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Blog | Monday June 3, 2019

Time’s Up: Women Should Be Front and Center of Corporate Human Rights Due Diligence

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Women are disproportionately vulnerable to negative human rights impacts. Our experience in conducting human rights due diligence and engaging with workers in factories, farms, and communities in a variety of regions has highlighted numerous examples of the ways in which women’s rights are violated. From harassment online in the technology industry to the undermining of reproductive rights, lack of representation and equal pay across supply chains, we’ve found women to be especially vulnerable to human rights violations and struggling to access adequate redress for the issues they face.  

Despite these heightened risks to women across industries and regions, there is no systematic or holistic approach for companies to assess, mitigate, and remedy risk to women, highlighting a major gap that requires the collaboration of many different types of stakeholders. The United Nations Guiding Principles on Business and Human Rights (“the Guiding Principles”) make a few passing references to how women and other vulnerable groups may have heightened exposure to human rights impacts. For instance, under the opening General Principles section, the Guiding Principles state:

These Guiding Principles should be implemented in a non-discriminatory manner, with particular attention to the rights and needs of, as well as the challenges faced by, individuals from groups or populations that may be at heightened risk of becoming vulnerable or marginalized, and with due regard to the different risks that may be faced by women and men.

However, they do not go into significant detail on how to account for or integrate such differences into a due diligence program, suggesting that more detailed guidance on how to develop a gender-responsive human rights due diligence process is needed—one that can identify impacts not just for women but also other vulnerable populations, such as LGBTI communities, children, and more. 

The report Gender Dimensions of the Guiding Principles on Business and Human Rights, which will be presented to the Human Rights Council on June 26, addresses this gap with one primary objective: putting an end to gender-blind human rights due diligence and access to remedy. It provides guidance to governments and companies on how to put a deliberate focus on women when implementing the Guiding Principles by using a gender framework that posits that gender should be a cross-cutting issue at all stages of due diligence and access to remedy, from gender-sensitive assessments to the implementation of gender-transformative measures and remedies.

Following years of conducting human rights impact assessments (HRIAs) across industries and regions since the publication of the Guiding Principles and identifying the need for a more deliberate focus on gendered issues, BSR welcomes this timely and important guidance.

We look forward to working with our member companies to incorporate these recommendations into our human rights due diligence and access to remedy methodologies by combining the expertise of BSR’s Human Rights and Women’s Empowerment practices. We believe that key changes need to be made to the human rights due diligence and access to remedy processes across the entire field of human rights and business practitioners—such as improving gender awareness at the HQ level of companies, revising impact assessment tools and guidance, and enhancing the capability of all those undertaking human rights due diligence to address gender-specific impacts. This is a reform agenda to which we are absolutely committed.

Key changes need to be made to the human rights due diligence and access to remedy processes across the entire field of human rights and business practitioners.

Here, we highlight four main areas of the report that we consider critical:

• Improving our understanding of gender and human rights by fully considering the intersectional nature of discrimination when conducting gender-sensitive assessments, thereby identifying overlapping vulnerabilities and paying attention to the fact that different groups of women may be impacted differently by corporate activities depending on variables related to societal discrimination, practical discrimination, or hidden discrimination due to stigmas around talking about sexual abuse or violence. This improved understanding also means working towards “substantive gender equality” (providing varying levels of support for different groups to achieve greater fairness of outcomes) instead of formal equality (providing the same levels of support for all groups) and understanding how to shape remediation along these lines.
• Integrating respect for women’s rights across a company’s operations and value chain by committing to gender equality and establishing a related policy that is fully integrated within the various functions of a company, adequately resourcing such commitments, and establishing clear accountability lines. This may include certain changes like requiring and incentivizing suppliers to uphold gender-sensitive standards or building the capacity of specific key internal functions to better understand and monitor specific issues related to gender equality within a company’s own operations and value chain.

Companies need to establish adequate due diligence processes to uncover, prevent, and remediate the adverse existing and potential impacts of new technologies and economy models that are relevant to the “future of work.”

• Enhancing the due diligence process by engaging and consulting with women and women’s organizations as well as gender experts throughout the process to ensure that both short-term, practical needs as well as strategic interests of women are addressed. It also requires companies to focus on severe impacts such as the prevention, mitigation, and remediation of sexual harassment and gender-based violence. The report puts the onus on companies to ensure that remedies offered, especially in the context of sexual and gender violence, are sensitive to “women’s experiences and expectations and never exclude access to judicial or non-judicial mechanisms.” It also flags the importance of establishing trust in operational level grievance mechanisms and making sure these are gender-balanced in their composition.
• Addressing systemic issues, such as the lack of gender-disaggregated data to assess the effectiveness and progress of companies’ interventions, and designing more effective, evidence-based measures and remedies that work for women. Putting a dent in systemic issues also requires companies to find ways to overcome discriminatory laws where they exist and to abide by international standards whilst advocating governments to change discriminatory legal frameworks. Thereby, the report recognizes the role of companies in influencing the legal landscape and broader cultural norms which are so often the hardest obstacles to overcome.

More generally, the report acknowledges the need for companies to establish adequate due diligence processes to uncover, prevent, and remediate the adverse existing and potential impacts of new technologies and economy models that are relevant to the “future of work” and calls for more sector specific guidance to support companies. Responding to this need, BSR is convening a private sector pre-conference event at Women Deliver 2019 to launch a new report this month, which explores how automation and the flourishing of artificial intelligence may help or hinder progress toward gender equality in the workplace. It also offers recommendations to companies on how to respond to these significant new disruptive trends so that future labor market dynamics do not negatively impact women and instead empower them to realize their full potential.

This report reinforces BSR’s position that places gender equality at the heart of its initiatives, programs, and tools: through our collaborative platform, Business Action for Women, and our guidance on how to mainstream gender equality considerations within corporate strategies, supplier codes of conduct and social auditing, we have been advocating for businesses to put a deliberate focus on women across their entire value chain. In October, we will be launching the Gender Data and Impact Framework, a set of KPIs that will support companies and their suppliers in conducting adequate gender responsive due diligence focused on evaluating the true impact of business operations on women workers in supply chains.  

We look forward to sharing more insights on this crucial topic with our members during our Human Rights Working Group meetings.

Blog | Monday May 27, 2019

Exploring Employee Activism: Why This Stakeholder Group Can No Longer Be Ignored

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Over the past few years, household-name companies have experienced employee petitions, strikes, and walkouts over a range of issues, including strategic investments and partnerships, sexual harassment, immigration, and pay and benefits for contract workers.

For companies accustomed to thinking about stakeholder engagement as an external-facing exercise, the strength and speed of staff unrest has come as a stunning development. In April, BSR updated its popular 2011 report, “Five-Step Approach to Stakeholder Engagement,” to reflect developments in the sustainability and human rights fields over the past eight years. One of the most significant trends that BSR is tracking is the emergence of employees as a newly empowered and vocal stakeholder group with an unprecedented ability to impact a company’s strategy and reputation.

Much of the analysis of employee activism has viewed it exclusively as a phenomenon driven by workers in the technology sector. Technology workers are often (though not always) highly skilled, and questions of technological advancement are inherently inseparable from those of political and social identity. The utopian culture that prevails in Silicon Valley also makes corporate values a matter of profound importance to tech employees.

It would nonetheless be a big mistake for companies in other industries to overlook the potential for employee activism within their own staff. Strikes and protests have affected consumer products giants like Nike and McDonald’s, as well as companies with gig economy business models such as Uber Technologies.

Companies in all sectors need to start regarding employees as their most significant interest group.

Transparency alters the balance of power

By some measures, corporate power seems to be at an all-time high in the United States. Although the labor market is tight, the regulatory environment is becoming more permissive, recent taxation changes have been advantageous, and employee leverage seems to face long-term threats from automation and gig economy jobs. However, these tendencies have been no match for the ongoing transparency transformation.

Since WikiLeaks and the Panama Papers leak demonstrated how powerful spills of confidential information into the public domain can be, employees have embraced a whistleblowing model in which disclosing concerns to the public seems far more effective than a call to the internal ethics hotline.

Companies in all sectors need to start regarding employees as their most significant interest group.

Confidential emails are frequently making their way into the hands of investigative journalists, as are internal employee petitions. Shareholders questioning companies’ environment, social, and corporate governance (ESG) performance and pressing for improvements know that insider data can be a powerful weapon.

Non-disclosure agreements and other legal mechanisms have proved insufficient to repress these tactics, meaning that companies can no longer reliably maintain control of their reputations via public relations and marketing efforts. Companies are being compelled to behave as if any aspect of internal decision-making might become public knowledge at any time.

This is about values, not just employee self-interest

Employee engagement surveys tend to focus on pay, benefits, and working conditions. But today’s employees are focused on more than self-interest—they are speaking out on questions that relate to company values and investment decisions, and they are calling out hypocrisy when and where they see it.

With this trend accelerating as younger workers are hired, smart companies realize that motivating employees around core values can bring a powerful competitive advantage.

Jim Massey, global vice president of sustainability at AstraZeneca, told me that he sees a pressing need for greater inclusion: “The societal challenges we are facing today are unprecedented, and we need new groups of people to solve them. This means developing employee engagement from the ground up and crowdsourcing solutions to core questions about values and behavior. We can’t take a top-down approach to strategy or values anymore.”

Stakeholder networks are becoming more significant

BSR’s approach to stakeholder engagement emphasizes the need for systems thinking, which means that companies should consider how disparate stakeholder groups might influence each other, not just how they might directly impact management.

Indeed, employee activism can inspire other stakeholders to act: When more than 7,700 Amazon employees signed a petition calling for the company to adopt a more ambitious approach regarding climate change, the drive gained plenty of publicity. The petition was supported by Glass Lewis and ISS, the two biggest proxy advisors to institutional investors. Even though the resolution was voted down, employee activism is increasingly likely to generate civil society campaigns and trigger shareholder activism — companies have little choice but to respond.

Today’s employees are empowered to dissolve traditional boundaries—both physical and knowledge-based—between companies and the societies in which they operate. Management should respond with a robust, strategic approach to stakeholder engagement, placing their own employees squarely at the center of the effort.

Blog | Thursday May 23, 2019

What Do the Next 20 Years Hold for the Healthcare Industry?

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1999: the year The Matrix was released, Lance Armstrong won his first Tour de France, and the euro was introduced as a common currency.

For the pharmaceutical industry too, 1999 seems very “last century.” It was the year that Pfizer acquired Warner Lambert; the year after, Astra AB merged with Zeneca, and in the following year, GlaxoWellcome merged with SmithKline Beecham.

1999 was also the year that BSR launched its Healthcare Working Group (HCWG). Serving as a forum for companies to discuss societal issues faced by the healthcare sector, the early members included Bristol-Myers Squibb, Johnson & Johnson, GlaxoWellcome, and Pfizer, all of whom came together with a primary focus on environment, health, and safety.
 

This year, we are delighted to celebrate the twentieth anniversary of this landmark collaboration for the healthcare sector.

On our anniversary, the HCWG is taking a moment to look at what we—and the healthcare industry as a whole—have achieved. At the same time, we’re also looking to the future, as major shifts, from the climate crisis to artificial intelligence, are already reshaping the healthcare sector on a global scale. Amid these changes, we remain convinced that collaboration is vital to address the challenges and to leverage the opportunities these shifts will bring.

Over the past 20 years, the healthcare industry has made significant progress on many issues around good corporate practice and social impact. In 1999, members of the HCWG may have found it hard to imagine that the next 15 years would see the industry’s reputation shaken by corruption, a systemic and global challenge estimated to cost the industry up to six percent of its total revenues, and that this would drive the sector to evolve its approach to ethics from a rules-based culture of compliance to a culture of business integrity and values.

Another thing that they may have found surprising in 1999 would be the UN’s Guiding Principles on Business and Human Rights, which, released in 2011, articulate companies’ corporate responsibility with respect to human rights. They probably would have been even more skeptical if told that the principles would fundamentally change their own industry’s views and understanding of their responsibility in terms of human rights. 

And at the time the HCWG was founded, members may not have anticipated the full significance of the landmark court case in which several antiretroviral manufacturers sued the South African government—this legal case ultimately presaged fundamental changes and formidable progress on access to healthcare. Yet a few years later, HCWG members convened and engaged key stakeholders to shape what became BSR’s Guiding Principles on Access to Healthcare (GPAH)—a set of industry-wide principles and approaches that recognize the multifaceted aspects of access through the importance of five core areas: collaboration, research and development, availability of healthcare services, health systems resources, and human rights. The GPAH were signed by the CEOs of 13 major global healthcare companies, which helped to spur action on this critical topic.

While great progress has been made on access to healthcare, this remains an ongoing challenge and requires continued action.

Today, while great progress has been made on access to healthcare, this remains an ongoing challenge and requires continued action. However, as we look to the next 20 years, it may no longer be the most significant challenge for healthcare companies.

Climate change is a prime example: It will have major impacts on health globally and will thus affect the healthcare industry as well. Climate change will dramatically increase the already rapidly expanding occurrences of noncommunicable diseases and disorders like respiratory diseases, heart disease, depression, and mental disorders. Equally, rising temperatures will bring changes in the distribution and burden of vector-borne diseases (such as malaria, Zika, and dengue fever) and water-borne infectious disease. Meanwhile, water—a key resource for all pharmaceutical companies—will become increasingly scarce and precious.

For healthcare companies, this means thinking hard and acting quickly to build resilience to the coming global impacts of climate change on health. This might mean analyzing production capacity or investing in research and development for the kinds of new drugs that may be required, and overall leveraging their assets, products, services, and innovation to provide solutions that reduce climate-related burdens on health.

Similarly, the healthcare sector at large must tackle antimicrobial resistance (AMR). There are approximately 700,000 AMR-related deaths every year, but the challenge is growing exponentially: One estimate suggests that deaths could increase to 10 million per year by 2050 if AMR is left unaddressed. This is a global challenge that requires collective understanding and solutions. Whether or not healthcare companies have antibiotics in their portfolio or research and development, they are and will be affected by growing and uncontrolled AMR.

As tech companies move into healthcare, new competition is set to drastically disrupt the industry.

A third example is the rise of disruptive technologies, which promise both exciting solutions and challenges. As tech companies move into healthcare, new competition is set to drastically disrupt the industry. Moreover, the growth and use of artificial intelligence (AI) in treatment plans, connected health, and patient monitoring may positively influence standards of healthcare. However, when AI is deployed in healthcare, risks arise in the areas of privacy, informed consent, or even discrimination.

These examples have something in common: They spread across the healthcare sector. They are not isolated topics for individual companies, and they cannot possibly be solved by any one company alone.

The HCWG exists as a forum of experts and peers, working together to share the challenges of today, anticipate the trends of tomorrow, discuss best practices, and co-create solutions. We’re proud to count many of the largest pharmaceutical and healthcare companies as our members: They bring unparalleled knowledge, reach, and influence to address the major trends that impact the world.

Working with our members, the HCWG recently developed a new strategy that sets out its vision to improve health globally through a sustainable and resilient healthcare sector—for the next twenty years and beyond. If you would like to be a part of this, benefit from working with your peers, and continue to be at the forefront on collective action, please reach out to us.

Blog | Monday May 20, 2019

A Five-Step Approach to Engaging Investors on Sustainability

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This article is the second in a four-part series of essays about stakeholder engagement. You can find the first article here.

I started my career in sustainability as an environmental, social, and governance (ESG) analyst in 2005. Witnessing the mainstreaming of ESG investing in the past two years has been truly exciting. Today, I help companies integrate sustainability across their business, and it has never been more critical for companies to effectively engage their investors on ESG issues.

In the United States, ESG investing has entered a new era. The infamous annual letters of BlackRock CEO Larry Fink and majority votes for climate-change-related shareholder resolutions at ExxonMobil and Occidental Petroleum are already strong signals that investors care about sustainable and long-term growth. Beyond this anecdotal evidence, ESG investing in the United States now represents a quarter of assets under management, compared to less than 18 percent in 2014, just five years ago. Between 2016 and 2018, ESG investing grew by 38 percent. According to a survey of 141 asset managers from the US SIF: Forum for Sustainable and Responsible Investment, client demand is cited as the leading motivation for incorporating ESG criteria into investment decisions.

In Europe, this trend is not new. There, ESG investing has represented about half of assets under management since 2014. But times are no less exciting. Last year, the European Union announced an ambitious sustainable finance action plan. It is now building a taxonomy to define what constitutes sustainable investing, creating EU labels for green financial products and enhancing corporate reporting requirements.

In this context, companies that are not engaging investors on sustainability are missing an opportunity to attract and retain investors focused on long-term value and ESG.

It has never been more critical for companies to effectively engage their investors on ESG issues.

From the point of view of companies, engaging investors on sustainability can seem daunting and confusing. Companies are facing a growing number of requests for information from investors and ESG rating agencies. As with any stakeholder group, investors are not a homogeneous group, and they present a diverse set of objectives, investment time horizons, and expectations. One of the most common questions I hear from BSR members is which ESG questionnaire they should be answering.

Recently, BSR published an update of one of its most popular reports, Five-Step Approach to Stakeholder Engagement, which provides practical guidance on defining and implementing a stakeholder engagement plan. There is huge value to applying a structured approach to engaging your investors. Here’s how you can apply our five-step approach to this particular stakeholder group:

Step One: Build Your Engagement Strategy

In step one, set a vision and level of ambition for engaging your investors. Review lessons learned from previous engagements with investors and build out the business case for engaging investors. You will also need to set up a team of champions internally made up of both investor relations and sustainability teams. There are a number of ways in which sustainability and investor relations teams can work together to proactively engage investors on sustainability.

Step Two: Map Your Stakeholders

In step two, identify and prioritize stakeholders and select engagement mechanisms. The team of champions builds a long list of asset owners, asset managers, ESG rating agencies, sell-side research, etc. The team analyzes and ranks the investors across three criteria: (1) the influence of the investor, (2) the credibility of the investor, and (3) the level of resources needed to engage the investor. Put these stakeholders on a 2x2 matrix. The stakeholder map will allow you to select an engagement mechanism (such as monitor, message, advocate, or consult) tailored to the specificity of that investor.

Steps Three and Four: Prepare and Engage

You are now ready to select the engagement format tailored to each stakeholder. Engagement formats will range from sending ESG reporting annually, to distributing invitations to investor days or ESG road shows, to engaging in direct dialogues.

Step Five: Create an Action Plan

Your work does not stop here since you still need to translate the findings and insights you’ve received from your investors and feed them back to your organization. For example, you will want to tell your marketing teams if your investors want to know about your customer satisfaction rates.  

This is a bite-size summary, but our report provides much more depth and nuance. Applying this approach will help companies focus their time on the investors that matter the most—which drives mutual benefit and value. 

Blog | Thursday May 16, 2019

How to Drive Value through Supply Chain Sustainability

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No matter the industry, managing sustainability in supply chains continues to increase in importance. The majority of companies’ risks and opportunities are often in their supply chains, and companies with supply chain sustainability programs have a leg up against competitors to mitigate risk, find cost savings through resource efficiency, drive innovation through supplier collaboration, and access finance and improve working capital. To take just one example of the link between supply chain sustainability and business risk, the WHO, ILO and UNDP have found that productivity losses related to heat-related workplace disruption and injury could rise above US$2 trillion by 2030.  

As supply chain sustainability—also known as responsible sourcing, sustainable sourcing, responsible supply, or sustainable procurement—continues to evolve, companies must also stay abreast of the trends regarding best practice in order to build or maintain a competitive edge. At BSR, we have seen the shift from a compliance-based approach which started in the 1990s, to going beyond monitoring in the 2000s, and into supply chain transformation today. These trends align with overall management trends in the evolution of procurement and supply chain management, and companies need to navigate how to evolve with the times. 

Evolution of Supply Chain Management and Supply Chain Sustainability

In order to help companies either start their journey in implementing supply chain sustainability or improve their existing programs, BSR developed the Supply Chain Leadership Ladder in 2017. The Leadership Ladder is a maturity model for companies to evaluate and evolve their approach to supply chain sustainability. Today, we are pleased to announce the launch of its update, the Supply Chain Leadership Ladder 2.0. 

The Leadership Ladder helps illuminate a path to improved supply chain sustainability performance in the following ways:

• Providing a true assessment of the level to which a company’s existing supply chain and procurement practices integrate sustainability and are providing value across internal and external dimensions
• Ascertaining the company’s own level of ambition in driving supply chain sustainability: Does a company want to be driving impact, managing its most important priorities, or is it comfortable at the level of assuring compliance?
• Identifying concrete actions that the company can take to improve its program and approach, and to align with peers or leading practice.

The Leadership Ladder has four levels, reflecting the actions of companies across industries, as well as BSR’s informed vision for impact.

The BSR Supply Chain Leadership Ladder

Through anonymized assessment data of 32 companies, BSR found that the most common level of maturity across company programs is Level 2, Assuring Compliance. We work with companies at the Assuring Compliance level and help them identify opportunities to improve their programs. This can include identifying how to achieve better visibility of the most critical issues, categories of spend, and sourcing geographies in its supply chain; identifying the roles and responsibilities needed internally; or determining how best to engage suppliers and the supply chain workforce towards better outcomes.

The Leadership Ladder 2.0 incorporates learnings from our work with businesses across industries to assess and benchmark their approaches, as well as an external benchmark of the Leadership Ladder against other global frameworks.

We encourage companies to take a hard look at the opportunities to develop and evolve their approach to supply chain sustainability. As always, we welcome feedback and conversation on the new version of the Supply Chain Leadership Ladder.

Blog | Wednesday May 15, 2019

Artificial Intelligence and Human Rights: We Need to Talk about the Use Phase

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As business, government, and civil society make progress in addressing the human rights impacts and ethical questions arising from the use of artificial intelligence (AI), we believe that one supremely important constituency needs to participate much more actively: the “non-technology” companies integrating AI into their business operations, strategies, and plans.  

Without these participants, dialogue about AI and human rights risks being too focused on the development of AI, with insufficient attention given to the companies deploying AI. Our aim with this blog is to explain why. 

In August last year, BSR published three reports setting out the importance of taking a human rights-based approach to the development, deployment, and use of AI. Since then, we’ve put this advice into practice in our work with BSR member companies in the U.S., Asia, and Europe to develop policies on AI and human rights, engage with civil society organizations, and undertake human rights due diligence of AI solutions. We’ve had the opportunity to consider a wide range of scenarios—including algorithmic decision making, facial recognition, and sentiment analysis—as well as a wide variety of application areas, including retail, national security, human resources, and transportation systems. As can be imagined for technologies that are evolving so rapidly, it’s been a time of extraordinary learning. 

In many ways, this work has confirmed predominant assumptions that exist around how technology companies can fulfill the responsibility to respect the human rights impacts arising from the use of their products and services. Across many different settings, our recommendations have coalesced around some common themes: scrutinize the quality of training data, examine to whom you sell products and services and refuse sales to those most likely to misuse them, and establish acceptable use policies that place restrictions on how products and services may be used. We’ve also recommended system-wide approaches, such as advocating for rights-protecting laws and regulations, increasing disclosure and transparency, and providing best practice guidance for users. 

These are all important responsibilities held by technology companies, and nothing that follows should suggest otherwise. However, we’ve found that the common thread running throughout these recommendations is the notion that technology companies should use their leverage to prevent the misuse of products, services, and technologies by influencing the actions of others—and that no matter how much effort is deployed, there is no guarantee of success. 

Decisions made today about the deployment of AI will bring significant consequences for the realization of human rights long into the future.

This observation has led us to one simple question: In addition to trying to influence the actions of others, shouldn’t we also be working more directly with the companies, governments, and organizations that are directly deploying AI themselves? In the terms of the UN Guiding Principles on Business and Human Rights, why would we spend most of our time working with the companies that are contributing to or directly linked to human rights impacts, and much less of our time working with the companies that might be causing them? 

• In the retail industry, stores are deploying AI for theft protection, creating new privacy, security, and discrimination risks, especially for vulnerable populations and marginal groups.  
• In the transportation industry, airlines and airports are deploying facial recognition during the boarding and screening process, raising important issues of consent and non-discrimination.  
• In the automotive industry, car companies are collecting more location data than ever before and sharing them with governments, provoking new questions about whether automotive companies should join with technology companies in publishing law enforcement relationship reports.  
• In the hotel industry, facial recognition technologies are being used to ease the check-in process, impacting rights such as freedom of movement.  

Companies in all these industries should be taking a human rights-based approach to their use of AI. 

The second of the three reports we published last year on the importance of a human rights-based approach to AI anticipated these issues. In it, we listed the human rights risks and opportunities arising from the use of AI in the financial services, health care, retail, transportation, agriculture, and extractives industries, and proposed sector-wide impact assessments for each industry. One year on, we are doubling down on this point of view, such as during our recent participation in the Skoll World Forum, Sustainable Brands Paris, and our own BSR Connect events.  

Decisions made today about the deployment of AI will bring significant consequences for the realization of human rights long into the future—and this means that undertaking due diligence of AI across all industries now is a matter of urgency and not something that can be put off into a distant future. Today, we are joining the Partnership on AI, and we look forward to making good on this perspective by working more closely with the Partnership on AI and BSR member companies across all industries to assess the human rights impacts arising from their use of AI.
 

Reports | Wednesday May 15, 2019

The Supply Chain Leadership Ladder 2.0

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Across industries, managing companies’ supply chain sustainability has become increasingly important. Leading companies recognize that supply chain sustainability programs create value through mitigating risk, increasing resource efficiency to find cost savings, driving innovation through supplier collaboration, and more.  

The Supply Chain Leadership Ladder is a maturity model that BSR has developed for companies to evaluate and evolve their approach to supply chain sustainability. A better understanding of their current standing with regards to supply chain knowledge, management, and supplier engagement helps these companies to identify how and where they need to invest in their supply chain in order to drive competitive advantage. Supply chain sustainability, also known as responsible sourcing, sustainable sourcing, responsible supply, sustainable procurement, and by other names, continues to evolve, and as such, our approach needed to evolve as well.  

Two years following the launch of the Leadership Ladder, BSR is pleased to release this update. The Leadership Ladder 2.0 incorporates learnings from our work with companies where we use the framework to identify their level of maturity and ambition, benchmark their practices against their peers, and develop concrete action plans to improve. 

For companies looking to build or advance their approaches to supply chain sustainability, the Supply Chain Leadership Ladder 2.0 is a useful tool to assess practices and the opportunity to progress. Please don’t hesitate to contact our team to discuss how we can work together. 

Blog | Thursday May 9, 2019

Progress and Opportunities for Responsible Investing in Japan

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From 2014 to 2018, Japanese sustainable investing assets had an astonishing 308 percent compound annual growth rate, vastly outpacing the growth rates in other global regions. Amid this explosion of sustainable investing, the RI Asia Japan conference last month convened hundreds of engaged participants to discuss progress on sustainable finance around the world and specifically in Japan. Long-time participants expressed enthusiasm that the conference had expanded tremendously, necessitating a move to a much larger venue. Much of the discussion addressed global themes, such as the need for more investor-grade environmental, social, and governance (ESG) data and the imperative for climate action.

From my own experience in working on ESG topics in North America and Europe, and arriving as a newcomer to the Japanese responsible investment (RI) community, three unique, Japan-focused dynamics stood out. These dynamics point to keys for adapting and applying global sustainable investment themes within Japan and ways the rest of the world can learn from Japan’s rapid uptake.

The Japanese private equity market is poised for growth—and sustainable investment will be essential for success.

After many years as a niche market, private equity in Japan may be poised for growth. As Private Equity International (PEI) noted in their recent special edition on Japan, the past few years have seen a significant increase in private equity activity, with many predicting that this time, the uptick is likely to continue. As global and domestic firms expand their investments in Japan, it will be vital to adapt and apply global approaches to responsible investing in private equity in the context of two unique market characteristics in Japan.

First, there is significant skepticism about the industry that has led to some negative public perceptions. Private equity in Japan is also highly relationship-driven, with word-of-mouth and referrals an “important source of dealflow,” according to PEI. Many investments are also expected to target the large pool of Japanese family-owned businesses. Taken together, these considerations mean that it will be crucial for private equity firms to build trust and demonstrate a commitment to responsible investing—as firms and in how they steward companies. As Shunsuke Tanahashi, head of the Japan office for Partners Group and a long-time leader in the Principles for Responsible Investment (PRI) community in Japan, notes, “Japanese buyout general partners (GPs) are, in many cases, helping Japanese companies that are suffering from succession issues. Successful GPs are having sincere dialogues with the presidents of those companies and trying to contribute solutions. Sometimes, GPs get investment opportunities even if they do not bid the highest price because their proposal is very sincere and reflects the president's interests. RI/ESG enables those GPs to show their sincerity and create positive feelings toward private equity.”

Another factor affecting sustainable investing in Japanese private equity is that many deals are also likely to target carve-out businesses from large industrial conglomerates. As those businesses become new, independent companies, firms will have to help them establish their own ESG-related policies, governance structures, and practices (rather than continuing to rely on a corporate headquarters to drive those efforts).

Institutional support for the recommendations of the Taskforce on Climate-Related Financial Disclosure (TCFD) illustrates the potential for regulators and asset owners to spur action and the opportunity for Japanese firms to pioneer successful approaches. 

Several influential figures have expressed ongoing, strong encouragement for the adoption of the TCFD recommendations. For example, at the RI Asia Japan 2019 conference, Satoshi Ikeda from the Financial Services Agency expressed support and encouragement for TCFD. Hiroshi Komori of the Japan Government Pension Investment Fund (GPIF) also expressed support for the TCFD recommendations, in alignment with GPIF’s stated views. GPIF has been a strong voice for the implementation of ESG more broadly as well; the fund’s principles include specific attention to “including the consideration of ESG factors.”

Inspired by such voices, Japanese investors and companies are stepping up. A total of 76 Japanese companies/organizations have committed publicly to the TCFD. Out of those 76 entities, 27, or more than one-third, represent the financial services sector.

To gain the full benefit of TCFD analysis, it will also be essential for investors and companies to look beyond a narrow focus on the quantitative analysis of physical and transition risk. To achieve this, they should use foresight and scenario analysis on a broad range of climate resilience factors, such as related changes in mass migration, human health, labor markets, technologies, etc. In addition, they should address the TCFD guidance regarding a company’s governance, strategy, risk management, and metrics and targets. Doing so may in turn improve the structure for broader ESG efforts as well.

Japanese banks have an opportunity to apply leading global practices on environmental and social risk management to address risks beyond climate.

As Japanese banks are eagerly pursuing growth domestically and overseas, they are pursuing investment and financing activities across industries. Sessions at RI Asia Japan 2019 addressed topics such as ESG in supply chains, natural capital, and life below water, yet it seemed that financial services companies had less-developed approaches in these areas compared to climate. While many banks have adopted sector policies on their activities regarding coal, it is imperative to manage a broader range of risks.

Many European and American banks have adopted robust environmental and social risk management (ESRM) approaches and sectors policies covering industries such as mining, forestry, and hydropower, and topics such as human rights and water. Japanese banks should develop similar approaches starting with overall ESRM policies and governance, adding specific guidance through sector policies and promoting implementation through practical tools.

Based on the presentations and conversations at the conference, it seems that there are some areas where Japanese financial institutions are pursuing leading approaches to ESG management and where there are opportunities to do more. BSR looks forward to continuing to serve our members based in Japan and doing business in the country and checking back in with RI Asia Japan 2020.

Blog | Tuesday May 7, 2019

Making Supply Chains Safe for Women Workers

Preview

The Guardian reported on a recent study of Vietnamese clothing, footwear, and outdoor wear manufacturers, which found that “workers in Vietnamese factories have been harassed, groped, and even raped.” This was both sadly shocking and sadly predictable.  

Though compliance programs are in place, they have not guaranteed harassment-free work environments. The prevalence of harassment is sadly shocking: nearly half of the women interviewed reported having faced abuse in the past year. The abuse “ranged from groping and slapping to rape and threats of contract termination.” What’s more, this took place in a Vietnamese factory that has been under the global corporate compliance microscope since the mid-1990s. 

The story is also sadly predictable in several ways. First, it is well-known in the compliance industry that corporate compliance auditing has difficulty picking up on harassment issues. This article underlines that harassment and gender-based violence is a reality in the (garment) supply chain, no matter what your social compliance data tells you. This new study should drive us to revisit questions of auditing purpose and to ensure that the safeguarding of workers—and not just of buyers’ reputations—is at the heart of our efforts.   

A second sadly predictable finding was “a high correlation between overtime and workplace abuse.” Stress, pressure, and exhaustion rarely lead to good outcomes, as this study makes clear: “Violence and harassment was 3.8 times more likely during the high season than the rest of the year, 2.4 times more likely when workers reported working overtime of 30 hours or more a month, and 1.6 times more likely when workers could not refuse to work overtime.” 

Complying with Vietnamese legal requirements—that overtime cannot exceed 30 hours per month and 200 hours per year—could significantly reduce harassment and abuse. And yet overtime has been one of the most difficult and challenging issues for supply chain compliance programs to really impact. Solutions, as outlined in the article, must be built through supplier relationships.  

The overriding message is that when it comes to tackling harassment and abuse, compliance programs alone are inadequate. They need to be rethought with the worker at the center, and they should measure and bolster the programs put in place to address root causes and build real change.  

How can buyers and suppliers contribute to real, lasting change?   

Buyer-supplier relationships matter in everyday situations as well as in exceptional circumstances. Corporate values stand as the baseline for decision-making. The starting point for buyers should be their own corporate values—which should be the values they expect their supply chain to mirror. These corporate values must be not just listed in a Code of Conduct, but integrated into business processes, trade terms and conditions, internal action, and corporate leadership. 

One clear area for action that can directly benefit buyers and suppliers while contributing to tackling the harassment issues identified in this study is women’s empowerment. Ensuring that women workers have the tools, skills, support, and confidence they need will drive business benefits and address underlying norms and the all-too-prevalent acceptance of violence from both men and women.    

Putting this value into action requires both buyer and supplier action. On the buyer side, “walking the talk” is fundamental, as well as providing incentives and recognition to suppliers which embrace and implement the value. Actions might include signing the Women’s Empowerment Principles (WEPs) and conducting a Gap Analysis to pinpoint areas for improvement. Buyers can also ensure that gender equality is adequately reflected in social auditing practices. When it comes to incentivizing suppliers, Lindex’s WE Women provides one instance of suppliers’ performance on gender equality being incorporated into overall sustainability performance scorecards.

Suppliers also need to “walk the talk.” This might mean evaluating and improving their own workplace attitudes, policies, and standards.  Suppliers can also proliferate and promote knowledge and skills to their workforces and communities through workplace-based interventions while ensuring that management leads with appropriate policies, attitudes, and behavior, and that support is offered to workers to both understand what is right and wrong, how they can set boundaries for themselves, and/or report issues they encounter.

If we put the welfare of workers, particularly women, at the center of purpose, business benefits follow.

BSR’s HERrespect brings together buyers and suppliers to implement such programs and has seen significant impacts in changing attitudes to harassment and gender-based violence. It also supports suppliers in building or improving grievance systems. As the article notes: “Encouragingly, the study found that women working in factories with clear complaints procedures recorded far lower levels of abuse than those without such procedures.” 

The least shocking finding from The Guardian's article is that if we put the welfare of workers, particularly women, at the center of purpose, business benefits follow.   

By acknowledging the challenges and aligning values with supply chain partners, buyers and suppliers can make change. Harassment and violence is a reality for many women workers. You can do something—now—to improve it.   

Join us. 

Blog | Tuesday April 30, 2019

How Companies Should Respond to the Vedanta Ruling

Preview

The UK Supreme Court’s recent decision in Vedanta v. Lungowe is an important read for corporate responsibility practitioners. Although it’s a jurisdictional ruling, for the first time, the UK Court held that a parent company sitting in London could be legally liable for harms allegedly caused to community members living near its subsidiary’s mining operation in Zambia. 

The decision has implications for how companies influence the operations of their subsidiaries through corporate responsibility policies, training, and management support. After Vedanta, many practitioners and legal counsel may, understandably, think about the benefits of retreating from creating or enforcing these types of policies on subsidiaries in fear that they too may be legally liable for harm.  

However, this is almost always going to be the wrong approach. Rather, we believe it is in the best interest of companies to double down on working with subsidiaries to ensure they properly understand and adequately manage environmental and social risk. Failure to do so will result in greater risk of harm occurring to communities and will expose the parent and subsidiary companies to increased legal risk. 

The Vedanta Decision  

Vedanta Resources PLC is an Indian mining company listed on the London stock exchange. They have since de-listed and now maintain a small office in London. Konkola Copper Mines (KCM) is a subsidiary of Vedanta that operates a mine in Zambia. The plaintiffs in the lawsuit, Zambian community members living near the mine, allege that KCM caused significant environmental damage to their farming communities and severely impacted their livelihood and ability to earn a living.  

The plaintiffs sued KCM and Vedanta in Zambia and the UK. They argued that Vedanta owed a “duty of care” to the communities, i.e. that the parent was also liable for the harm caused by the subsidiary, KCM, because it exercised enough influence over the way the corporate responsibility policies were implemented to be held legally responsible. The evidence is still being collected, but the allegations point to Vedanta’s corporate responsibility report showing that Vedanta adopted and enforced corporate policies governing environmental and human rights issues over its subsidiaries and that it provided training and monitoring over the implementation of those policies. This is similar to the way many companies implement corporate responsibility programs. 

Before the ruling, the law in the UK, and most other jurisdictions, treated parents and subsidiaries as separate companies when it came to holding them accountable for harm. This is one reason many companies establish a subsidiary relationship; each legal entity is accountable for their own profits, losses, operations, and legal liability. The plaintiffs sought to challenge this commonly held legal structure by arguing that Vedanta should also be accountable for the harm.  

In the procedural ruling, the Court agreed with the community members and found that they could pursue their claim against Vedanta as long as they could demonstrate that it exercised a sufficient level of “involvement and control” over the operations at KCM at trial. The court did not hold that Vedanta and KCM were at fault or liable for the harm but rather that legally they could be liable and the case may proceed.  

However, the court declined to establish a bright-line test for what a sufficient level of control over a subsidiary means. They simply stated that it all depends on the extent to which the parent “intervenes in, controls, supervises, or advises the management… of the subsidiary.”  

In fact, they refuted what had previously been thought of as the test, which was articulated in an earlier case, Chandler v. Cape. In order to free plaintiffs from the “straitjacket” of needing to gather evidence to meet the bright-line test, they simply found that as long as Vedanta, through its policies, training, and monitoring, exercised enough influence over KCM, Vedanta could be liable for KCM’s alleged harm.  

What does this mean for corporate responsibility practitioners?  

The immediate and understandable reaction to Vedanta may be to simply retreat from providing corporate-level policies, training, and management support to subsidiaries, and being a purely passive investor. This seems like the wrong response, and companies should instead continue to supporting their subsidiaries for several reasons. 

First, failing to understand and effectively manage environmental and human rights risks by subsidiaries leaves companies exposed to legal liability for negligent oversight. Several lawsuits currently pending in Canada are based, in part, on the theory that a parent owes a separate duty of care to local community members when it makes general company-wide statements that can apply to the subsidiary, such as a “commitment to respecting human rights.” The parent then can be liable, under the theory of those cases, when it fails to take adequate steps to protect against foreseeable harms. That can occur, for instance, when the parent understood that the local operating environment presented risks of security-related human rights violations, and it was foreseeable that a failure to properly select, train, supervise, and monitor security personnel employed by its subsidiary would cause harms. 

Second, taking a hands-off approach may not protect the company under Vedanta. When a company makes general statements or issues general policies applicable to its operating units, under the theory of Vedanta and other such cases, it undertakes a degree of responsibility. However, a failure to make such general statements, or issue general policies, also creates risks. While a company might choose to totally stand to the side and allow local operating units to manage its own affairs purely to avoid potential legal risks, the subsidiary may not operate as effectively, or suffer economic and local legal harms that vastly outweigh the potential legal exposures.  Indeed, even in the absence of any general proclamations or policies, certain legal responsibilities still can accrue, such as potential risks that arise when the company consolidates earnings from a passive subsidiary.  In other words, doing nothing to try to circumvent the Vedanta holding creates risks of its own. 

Third, the UK Supreme Court signaled that these cases are likely to be examined on a case-by-case basis. The circumstances surrounding each allegation of harm will be unique and the court will look at the content of corporate policies as well as how they were enforced. When the company’s policies, procedures, and implementation efforts are examined under the microscope of a lawsuit, the company will be in a much stronger position if it can demonstrate meaningful effort to develop and implement effective polices and procedures, rather than burying its head in the sand. 

It is in the best interest of companies to double down on working with subsidiaries to ensure they properly understand and adequately manage environmental and social risk.

At its core, the Vedanta court advises companies to actually do what they claim to do in their corporate responsibility reports or potentially face legal liability. If the parent adopts and enforces an environmental or human rights policy “shown to contain systemic errors” which later causes harm to third parties, it cannot hide behind a parent-subsidiary legal relationship to escape liability.  

Ultimately, the best legal defense – and the best outcome for communities – is to avoid a lawsuit in the first place. The best way to do this is by developing and implementing smart policies and programs in the right way so that harm does not occur.