I have spent the
past two days at West Virginia University attending a conference entitled “Business
and Human Rights: Moving Forward and Looking Back.” This was not a bunch of academic
do-gooders fantasizing about imposing new corporate social responsibilities on
multinationals. The conference was supported by the UN Working Group on
Business and Human Rights, and attendees and speakers included the State
Department (which has a dedicated office for business and human rights), the Department
of Labor, nongovernmental organizations, economists, ethicists, academics,
members of the extractive industry (defined as oil, gas and mining),
representatives from small and medium sized enterprises (“SMEs”), Proctor and
Gamble, and Monsanto.

Professor Jena
Martin organized the conference after the UN Working Group visited West
Virginia earlier this year to learn more about SMEs and human rights issues.
She invited participants to help determine how to ground the 2011
UN Guiding Principles on Business and Human Rights into business practices
and move away from theory to the operational level. The nonbinding Guiding
Principles outline the state duty to protect human rights, the corporate duty
to respect human rights, and both the state and corporations' duty to provide
judicial and non-judicial remedies to aggrieved parties.  Transnational corporations applauded the
Principles when they were released perhaps because they are completely voluntary,
but also perhaps because those specific Principles that focused on due
diligence on human rights impacts in the supply chain were drafted after years
of consultation with businesses around the world.

The UN Working
Group has the daunting task of rolling out the Guiding Principles to over
80,000 companies and their suppliers in 192 countries.  Dr. Michael Addo of the Working Group
confirmed that the conference was the first of its kind in the US where such a
broad coalition of those affected by and thinking about these issues had
convened to talk about how the Principles can work in the real world.  Participants discussed the risk management
issues associated with human rights due diligence including avoiding reputational
harm; addressing investor and regulatory pressure; facing internal pressures
(recruiting and employee morale); and improved efficiency for project planning,
forecasting and value preservation. 
Other topics included strategies for transnational human rights
litigation after the Supreme Court’s Kiobel
decision, which significantly limited access to foreign litigants on
jurisdictional grounds; the use of supplier codes of conduct as contractual
vehicles; using contracts to implement the Principles; antitrust implications
of consortiums working together to address human rights issues with suppliers;
the benefits of hard law versus “soft law” 
(voluntary initiatives) in the human rights arena; how the US Government
is using its laws, trading leverage, procurement and investing power to support
the Principles both domestically and internationally; and recent steps in the European Union to implement
the Principles.

The issue of addressing
regulatory and investor pressure was particularly interesting to me, and I
addressed it in my remarks (which I will blog about separately when my paper is
complete). But here are some facts I shared with the audience. US investors,
international stock exchanges and governments increasingly value
information on environmental, social and governmental (“ESG”) factors. As of 2012, the governments or stock
exchanges of 33 countries require or encourage some form of ESG reporting. Earlier
this year, the European Union proposed a directive on nonfinancial disclosure,
which would require large companies to report annually on their major
environmental, social and economic impacts.

The US government
is farther behind than the Europeans but is catching up. The Federal
Acquisition Regulations now require prospective contractors and subcontractors
to certify that they are not engaging in a variety of human trafficking
activities in supplying end products, and require changes in
contractual clauses and compliance programs as well as cooperation with audits
and investigations. Since 2012, certain companies in California have had to
publicly disclose their efforts to eliminate human trafficking and slavery from
their supply chains. 

Investors also
seek nonfinancial information. Bloomberg publishes corporate ESG data for over
5,000 companies utilizing 120 ESG factors.  Currently, 95% of the Global 250 issues
sustainability reports, which generally include impacts on the environment, society
and the general economy. But these reports may be of limited utility to investors
because industries may view materiality differently. To address this gap, the
Sustainability Accounting Standards Board ("SASB") is a 501(c)(3) organization developing
standards for publicly-traded companies in the United States in ten sectors
from 89 industries so that they can disclose material sustainability
information (including human rights) in 10-K and 20-F filings
by 2015. Once completed, the SASB framework, which adopts the SEC definition
for materiality, may have significant impact because its advisory council
consists of the former chair of FASB, who was also an IASB board member,
institutional investors, academics, several large corporations, representatives
from most of the major investment banks as well Institutional Shareholder
Services (“ISS”), the influential proxy advisory firm. According to today's
SASB newsletter, thus far over 850 people representing five trillion in
market capital and 12 trillion in assets under management have participated in
working groups. The materiality standards for the health care industry have
been downloaded over 730 times since they were released at the end of July.

As more companies begin to
incorporate the Guiding Principles and consider human rights in their
enterprise risk management programs and not just as line items in a
sustainability report, business practices will start to change because
investors and members of the public will demand it.  This year a pension fund filed shareholder
proposals with three companies related to the Guiding Principles. All of them
failed, including one in which a company indicated that they were already
conducting the kind of diligence that the Principles recommend. ISS has issued
guidance specifically on human rights impacts. It’s time for directors and
executives to start considering their human rights footprint in anticipation of
future requests for disclosures from investors, the government, regulators and
the general public.