Social Aspect of ESG: Human Rights Due Diligence – An Emerging Business Imperative
Previously, we have been focusing on the “Environment” of ESG (Environment, Society, and Governance), covering the energy situation in the Philippines, domestic and international regulations, and initiatives. From this issue, we will shift our theme to “Social” and consider what is expected of companies and how it relates to corporate activities. It is necessary to communicate internally and externally what the key issues are for a company with regard to these issues, how risks and opportunities are perceived as management issues, and how they are integrated into specific management decisions and organizational design and operations.
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For example, in the integrated report of Ayala Corporation, a conglomerate in the Philippines, the company discloses that there is no child labor or forced labor in all group companies, the status of diversity, the return rate after maternity leave, and the annual training hours per employee as part of its ESG social disclosure. The company’s social disclosure includes a statement that there is no child labor or forced labor in all group companies, the status of diversity, the return rate after maternity leave, and annual training hours per employee.
With the growing importance of ESG due diligence in investment and business strategy development, laws, regulations, and guidelines are being developed for each element. For the social component, in 2018, ISO 30414 (Guidelines for Disclosure of Information on Human Capital) provided detailed guidelines for human capital reporting both within and outside of a company. Human capital is the concept of capital that is considered to be the value-added knowledge, skills, abilities, and qualities possessed by individuals, etc. ISO 30414 focuses on assessing how a company manages its human capital, taking into account all factors such as workforce diversity, fair wage practices, and occupational health and safety. The approach of human rights due diligence is an approach to the rights of “people,” the foundation of that human capital, and the state of the company.
What is Human Rights Due Diligence (HRDD)?
Human Rights Due Diligence (HRDD) is a systematic approach for companies to proactively assess their human rights risks and consider how to respond to the risks identified. 2011 saw the release of the United Nations Guiding Principles on Business and Human Rights (UNGPs). This was a roadmap for promoting corporate efforts to protect and respect human rights, and it attracted global attention. In fact, developed countries such as the United States, Europe, and Australia have enacted national laws and regulations requiring companies with 500 or more employees to conduct extensive due diligence in compliance with UN and OECD international standards.
Two Aspects of HRDD
Protecting and respecting human rights in business activities is a matter of course, but how strategically these activities are conducted is key. While there are “risks” in business activities that threaten human rights or leave them unaddressed, there are also “opportunities” that arise from placing respect for human rights at the core of business activities.
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- Risk mitigation: It refers to the management and mitigation of adverse human rights impacts caused by a company’s business activities. This includes proactive engagement not only on overt issues, but also on potential issues that may affect the business. In addition, risks to human resources are not only latent in your own pay equity and working environment, but also extend to all stakeholders, including business partners and suppliers. For example, even if your company’s internal wage and working environment is in compliance with the law, you may still be liable for human rights violations, such as working environment violations, at your suppliers.
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Opportunity maximization: There is also a movement to create shared value by linking business activities with issues faced by local communities and societies. While dealing with risk areas is an effort to prevent new social problems from arising, this is an effort to actively participate in solving social problems and co-create value. An example here is Unilever’s campaign on Human Rights that positioned their brands as a “Force for Good” gaining a strong base of like-minded customers and supporters. Their programs include advocacies for positive nutrition, health, and well-being. They have also enjoined their leaders as well as their partners in business to foster a culture that eliminates discrimination and increases the representation of diverse groups in advertising practices (The Unilever Compass for Sustainable Growth, 2021). This is an approach in which a company does not only pursue financial profit, but also sees opportunities to increase corporate value by being rooted in the community and recognized as good for society, such as solving human rights and public health issues.
Establishing HRDD policies and processes takes time and effort. However, in the long run, sustainable growth of a company cannot be achieved without an HRDD process. According to the World Economic Forum (2022), social issues, along with the climate change crisis, are the most significant risks that companies should anticipate in the future. If we focus only on short-sighted goals such as financial growth, we may overlook risks and opportunities that may not be manifested in numbers. In the next issue, we will discuss what specific measures and approaches are required, taking into account examples of corporate initiatives.
NRI Manila supports companies in the area of Sustainability and ESG through our sustainability consulting services. We support companies in developing their sustainability strategies in terms of corporate culture, structure, assessment, and reporting to achieve a more sustainable future.
About the Contributor
Dianne Cordova is the Head of the HR Sector at Nomura Research Institute Singapore Pte. Ltd. Manila branch. She has over a decade of experience in Human Resources and Organization Development helping organizations in their organizational transformation journeys. She is also a recipient of the prestigious Australia Awards Scholarship, where she earned her master’s degree in Human Resource Management and Industrial Relations from The University of Sydney.
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Lugt, C. van der, Bertoneche, M., & Tonello, M. (2013, June 28). The Sustainability Business Case. The Harvard Law School Forum on Corporate Governance. Retrieved July 30, 2022, from https://corpgov.law.harvard.edu/2013/06/28/the-sustainability-business-case/
The global risks report 2022 – marsh mclennan. (n.d.). Retrieved July 31, 2022, from https://www.marshmclennan.com/content/dam/mmc-web/insights/publications/2022/global-risks-report-2022/global-risks-report-2022.pdf
The importance of sustainability in business: HBS Online. Business Insights Blog. (2019, November 6). https://online.hbs.edu/blog/post/business-sustainability-strategies
The unilever compass. (n.d.). https://www.unilever.com/files/8f9a3825-2101-411f-9a31-7e6f176393a4/compass-strategy.pdf
Whelan, T., & Fink, C. (2017, June 1). The comprehensive business case for Sustainability. Harvard Business Review. Retrieved July 30, 2022, from https://hbr.org/2016/10/the-comprehensive-business-case-for-sustainability
