The complexities of creating and implementing a due diligence framework to monitor and measure the impact financial services have on human rights can be overwhelming. The EU recommended UN Guiding Principles on Business and Human Rights Reporting Framework (www.UNGPreporting.org) – co-authored by Mazars and Shift – , as well as the EU Non-Financial Reporting Directive that requires public interest entities with over 500 employees to report on human rights, provide guidance as to how all companies, including those in the financial services industry, should be respecting human rights, as well as how to report. But when it comes to demonstrate how closely and effectively policies and processes align with human rights principles, approaches often lack meaning and conviction.
Part of the problem is the sheer scale of identifying not only any direct impact that investment and lending policies have on people, but also indirect impacts within the wider value and supply chain of the company benefitting from the financial service relationship. The wider the range of financial services on offer, the more complex identification becomes. However, there are a number of simple steps financial services companies can take to not only embed a meaningful framework to monitor and track human rights, but one that actually enhances their value.
Step 1: Define what human rights means to your business
Businesses have a responsibility to respect all human rights. However, certain industries, particularly those with relationships in emerging markets, potentially pose a greater risk to people than others. Mapping out all business relationships by industry and location will highlight where business activities pose the greatest risk; whether that’s investing in or lending to companies in high risk jurisdictions or with relationships in those jurisdictions, not paying a living wage, poor working conditions, or practising discrimination. While the list of risks is extensive, focusing on those that are most salient provides a more meaningful framework to monitor and track progress. Once you have defined what human rights means to your business, it not only becomes easier to track progress, but it provides a platform to influence change for good, including other potential risks that are not salient.
Step 2: Right mechanism, right culture
Converting this huge general term – human rights – into something concrete and practical gives financial services companies the building blocks to create an appropriate mechanism to address their potential impacts on people. Business culture comes into play at this point. It goes without saying that a business not seen to be respecting the human rights of its own workers will struggle to adopt policies and processes to monitor external business relationships successfully. Having the right culture helps to embed policies and processes across the whole business which provides a more connected and transparent structure for reporting issues. It’s an approach that moves away from telling stakeholders that your investment and lending policies respect human rights, to being able to present verified evidence.
Step 3: The measurement factor
Once a financial services company understands where they can most significantly negatively impact people, they can put in place mechanisms to monitor impacts and use tools to measure progress. But understanding what is being measured is key. For example, companies benefitting from financial services may say they comply with local regulations on, say, wages, but there is a difference between paying the minimum wage and a living wage that meets the basic needs of workers. Even in developed markets the minimum wage is not always enough to live on. So it is important for financial services to look to international, rather than local, standards in order to monitor progress accurately and effect change. Respecting human rights is more than just legal compliance; for financial services companies it is about undertaking effective and meaningful due diligence before and during the period of investment or the loan, which is the more likely area that they may contribute to or be linked with a human rights abuse. Those financial services that operate a more robust due diligence process will be more successful in protecting their hard-earned reputations.
Step 4: Reflect the best, but in your own image
There is much to be gained from emulating good practice by companies both within the financial services sector as well as examples from outside the sector that are currently leading the way in terms of monitoring human rights. Whether it’s global conglomerates such as Unilever or financial services players such as Netherland’s ASN Bank*, each are achieving human rights success in different ways. The leadership of CEO, Paul Polman, has been key to Unilever’s success in monitoring and tracking its human rights footprint and defining the company’s purpose. ASN Bank has been investing ethically since it was founded in 1960 and uses this expertise to influence positive change within its investments. This gives them the tools to talk with their business relationships about how they can address improvements on human rights. So two companies in two very different sectors striving to achieve similar outcomes. Inevitably, there are differences in approach based on size, resources and industry, but analysing what works and why, then applying and adapting those principles to your own financial services operations can help promote a race to the top, rather than a race to the bottom.
Of course, the way businesses monitor and track human rights is constantly evolving. Activities expand and business relationships change; this presents new challenges to companies in the financial services sector that need continuous monitoring to remain transparent and pertinent in the long term. This is particularly important as, increasingly, institutional investors are taking human rights policies and performance into account prior to investing. Plus there are growing calls for all companies, not just those that are publicly listed, to report more effectively on non-financial performance.
Putting in place appropriate frameworks to monitor, track and measure the impact of business activities on people takes time and resources, but is a journey all companies are increasingly required to follow. Having conversations now about how the value benefits will help smooth the path towards embedding an effective and meaningful human rights due diligence framework.
*Mazars is working with ASN Bank on its long-term goal to have all garment companies in the ASN Investment Universe pay their production employees a living way by 2030. To improve the method by which the bank measures ‘living wage’ at clothing companies Mazars has been appointed to assess the extent to which the measurement complies with the UN principles for business and human rights. Mazars specialists also provide independent assurance on the measurement that ASN Bank will carry out later in 2018.