduced
Acknowledging the limitations involved in staying the course, the CHRB will continue to use only publicly available material, emphasizing the need for transparency in companies’ treatment of human rights issues. It will focus on companies’ human rights governance, policies, processes, systems, practices across key industry risks, responses to serious, human rights-related allegations and overall transparency, as opposed to on-the-ground performance. It will assess the same 98 companies from the agricultural, apparel and extractives sectors as last year, adding a few agricultural products companies to bring the total to 100. However, certain important changes have been introduced. Pursuant to the revised methodology launched in December following a consultation process, and described in a detailed explanatory note published alongside the revised methodology, the key changes are as follows: (i) companies can now achieve half points in cases of multi-criteria indicators, enabling a more nuanced appraisal, and scoring tables have been provided to furnish additional clarity; (ii) companies where no serious allegations of severe human rights impacts have been identified will no longer receive an automatic 20-point boost, but rather a score that is the average of their score on other measurement themes, following feedback that prior scoring had failed to reflect the various, complex political and cultural dynamics in play in corporate operating contexts; and lastly (iii) the factors on which corporate transparency will be assessed have been reduced and simplified (companies will now be judged on their willingness to disclose information, their use of existing leading reporting frameworks including the UNGP Reporting Framework or the Global Reporting Initiative, and the quality of their disclosures). Funds permitting, the CHRB will finally develop sector-specific methodology to assess the Information and Communications Technology (ICT) industry in 2019.
Risks reframed as valuable ahead of 2018 rankings
The Benchmark is attentive to the fact that companies seeking to improve their scores in this year’s rankings may increase disclosure of information with respect to existing systems without changing their systems, and/or engage in a “race to the middle” as opposed to introducing best practices. The Benchmark sees value in these more limited changes, however: introducing information into the public sphere helps to level the playing field, which is a central premise of the Benchmark, and the vast majority companies have such a long way to go (according to the Benchmark) that even modest gains are welcome and worthwhile. The report finally notes that attempts to “game the system” by increasing points on easy wins will be identified and addressed.
As a reminder to companies being benchmarked, the research and initial scoring phase lasts from now until early July. The full timeline of the 2018 assessment can be found on page 61 of the report, and Freshfields’ submission at page 47. For our previous post on how top companies are being assessed on human rights, see here.