Jul 04

2013

Global Diligence LLP provides feedback to SHIFT/Mazars discussion paper on Reporting & Assurance Standards on the United Nations Guiding Principles on Business and Human Rights

1. Global Diligence LLP – our interest in the project

As a legal and advisory firm operating in the business and human rights sector, we are committed to the widespread dissemination of and compliance with the United Nations Guiding Principles on Business and Human Rights (UNGPs). We believe that all companies will one day be required to report on their human rights compliance, and that such reporting will lead to positive changes in corporate culture. We also believe that independent verification by assurance providers will be essential to guarantee the quality of a company’s reporting. We are delighted to be able to contribute to the development of standards of reporting and assurance.

However, we also believe that reporting and assurance is only one part of a much wider process that requires continuous engagement with the stakeholders affected by an individual company’s operations. We are committed to assisting corporate clients develop meaningful, bespoke, context-specific stakeholder engagement programmes, which should in our view run in parallel with any annual human rights reporting for shareholders, investors and the ‘wider’ world.

As international lawyers we have a particular expertise working in conflict-affected and other high-risk areas. The discussion paper, as currently drafted, makes no explicit reference to companies who operate in such regions or to any additional factors to be taken into consideration from a reporting or assurance perspective. As discussed some weeks ago, we are happy to provide some general comments on these areas. We feel that a more substantial and general piece on conflict and instability would be of some use, but we will be releasing this under our own initiative over the coming months.

2. General observations

Global Diligence LLP believe that consistency of approach in understanding and reporting on human rights impacts is critical for the development of greater compliance with the UNGPs. We emphasise that the key aspect of any human rights compliance reporting should be to measure companies by objective and universally applicable standards rather than by their subjective and individual CSR achievements.

Over the last two years, there has been a proliferation of general and sector-specific guidelines (from, for example, the World Gold Council, the International Council of Mining and Metal, IPIECA, the OECD Guidelines for MNEs, section 1502 of the Dodd-Frank Act). All these initiatives are extremely useful in operationalising Ruggie’s principles, and will speak directly to individual companies on issues of relevance to particular industries.

However, we feel that there are certain aspects of the drive to embed human rights culture that will be common to all companies, regardless of the sector in which they operate. Standardising the language, structure and content of reports on corporate compliance with the UNGPs, and establishing a common approach for assurance providers auditing such reports, are in our view universally-applicable principles – which is why the Mazars / SHIFT discussion paper is a very welcome and timely initiative.

3. Complementarity with other initiatives

Page 9 of the Discussion Paper stresses that the proposed Reporting and Assurance Standards ‘are intended to complement existing and on-going initiatives’ in the field of non-financial reporting.

We are unaware of any specific collaboration Mazars and SHIFT have engaged in to date with the authors of the other guidelines referred to above (OECD, ICMM, WGC, for example). An initial ‘paper-based’ comparison of the respective guidelines and initiatives would be appropriate, but we suggest that the ongoing process of developing the Reporting and Assurance Standards is informed by the experiences of these other organisations and the feedback from their members relating to the workability of these initiatives. Specifically, a representative series of interviews and consultations should be arranged with these organisations and their members, if this has not already been done.

4. Comments on the Reporting Standard

2.1 – Content of Human Rights Statement

In relation to the proposed elements for inclusion in the Reporting Standard, we support the basic threefold structure of the proposed Human Rights Statement that should provide (1) an overview of key human rights policies, practices and processes; (2) the level at which these are approved within the company; and (3) the extent to which these policies, practices and processes are aligned with the UNGPs.

An obligation for companies to report on every aspect of their business from the very beginning may militate against widespread adoption of a common Reporting Standard. However, if companies are to be permitted to limit their Human Rights Statement to discrete aspects of their business or certain subsidiaries, it should be made clear that the Statement is of a limited nature. Statements would then be classified as either ‘Full’ or ‘Partial’ – with an opportunity for companies to comment on the reasons for the latter (such as the fact that this may be the first time they have undertaken human rights reporting; to protect the confidentiality of stakeholders; or to protect the legitimate commercial sensitivity of information).

2.2 – Salient Human Rights Risks

We support the initiative that a company should be required to identify the most ‘salient’ human rights risks associated with its operations, upon which the company will need to concentrate its primary efforts. Guidance notes should be prepared for companies seeking to identify such salient risks. These should include the OHCHR’s definition of salience in the 2011 Interpretative Guide to the Corporate Responsibility to Respect Human Rights, and references to industry-specific risks identified in the human rights publications of specific sector organisations such as IPIECA, ICMM, WGC or similar.

We also consider that one of the key components of the proposed Human Rights Statement is for a company to report on how specific risks are being or will be addressed, particularly where a company’s operations pose potentially severe risks. We support the use of the definition of severity based on the scale, scope and irremediable character of the impact (UNGPs Principle 14).

Companies may of course be reluctant to draw attention to any adverse human rights impacts arising from their operations. It is possible that those companies with poor human rights records are unlikely to want to participate in the process. However, there should be scope for companies to highlight how they are making genuine efforts to rectify adverse human rights impacts. The credibility of this part of the Statement would be enhanced by evidence of meaningful multi-stakeholder consultation, including the creation of appropriate grievance procedures and reparations mechanisms.

2.3 – Public Disclosure of How Risks or Impacts Are Addressed

Public reporting will usually not be appropriate where there are potential legal consequences of serious adverse human rights impacts caused or contributed to by a company’s operations. Unless a company has fully and publicly admitted its legal responsibility for an event AND has agreed or been ordered to make appropriate compensation and restitution, a company’s lawyers would ordinarily advise against making any public statement that could be used to establish liability, causation or quantum of damages. Companies should be permitted to retain confidentiality of facts within their knowledge relating to events that may be the subject of civil or criminal action against them. What is ultimately disclosed in the Human Rights Statement of actual or potential sub judice facts, regardless of the level of assurance provided, will ultimately be a matter decided by a company in consultation with their own legal advisors.

2. 4 – Additional Information

Including a section in the Human Rights Statement for a company to provide ‘additional information’ would be an opportunity for a company to showcase its own Corporate Social Responsibility credentials, initiatives and achievements. Companies will no doubt wish to emphasise the positive aspects of (for example) their engagement with affected communities, promotion of sustainable development programmes or how they are better placed to negotiate with local authorities on labour laws and infrastructure. The danger is that this section, as a ‘catch all’ for a company’s self-selected good deeds, may turn out to be a disproportionately large part of the Statement.

Consideration should be given to restricting the answers to this section in some way so that this does not happen – either by limiting the areas in which additional information can be provided, or by restricting the number of pages as a percentage of the overall report, or by reminding the company in any guidance notes that the purpose of a Human Rights Statement is to establish compliance with objective standards such as the UNGPs, and that it is not intended to provide a company with a platform to promote its CSR initiatives or to replace a company’s promotional literature.

5. Comments on the Assurance standard

As Global Diligence LLP does not profess any expertise in auditing or assurance provision, we will restrict our comments to the general.

The general structure of the Assurance Standard identified under the heading ‘Key Issues With Regard To The Assurance Standard’, to our layman’s understanding, appears to be sound.

Under the sub-heading ‘The Competence and Independence of Assurance Providers’, reference is made to the need to ensure that providers have the relevant set of skills to undertake the assurance. Given that a reporting company may make statements relating to compliance with human rights obligations, including potentially technical issues of international humanitarian law, international criminal law or international human rights law, assurance providers should ensure that their teams include appropriately qualified external experts in international law. As an aside, this is exactly the sort of work that Global Diligence LLP would be capable of undertaking.

Under the sub-heading ‘Findings Not Included in the Public Assurance Work’ there is reference to the possibility that assurance providers may identify evidence of criminal activity in the course of their assurance process. Such potential criminal activity, or risk of potential activity, in the context of multi-national enterprises operating in politically or socially unstable countries may also include violations of international humanitarian law, international criminal law or international human rights law. This further underscores the need for assurance teams to include experts in these fields, particularly in conflict-affected or other high-risk areas. The extent of any disclosure to the relevant authorities of such international legal risks will obviously be governed by the appropriate national and international regulations.

6. Conflict-affected and high-risk areas

As mentioned above, we feel that consideration should be given to adding an annex on issues pertinent to conflict-affected and other high-risk areas. In any event, Global Diligence LLP will be launching our own initiative on this in the third and fourth quarters of 2013.

7. Conclusion

We congratulate Mazars and SHIFT for this initiative and feel sure that the results will be constructive for the operationalisation of the UN Guiding Principles on Business and Human Rights.