The U.K. Equality and Human Rights Commission, a statutory body, again made the business case for respect for human rights in May this year: “Businesses can find themselves involved in lawsuits, suffering reputational harm and missing out on business opportunities and investments as well as the chance of recruiting the best new employees.” To help businesses understand their impact, the Commission has produced two publications aimed at helping business and boards in particular understand their human rights obligations. The latest is a guide for boards of U.K. companies. It sets out five steps boards should follow to satisfy themselves that their companies “identify, mitigate, and report on the human rights impacts of their activities.”
The guide also advises boards on meeting the UN Guiding Principles on Business and Human Rights, the global standard, which outline the role of business and governments in respecting human rights. The Guiding Principles, the Commission stresses, “do not create any new international legal obligations on companies, but they can help boards to operate with respect for human rights and meet their legal responsibilities set out in domestic laws.” A year ago, the Commission also published a more general guide for businesses as a whole to understand their human rights impacts.
At the same time as raising the issue of human rights in countries where child labour and unsafe working conditions are commonplace, the Commission notes that businesses can affect people’s human rights at home. For example, companies with an online presence must respect people’s right to privacy and uphold data protection laws. In addition, they have an obligation to ensure safe working conditions for their staff.
U.K. HUMAN RIGHTS REPORTING REQUIREMENTS
Below the Office of the United Nations High Commissioner for Human Rights outlines new reporting requirements.
The UN Guiding Principles on Business and Human Rights set the expectation that companies should identify and address human rights risks, and track and communicate how effectively they do so. This global standard is reflected in various areas of U.K. Government policy and law. The U.K. Government’s 2013 National Action Plan on business and human rights states that companies should respect human rights wherever they operate. Recent amendments to EU and domestic law now place duties on companies related to disclosure about how they manage their human rights impacts.
The Companies Act 2006 requires that U.K.-listed companies include non-financial information in a strategic report to ‘the extent necessary for an understanding of the development, performance or position of [the company’s] business’.1 The Act will be revised in 2016 to incorporate provisions of the EU Non-Financial Reporting Directive of 2014.
The EU Non-Financial Reporting Directive 2014 applies to large public interest companies (including listed companies, banks and insurance companies) with over 500 employees. It requires the disclosure of information relating to human rights (among other issues) ‘to the extent necessary for an understanding of the undertaking’s development, performance, position and impact of its activity’.2 Such disclosure should include the company’s policy and its outcomes, due diligence processes, principal risks, and (where relevant and proportionate) its business relationships, products or services that are likely to cause adverse impacts, along with information about how those risks are managed.
The Modern Slavery Act 2015 requires boards to approve and publish an annual slavery and human trafficking statement on their website where the business has a turnover of £36 million or more and carries out any operations in the United Kingdom. The statement may include information about:
the organisation’s structure, business and supply chains
policies in relation to slavery and human trafficking
due diligence processes in relation to slavery and human trafficking in its business and supply chains
the parts of its business and supply chains where there is a risk of slavery and human trafficking taking place, and the steps it has taken to assess and manage that risk
its effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chains, measured against such performance indicators as it considers appropriate, and
training about slavery and human trafficking available to its staff.
The Financial Reporting Council’s non-mandatory Guidance on the Strategic Report states that a strategic report should contain ‘material’ information. It explains that ‘information is material if its omission or misrepresentation could influence the economic decisions shareholders take on the basis of the annual report as whole’.
The Financial Reporting Council’s U.K. Corporate Governance Code states that the board should confirm in the annual report that it has carried out a robust assessment of the principal risks facing the company, including those that would threaten its business model, future performance, solvency or liquidity.
Source: Office of the United Nations High Commissioner for Human Rights
The five steps say that boards should be aware of the company’s salient, or most severe, human rights risks, and ensure the company:
embeds the responsibility to respect human rights into its culture, knowledge and practices
identifies and understands its salient, or most severe, risks to human rights
systematically addresses its salient, or most severe, risks to human rights and provides for remedy when needed
engages with stakeholders to inform its approach to addressing human rights risks, and
reports on its salient, or most severe, human rights risks and meets regulatory reporting requirements
Each of these five steps is then broken down and amplified with further advice and steps. Point two, for example, delineates the kinds of risk of human rights abuse, including: business model risks associated with bringing cheap products to market with narrow profit margins for suppliers; business relationship risks where a joint venture might expose a company to a partner with a poor record on human rights; operating context risks as in doing business in countries with poor human rights conditions; workforce risks that might include using poorly protected contract or migrant workers; and public policy risks where a company may lobby against laws and regulations that are aimed at protecting human rights.
Companies can also have a significant effect on enforcing human rights through their commercial practices, for example by making them part of contracts or business agreements. They can also work with national and local governments, as well as non-governmental organisations, to encourage law and practices that protect human rights. Boards should ensure, notes the guide, that there are processes in place so that the company can receive and address complaints about human rights. These processes must be accessible to those whose human rights may be affected by the company’s activities.
Companies can report on human rights issues in an annual report, a sustainability report or in a stand-alone document. Excerpts in the box give the current U.K. reporting requirements reproduced in the guide.
According to a short video on the Commission’s website, the UN Guiding Principles on Business and Human Rights (UNGPs) call upon businesses to:
make a public commitment to human rights
identify and address their impacts across their business including their supply chains
put things right and provide a remedy when things go wrong
The site goes on to explain human rights due diligence as “the process through which a company understands when, where and how it could have impacts on human rights, and prioritises these impacts for action. It identifies appropriate measures to mitigate risks, tracks the effectiveness of its efforts, and tells people about their progress.”
In addition, the U.K. government has published a National Action Plan for implementing the UN Guiding Principles, which sets out its expectation for U.K. companies to respect human rights.