CHAPTER 9 TRANSPARENCY AND RESPECT FOR HUMAN RIGHTS: AN OVERVIEW OF THE APPROACHES AND THE ISSUES

• Jurisdiction: United States

Human Rights Law and the Extractive Industries
(Feb 2016)
CHAPTER 9
TRANSPARENCY AND RESPECT FOR HUMAN RIGHTS: AN OVERVIEW OF THE APPROACHES AND THE ISSUES
David Hess
Associate Professor of Business Law and Business Ethics
Ross School of Business, University of Michigan
Ann Arbor, MI 48109
dwhess@umich.edu

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DAVID HESS is an Associate Professor of Business Law and Business Ethics at the Ross School of Business at the University of Michigan. He is also the Faculty Director of the Nonprofit and Public Management Center, a partnership between the University of Michigan's Ford School of Public Policy, the School of Social Work, and the Ross School of Business. Professor Hess's research focuses primarily on the role of the law in ensuring corporate accountability. His publications in this area have analyzed use of sustainability reports by corporations, efforts to combat corruption in international business, and how the Organizational Sentencing Guidelines, the Sarbanes-Oxley Act, and deferred prosecution agreements can be implemented in a way that best assists corporations in developing more ethical corporate cultures. In addition, he has conducted empirical work on the governance of public pension funds and their use of sustainable investment strategies. This research has been published in leading law, ethics, and management journals, and has been recognized with national awards. In 2008, Professor Hess won a Faculty Pioneer Award from The Aspen Institute and the Faculty Award of Excellence for Early Career Achievement from the Academy of Legal Studies in Business. Professor Hess is the Business Law Section Editor for the Journal of Business Ethics, and serves on the editorial boards of Business Ethics Quarterly and the American Business Law Journal.

Contents

Introduction

Part I. The Push for Transparency

I.A. CSR Initiatives

II.B. CSR Disclosure Requirements

Part II. Sustainability Reporting Guidelines and Other CSR Disclosure Initiatives

II.A. Sustainability Reporting

Global Reporting Initiative (GRI)

International Integrated Reporting Council (IIRC)

Sustainability Accounting Standards Board (SASB)

II.B. Human Rights Specific Standards and Laws

Human Rights Standards and Initiatives

Human Rights Specific Laws

Part III. Questions on Transparency, Business, and Human Rights

Overview of How Transparency May Improve Human Rights Performance

Will Human Rights Reporting Information be Limited by Impression Management Motivations?

Can a Benchmark Approach to Human Rights Increase Transparency?

Conclusion

Introduction

In the area of corporate social responsibility (CSR)--which includes issues of human rights--transparency is viewed as necessary for achieving corporate accountability. As one author stated, "the necessity for transparency is taken for granted and is very seldom questioned."¹ To varying degrees, CSR transparency initiatives seek to change corporate

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policies and practices through increasing the organization's awareness of the issues and facilitating stakeholder pressures (shareholders, special interest groups, etc) on the organization. The initiatives to achieve transparency can be very broad or very narrow. A sustainability report under the Global Reporting Initiative (GRI) is an example of a broad initiative. These reports seek to connect the corporation's strategic decision making with all relevant and significant issues related to sustainability, and encourage the organization to engage with stakeholders on these issues. The conflict minerals provision in the Dodd Frank Act is a more narrow transparency initiative. There, the focus is only on a corporation's use of certain minerals from Democratic Republic of the Congo. Other transparency initiatives fall somewhere in between.

Despite the taken-for-granted nature of encouraging transparency, it is difficult to determine if transparency initiatives have made a difference, if the benefits that they do provide are significant enough to justify their costs, or if it is simply too early to tell. For example, labor conditions in apparel factories in developing countries (so-called "sweatshops") have been a significant CSR issue since the 1990s. To ensure corporate accountability on this issue, stakeholders and corporations have pushed for transparency on corporations' labor performance (including disclosure on corporate policies and on the findings of factory audits). Corporate critics, however, can point to the continued reports of factory fires and collapsed buildings in Pakistan and Bangladesh that have taken hundreds of lives to argue that very little has changed. To the critics, transparency in this area has been nothing more than a public relations exercise based on "fast and flawed" audits.²

Are transparency programs simply a way for corporations to forestall real accountability? Or, is there reason to believe that transparency programs are on the path to becoming an effective policy tool as it relates to CSR issues, including human rights? This paper provides an overview of some of the major transparency programs related to CSR, with a focus on business and human rights, and then discusses some of the most pressing issues.

Part I. The Push for Transparency

As mentioned above, transparency as a primary tool for improving corporate accountability on CSR issues is now not questioned. This taken-for-granted aspect of transparency developed quickly. For example, fifteen years ago, sustainability reports were very rare,³ but today they are a mainstream practice among large corporations, with almost 80 percent of the Fortune Global 500 producing such reports.⁴ Now, the major initiatives that

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provide guidance on responsible business conduct require disclosure in some form. This Part begins by describing some of those requirements. Next, it provides examples of the increasing movement towards mandated disclosure requirements. The primary focus of this paper is on human rights issues, but the discussion below will include all Environmental, Social, and Governance (ESG) information (also referred to as non-financial information to distinguish it from required financial disclosures). The following Part will discuss specific initiatives on disclosure, such as the widely-used GRI standards for sustainability reports, which are referenced in some of the items below.

I.A. CSR Initiatives

The United Nations Global Compact (UNGC) is the leading set of principles to encourage CSR. Companies that join the UNGC commit to its ten principles, which cover human rights, labor, the environment, and anti-corruption. The members of the UNGC must submit an annual Communication on Progress, which expresses the company's support for the principles, describes the "practical actions the company has taken or plans to take to implement the Ten Principles," and provides a "measurement of outcomes."⁵ The UNGC encourages companies to use the GRI's sustainability reporting guidelines (described below) to produce the Communication on Progress reports.⁶

The UN Guiding Principles for Business and Human Rights (UNGPs)--the leading framework for understanding businesses' obligations towards human rights--also encourage corporations to provide nonfinancial disclosure. For example, Principle 21 states:

"In order to account for how they address their human rights impacts, business enterprises should be prepared to communicate this externally, particularly when concerns are raised by or on behalf of affected stakeholders. Business enterprises whose operations or operating contexts pose risks of severe human rights impacts should report formally on how they address them. In all instances, communications should:

(a) Be of a form and frequency that reflect an enterprise's human rights impacts and that are accessible to its intended audiences;

(b) Provide information that is sufficient to evaluate the adequacy of an enterprise's response to the particular human rights impact involved;

(c) In turn not pose risks to affected stakeholders, personnel or to legitimate requirements of commercial confidentiality"

The OECD Guidelines for Multinational Enterprises provide a "provide a coherent and comprehensive approach to responsible business conduct" supported by the OECD member

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nations.⁷ In addition to topics on human rights, anti-bribery, and taxation, the Guidelines also cover disclosure. The commentary on disclosure states:⁸

"Clear and complete information on enterprises is important to a variety of users ranging from shareholders and the financial community to other constituencies such as workers, local communities, special interest groups, governments and society at large. To improve public understanding of enterprises and their interaction with society and the environment, enterprises should be transparent in their operations and responsive to the public's increasingly sophisticated demands for information."

Other initiatives, such as ISO 26000 Guidance on Social Responsibility, also require some form of reporting on nonfinancial issues to stakeholders. Even initiative focused on investors seek to improve corporate disclosure. For example, the United Nations Principles of Responsible Investment (UNPRI) requires its members (institutional investors) to commit to six principles. The third principle is: "We will seek appropriate disclosure on ESG issues by the entities in which we invest."⁹

Finally, although not a CSR initiative, the General Assembly endorsed outcome document of the United Nations Conference on Sustainable Development held in Rio de Janeiro in 2012 (titled "The Future We Want") stated:

We acknowledge the importance of corporate sustainability reporting and encourage companies, where appropriate, especially publicly listed and large companies, to consider integrating sustainability information into their reporting cycle. We encourage industry,

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