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EFF SOURCE Fashion business success without compromise

14 April 2015

A quick look at new report ‘The Road From Principles to Practice'

Contributor Sarah Ditty

Economist Report

A look at the latest report from The Economist Intelligence Unit on today’s challenges for businesses in respecting human rights - and what this means for fashion companies.

In this seminal new report, The Economist looks at business and human rights because of a notable broader societal interest in the topic, one that has become prevalent over the past five years. Though of course, the relationship between business and human rights has a very long history.

Download the full report, here.

The Economist looks at two major trends contributing to this:

  • aspirational principles becoming legal instruments and the hardening of certain human rights principles into customary international law
  • the growing internationalisation of business activity, especially supply chains and sales

In simpler terms, it’s because certain human rights standards are becoming universally accepted as the correct way of working and because globalisation has made everything so intertwined.

This report describes the new “Ruggie Framework” – i.e. the UN Guiding Principles – as the “watershed event” that has helped turn human rights issues in supply chains into timely and pressing global concerns.

Ruggie’s “Protect, Respect, Remedy” framework clarified three key things that other sets of UN principles or standards had done before:

  • the duties of states to protect rights
  • of companies to respect them
  • for both to have appropriate remediation mechanisms in place should things go wrong.

Read more about the 5 key global standards on human rights and business, here.

The timing of this report is also in response to the Rana Plaza tragedy and other gross human rights abuses in the world’s supply chains that have been capturing headlines in the past two years.

About the report:

A global online survey of 853 senior corporate executives carried out in November and December 2014, wide variety of sectors about half in Europe, nearly 30% in Asia-Pacific, 28% from North America. Extensive desk research and in-depth interviews with nine corporate leaders and many independent experts.

Below are the major findings of this crucial report, consolidated and explained pretty much verbatim.

Key findings:

1) A large majority of executives now believe that business is an important player in respecting human rights, and that what their companies do—or fail to do—affects those rights. In other words, “the intellectual argument is (largely) over.”

83% of respondents agree (74% of whom do so strongly) that human rights are a matter for business as well as governments.

Roughly 3/4 or more believe that their company’s activities affect employment issues (both working conditions and collective bargaining rights); the right to a private life; to education; to an intellectual and cultural life; to environment-related rights; and to access to justice.

71% say that their company’s responsibility to respect these rights goes beyond simple obedience to local laws.

2) Companies see human rights mainly as a stakeholder and ethical issue; the short-term business case for respecting human rights is less widely accepted.

44% of respondents say that human rights are an issue on which CEOs take the lead, and 22% say that they have a publicly available human rights policy in some form.

CEOs are most likely to take the leading role in this area (44%), followed by CSR (34%), HR (24%) and strategy executives (19%). However, at 56% of firms surveyed the CEO does not take a leading role, and at 37% of companies nobody does!

Although executives have become sensitive to a range of human rights issues, only 21% say that a clear and immediate business case, involving a risk-benefit analysis or a gain in competitive advantage, is driving their human rights policy.

Where businesses are, in fact, pro-active in the area of human rights, longer-term issues of brand and reputation management tend to drive their activities. 15% of respondents said that the potential cost of respecting human rights, or a possible loss of profits related to respecting human rights, are among the five biggest barriers to taking action on the topic.

3) While corporate attitudes are evolving fairly quickly, concrete steps to reform company policies and to communicate such changes externally are slower to follow. Companies are still coming to grips with what their responsibilities mean in practice, a process that will also take time.

“Uncertain of where to start.”

Respondents list a lack of understanding of their company’s responsibilities in this area (32%), lack of money and staff to work on human rights issues (27%), and a lack of training and education for employees (26%).

Less than half of all firms survey have a human rights policy in place. 22% have a human rights policy that is publicly available and a further 19% have a purely internal one. Of those with one that’s publicly available, only 37% consulted external stakeholders when drafting it and 62% communicate it to stakeholders. Of course, just because they don’t have a formal policy doesn’t mean companies aren’t working on human rights issues; they very well could be. And a policy doesn’t mean much without implementation.

Things which respondents said would help them to address their responsibilities centred on greater access to meaningful data: public benchmarking of company performance (39%) and access to reliable, independent information on country-level human rights situations (32%).

4) Current leaders in corporate action on human rights have moved ahead by embedding respect for human rights within their organisations, but acknowledge that they still have much to learn.

The 25% of respondents who believe their company’s human rights policies outperform those of their competitors have several things in common. These firms are more likely to have internalised respect for human rights: 52% say that moral and ethical considerations are a leading driver of human rights policies and 78% believe that respecting human rights goes beyond mere legal compliance. These self-benchmarked ‘leading’ companies tend to have senior leadership actively involved in human rights issues. While an apathetic corporate culture was noted as a leading barrier to addressing human rights issues at one in eight other companies.

What’s the way forward from here – how will principles move into practice?

Arvind Ganesan, director, Business and Human Rights Division, Human Rights Watch, told The Economist that: [in the US and Europe] “Companies have to disclose if they have a human rights policy… Today it is about disclosure; perhaps in five or ten years this will evolve into a review of whether the content of these policies is sound. The train has left the station.”

The Economist also spoke in greater depth to Jan Klawitter, government relations manager at Anglo American, who said that, “over the past few years, large infrastructure and extractive projects have experienced significant cost overruns because of delays resulting from community opposition.” He also explained how positive stakeholder relations, arising from a good track record in human rights, has helped to improve access to resources—not just to raw materials, where government and community relations matter, but also to talented employees who prefer to work for a firm who cares.

Moreover, the survey indicates that where state governance is weak, companies’ actions tend to have greater human rights relevance. This makes sense, understandable it’s difficult to respect human rights when the country your business is working in doesn’t. But is this not also one major underlying reason why companies choose to do business in those countries in the first place? Weaker state governance often equates to a cheaper price of doing business in that country.

So a few key things become clear:

  • businesses must be, and work with stakeholders too, to be more transparent about both your policies and business practices
  • involve your stakeholders (from your producers to your customers) in things that affect them, this will help you minimise your negative impact and actually help your business be more stable and profitable
  • seek ways to understand the political and cultural context of a country before doing business there, speak to people on the ground who know best

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