Human rights and the FTSE 100 in 2014

Dr Jim Wright | 7 years ago

Directors of UK companies are required to include human rights issues in their annual reports following the release of “Good Business Implementing the UN Guiding Principles on Business and Human rights” by HM Government in September 2013 (HMG, 2013). HMG, 2013 provides general guidance on human rights reporting by reference to the “Guiding Principles on Business and Human Rights: Implementing the United Nations “Protects, Respect and Remedy Framework” (United Nations Human rights office of the High Commissioner, 2011)  (“Principles”) against which, this review has been made.

This is the second annual review that examines how FTSE 100 companies reported human rights issues in their annual reports. The first review, designed to review annual reports prepared before the announcement of HMG 2013, showed that less than half of the FTSE 100 companies reported on human rights issues. The top five sectors reporting in the most detail were ranked from Mining, to Oil & Gas Producers, Support Services, Life Insurance and Tobacco. Eleven sectors did not report human rights at all: Automobiles & Parts, Construction & Materials, Electricity, Financial Services, Food & Drug Retailers, General Retailers, Health Care Equipment & Services, Mobile Telecommunications, Nonlife Insurance, Oil Equipment & Services, and Software & Computer Services.

This 2014 review is based on information presented in annual reports although Companies may have clearly stated that information can be found elsewhere, for example in a strategic or sustainability report, or on the internet.

The “Principles” provide guidance in the form of Foundational and Operational Principles. The Operational Principles (16-24), here summarized, include commitment to:

16.Statement of Policy that addresses human rights

17.Carry out human rights due diligence

18.When gauging human rights risks, draw on human rights expertise and undertake meaningful consultation with potentially affected groups

19.Integrate findings from impact assessments by assigning appropriate responsibility and oversight processes and by determining  appropriate action, depending on the enterprise’s level of involvement and the ability to leverage reduction of any impact

20.Track response effectiveness using suitable indicators and by internal and external feedback

21.Report externally how human rights impacts are addressed in an accessible form at a suitable frequency that allows the enterprise’s response to be assessed for adequacy, whilst not posing risk to affected parties or commercial confidentiality

22.Provide or cooperate in the remediation of adverse human rights impacts  through legitimate processes

23.Comply with human rights law, and if conflicted honour the principles of international human rights, treat any gross human rights abuse as a legal compliance issue

24.Prevent and mitigate the most severe, or those for which delay will lead to irremediable, human rights abuse

The 2014 FTSE 100 Annual report Survey 

Despite the Principles, the 2014 FTSE 100 survey found that 8 companies made no mention of human rights. These companies are from the following sectors:

  • Household Goods & Home Construction (1)
  • Life Insurance/Assurance (3)
  • Media (1)
  • Support Services (1)
  • Travel & Leisure (2)

There are a number of arguments why companies may feel that they do not need to assess human rights risks, for example a small number of companies believe that they are protected from human rights risks simply because they comply with UK human rights legislation. A number of companies rely on the fact that human rights have no material impact on their business, however this is rarely supported by risk assessments or other evidential justification.

Of the 92 that report human rights issues, several simply state they are guided by, support, seek to abide by, or are aligned with, the UN Global Compact or UN Declaration of Human Rights, despite some having no evidence of this in practice.

Most have no human rights policy (76) whilst many (59) included human rights in their other policies such as an ethical business policy.

The way human rights is managed is variable with 55 making no assessment of human rights and none including a human rights performance indicator in their report. Less than half (44) undertook any human rights due diligence of new and existing activities with some companies undertaking a human rights assessment only at the point of entry to a project or country; assuming that human rights risk will not emerge subsequently.

Whilst most companies addressed human rights in their workforce (63), less than half (44) addressed human rights in the supply chain. Very few seemed to address human rights with external stakeholders as only 12 reported a grievance mechanism.

Changes between 2013 and 2014

2014 is the first year that companies have had the opportunity to address the requirements of HMG 2013, and there has been a significant positive change between 2013 and 2014. For example the number of companies reporting human rights in annual reports increased from 45 to 92.

Broadly speaking the extractive industries remain the sectors that placed the most emphasis on human rights (by simplistically counting the number of times the words “human rights” appeared in the annual reports). The top 5 sectors in 2013 were:

1. Mining

2. Oil & Gas Producers

3. Support Services

4. Life Insurance

5. Tobacco

Compared to 2014:

1. Fixed Line Communications

2. Integrated O&G

3. Mining

4. Oil & Gas Producers

5. Technical Hardware and Equipment

Four of the top five companies in 2014 were also in the top five in 2013.

2013:

1. Randgold Resources Ltd

2. Rio Tinto PLC

3. G4S PLC

4. BP PLC

5. BHP Billiton PLC

2014:

1. Rio Tinto PLC

2. Randgold Resources Ltd

3. G4S PLC

4. BHP Billiton PLC

5. BT Group PLC

Whilst only 6 companies had a human rights Policy in 2013 this increased to 24 in 2014 and the number of companies addressing human rights in their wider policies increased from 30 to 59.The importance of ensuring the supply chain respects human rights has received greater emphasis with an increase from 18 to 44.The number of companies focusing on external stakeholders increased, as shown by the use of grievance mechanism, but overall remains low with an increase from 4 to 12 in 2014.

This review, whilst demonstrating a step change of improvement between 2013 and 2014, identifies that the management of human rights issues in FTSE 100 companies ranges from being absent to comprehensive. Those companies that provide a comprehensive review however are still able to further improve.

The variable quality of human rights reporting in annual reports would be improved by strengthening company human rights capability through demonstrating:

  • Use of competent in-house human rights expertise
  • Company Directors have expertise in dealing with human rights issues
  • Collaboration with external international organizations concerned with human rights
  • Contribution to the development of global human rights guidance

Nevertheless, the 2014 review demonstrates that in one year, the Principles have had a good effect on business practice.

By Jim Wright (jwright@jmwe.co.uk)

About the author

Dr Jim Wright

Jim has over 25 years of global experience in environmental, social, health and sustainability issues in the energy and mining sectors. Jim has acted as Lenders Adviser for banks and companies auditing performance against international accounting standards, IFC and Equator Principles. He has also delivered world class Environmental, Social and Health Impact Assessments (ESHIA), and delivered contaminated land assessments and remediation strategies across National Oil Company upstream operations. Jim is qualified with a NEBOSH General Certificate, IOSH Senior Executive and PRINCE2 Practitioner.