Business and Human Rights: Identifying the Most Effective Compliance Assessment Tool
Business and Human Rights: Identifying the Most Effective Compliance Assessment Tool

Business and Human Rights: Identifying the Most Effective Compliance Assessment Tool

March 2020

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Due to the globalized nature of our society, multi-national corporations have become powerful actors in socio-politics. The question of how to protect the well-being of those employed by these corporations remains pressing. As it stands, child labour is a stark reality, poor working conditions prevail, and cheap labour is constantly exploited in the periphery. Through it all, one thing remains clear, the concepts surrounding ‘business and human rights’ require significantly more attention.

The UN Guiding Principles

Bearing this in mind, the United Nations Human Rights Council endorsed the UN Guiding Principles on Business and Human Rights (Guiding Principles) in June 2011. The Guiding Principles aim to mitigate some of the negative impacts that may arise, while clarifying the role of different actors in ensuring human rights protection in business operations. In this regard, the Guiding Principles outline: the state duty to protect human rights, corporate responsibility to respect human rights, and access to remedy for victims.

Since their development, the Guiding Principles have gained recognition as the major guideline for business and human rights. In fact, the Guiding Principles have been applied by numerous organizations and institutions across the globe.


Presenting the Assessment Methods

While the Guiding Principles provide a great foundation for business, they need to be accompanied by assessment methods that indicate whether corporations are actually adhering to human rights compliance. Within this context, the assessment methods refer to human rights reporting and human rights audit/certification.

The former refers to a process whereby corporations publish human rights reports that outline the measures they are taking to mitigate negative human rights impacts. The latter, on the other hand, involves a process whereby an auditor visits the business enterprise (and its supply chain) to ensure that the operations in place are reflective of adhering to specific human rights standards; in such cases, certification is issued to businesses that are found to be in compliance.

The UNGP reporting framework is one of the more widely used reporting standards. It is important to note that the UNGP reporting framework was developed in 2015 to aid businesses in their human rights reporting. To this end, the reporting framework includes a list of questions that businesses should strive to answer in their human rights reports. The questions in the reporting framework fall under the following categories: governance of respect for human rights, defining the focus of reporting, and management of salient human rights issues. The framework also includes implementation guidelines, which help companies identify whether they have answered questions adequately, as well as assurance guidelines, which seek to help internal and external assurers validate the data produced in reports.

From the audit aspect, the Business and Human Rights International Standard for Certification (BHRISC 2011) stands out as one of the world’s first auditable standards for certification of human rights compliance by business entities. Based on the Guiding Principles and other major human rights laws, BHRISC 2011 contains a wide range of indictors for auditors to use to ascertain human rights compliance. The criteria set out in BHRISC 2011 address the following areas of compliance: human rights management system, impacts on business enterprise and supply chain’s workers, impacts on local communities and the general public, impacts related to products and services, and impacts related to security .

It should be noted that the UNGP reporting framework as well as BHRISC 2011 are highly respected as methods for business and human rights compliance assessments. The UNGP reporting framework, for instance, has been referenced and recommended in policy documents drafted by various governments. Meanwhile, BHRISC 2011 was the basis upon which Indonesia’s Ministry of Marine Affairs and Fisheries developed a human rights system and certification process for fisheries. Furthermore, BHRISC 2011 is being accredited by an European accreditation body, and was acknowledged by the UN Working Group on Business and Human Rights during its 15th session in Geneva.


The Advantages of Reporting      

The success of these assessment methods is no surprise when one considers the various positives that each provides.

The UNGP reporting framework, for example, is advantageous in that it provides a set of universal guidelines that companies should follow. This helps mitigate cultural nuances that may make human rights breaches common in different cultural contexts; this is more so the case for businesses with supply chains in different regions. Moreover, reporting increases top-down corporate awareness of human rights standards and inspires internal, self-led change. Reporting may also be helpful in promoting sustainable change as frequent self-assessment may highlight new areas of weakness.


The Advantages of Certification

Certification has its own merits, of course. Among these is the fact that certification measures implementation of specific human rights standards. Furthermore, obtaining a human rights certificate may increase confidence in the business enterprise itself. Results from certification audits are also more likely to be objective as they are undertaken by approved third party auditors. In addition, companies undergoing the audit process are forced to be in compliance with relevant human rights standards in order to receive their certification. Other benefits of certification include: reduced operational disruptions in the long term, consistency (which is useful for making comparisons and measuring progress) and investigation of the internal system of control. Meanwhile, certification standards such as BHRISC 2011 provide universal, standardized guidelines, which may in themselves be useful in mitigating aspects such as cultural nuance, poor auditor skills and corruption. Finally, certification guidelines such as BHRISC 2011 are flexible in application, for instance, the guidelines highlighted in BHRISC 2011 have been used to provide a comparative analysis of business and human rights practices of listed companies in Indonesia.

Thus human rights reporting and certification are both reasonable options for businesses that wish to demonstrate their commitment to human rights. For corporations, the debate is usually centred on which assessment method to opt for. While combining both methods is a possibility, this would be a costly, time-consuming option that many enterprises are unwilling to pursue.

In an effort to select the better option for their needs, corporations must explore the drawbacks that accompany each assessment method.


Reporting: The Disadvantages

With reporting, disadvantages may include underreporting or omission, this being mainly due to the fact that companies tend to generate internal reports; as such, the element of objectivity is at risk. All in all, underreporting and omission may lead to litigation once consumers and clients realize that information regarding certain risks was withheld from them. Additionally, reporting only reveals the human rights measures are in place but does not always reveal the quality or level of implementation of these measures. In addition, collecting data and ensuring its validity may prove to be a difficult task where a large supply chain is involved.

Another demerit is that the list of questions outlined in the reporting framework may yield a tick-box approach; due to this, companies may lack the incentive to answer questions that are not outlined in the reporting framework. Moreover, frequent reporting can be time-consuming and expensive, resulting in a focus on the most severe human rights risks (while neglecting the others). As far as assurance is concerned, reports are often at the mercy of the assurer’s skill set and integrity. Assurance, whether limited or reasonable in nature, may also provide a unique set of challenges. Included among these are difficulty in reducing engagement risk (reasonable assurance) and difficulty reducing the amount of material misstatements in the report (limited assurance).

These drawbacks have since weakened support for reporting as a compliance assessment tool. In fact, some of the parties involved in the initial development stage of the UNGP reporting framework have since backed certification as a stronger alternative. These include the parties that went on to develop BHRISC 2011.


Certification: The Disadvantages

Nevertheless, certification is not without its own weaknesses. These include: dependence on auditor’s skills and character, disclosure burdens on auditors, as well as the threat of potential litigation. Additional drawbacks include: researcher bias, cultural nuance and poor disclosure from the supply chain (the latter can negatively impact audit results). The certification process may also be costly and time consuming, especially in cases where follow-up is required before obtaining certification. Moreover, audits rarely explore root causes of breaches, which is unhelpful in improving the overall human rights climate of an establishment.

It is important to note, however, that some of these previously noted disadvantages can be mitigated. For instance, combining reporting and auditing with existing processes that the company already undergoes may help improve time and cost efficiency. More specifically, releasing human rights reports alongside sustainability reports, or undertaking financial audits at the same time as human rights compliance audits may drive efficiency.


The Synthesis

All in all, when these assessment methods are presented in such a holistic fashion, it is clear that there is no iron clad mechanism for measuring human rights compliance within business entities. As such, businesses must opt for the method that promotes objectivity, increases efficiency and ensures implementation. In this regard, semi-regular certification, when undertaken alongside existing audit processes and accompanied by universal, standardized guidelines such as BHRISC 2011 may prove to be the most effective assessment method for measuring human rights compliance within businesses.