ESG and Human Rights: Let’s Not Conflate Them
By Emmanuelle Diehl, Contributing Author/ April 17, 2023
Emmanuelle Diehl is a senior consultant with 20 years of experience advising governments, the private sector, international organizations, and NGOs with investments and operations in sensitive markets as well as fragile and conflict-affected countries in the Middle East, Africa, Latin & Central America, and South-East Asia.
Emmanuelle works for numerous UN agencies and donors on their different programming tackling human rights violations, transnational organized crime, counter-terrorism policies, human rights and security sector reform.
Emmanuelle sat on the NGOs’ chapter of the Secretariat of the Voluntary Principles for Security and Human Rights in New York; advised the Interlaken Group, to foster better private sector practices on land tenure rights and advised international agencies on mediation processes in Yemen, and Syria. She is a board member of two active companies (Win-Win Connection, & Fronteras Investments) and built two consultancies (INCAS Ltd and SELA Advisory Group). She is part of the World Bank CAO’s mediation pool of experts, as well as being on the expert roster of ESCWA, UNODC, UNPBF, the UNDP Crisis Bureau, and the ICRC.
Emmanuelle is also an Adjunct Professor on Human Rights Law, Intro to Law, Conflict Analysis and Intro to International Relations at Blanquerna-Ramon Llull University in Barcelona for the past 5 years.
A dual French and American national, Emmanuelle lived on 4 continents and is fluent in English, French, Spanish, and in colloquial Egyptian Arabic. Emmanuelle holds two MAs in ‘International Security Studies’, and in ‘Public Administration, and International Relations’, and a BA in Civil and International Law, and a BA in Foreign Policies. She is currently preparing for her Ph.D. on Business and Human Rights.
Three Areas of Corporate Responsibility
Environmental, Social and Governance (ESG) describes three areas of corporate responsibility that have gained momentum from investors, policy makers and the public. ESG are a set of indicators that large multinationals, mainly publicly traded companies need to report on. Every jurisdiction and regulatory framework vary from one another, but companies are encouraged to report on these indicators for greater transparency and accountability on ethical and sustainable issues.
Human Rights
Human Rights refer to fundamental rights and freedoms that every person is entitled to, regardless of their race, gender, nationality, religion, or any other status. These are enshrined in international legal instruments, such as the Universal Declaration of Human Rights. Businesses respecting Human Rights means upholding these fundamental rights across their operations and supply chains, regardless of borders and of countries’ legal frameworks. Some of these rights are, for instance, the right to health and access to medical care, the right to freedom from torture, slavery, forced labor and human trafficking and the right from discrimination. Businesses need to identify, prevent, and mitigate negative impacts on Human Rights that stem from their operations and need to take actions to remedy the negative impacts.
The Social Aspect
Human Rights should logically be at the core of each of the three ESG pillars-Environment, Social and Governance. Nevertheless, the Social aspect of the ESG indicators tends to be associated with Human Rights. Therefore, companies often report only on this metric.
Common Confusion
The Global Reporting Initiative (GRI), the Sustainable Accounting Standards Board (SASB), and the International Integrated Reporting Council (IIRC) are the most common ESG reporting frameworks. They tend to prioritize Environmental (E) and Social (S) issues over human rights, while they are not separate from the E&S. Many Human Rights issues, from labor rights to access to clean water and clear air, are linked to environmental and social issues included into the ESG indicators. One of the main issues with the current ESG reporting approach is that it is often static and only quantitative, which fails to capture potential Human Rights related issues that might significantly impact a company’s operations and reputation.
Environmental indicators such as the carbon imprint, the water and electricity usage, waste disposal, and environmental compliance are essential for reviewing a company’s impact on the environment. These indicators are more easily quantifiable and reportable, offering clear sets of data to grade a company’s environmental performance. In contrast, social indicators such as employee diversity and inclusion ratio, customer privacy, and community engagement projects can also be reported upon, but their impact is more difficult to quantify and measure against a set of KPIs. In addition, reporting on Human Rights risks and labor laws can be challenging as they are contingent on national jurisdictions’ differences. However, since 2011, international standards and guides, such as the United Nations Guiding Principles (UNGPs), have been integrated as best practice and the norms to follow. Thus, corporations should use these guidelines to assess Human Rights risks as part of their responsible business conduct.
As ESG are more visible and reported upon, many companies fall short of assessing the underlying Human Rights risks and violations happening within their operations and larger supply chains. A company can be viewed as ‘responsible’ as it might be achieving a high ESG rating without necessarily tackling Human Rights risks and resolving Human Rights violations. For example, companies might buy carbon offsets to compensate for their greenhouse gas emissions, but some of these projects might generate local communities’ displacements from their land, deny them access to natural resources such as clean water, and fertile land. Companies might also report on their labor practices by including the diversity ratio, the turnover, and equal policies but fail to disclose violations of workers’ rights from discrimination to sexual harassment cases. As a final example to clarify how ESG can veil some Human Rights issues, it is often seen that supply chains where companies monitor their ESG indicators do not assess risks such as child labor, modern slavery or even trafficking of persons.
Commonalities Between ESG and Human Rights
A common trait that both ESG and Human Rights reporting share is the lack of one single reporting framework that leads to inconsistency and thus greater evasiveness from companies. The United Nations Guiding Principles for Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises both offer frameworks that look at the companies’ responsibilities and duties to comply with Human Rights and adhere to responsible business conduct. Some companies also use the GRI and the SASB, often misused or misinterpreted with ESG reporting and thus enabling companies, to avoid meaningful action to address Human Rights issues and potential cover areas of concern. Another commonality with the ESG indicators, is that the Human Rights unit in a company is often working in silo and thus isolated from the other operational and strategic departments, which defies the prime objective of having a Human Rights strategy. However, more companies are slowly mainstreaming Human Rights across all their departments.
In recent years, there has been a growing trend for corporations to take a more proactive approach to identify their Human Rights impact and risks. Typically, this entails conducting Human Rights Impact Assessments and Due Diligence with spot checks and field visits as well as developing grievance mechanisms and robust risk management systems with Human Rights considerations. Such methods enable companies to prevent and take corrective measures on salient Human Rights risks across their operations and supply chains before they exacerbate and become sources of disputes or conflicts. Those measures can only be enacted if leadership is informed and behind them. The leadership and the board of the companies are the engine for change and instrumental in being proactive. So, as they are accountable to their shareholders, board members are accountable to all stakeholders including internal employees and surrounding communities and their supply chains.
Human Rights as Core to Corporate Strategy
To conclude, it is therefore paramount for companies to adopt a holistic and dynamic approach that encompasses the interconnection between Human Rights and ESG issues. This emphasizes the need for companies to adopt a Human Rights-based approach into their overall ESG strategies and risk management processes, and to ensure compliance with ESG indicators while upholding their Human Rights obligations. Corporations can then showcase their commitment to respecting Human Rights and contribute to the advancement of sustainable and responsible business acumen. Finally, the Governance in the ESG is critical to integrate Human Rights across a company’s strategy and operations. Human Rights approaches start with them!