New—and Important—Role for Professional Accountants in Assessing Human Rights Risk
Tanya Barman | July 21, 2016 |
When law firms are hiring specialists focusing on human rights as advisors to business, business at large must take note. Over the last few months, at a range of events, I have heard first hand from such new professional legal associates of the importance of horizon scanning and the how the landscape is changing in regard to corporate responsibility. Human rights and business is an emerging area that is set to accelerate and, as no any business can rest assured without further investigation that their full supply chain is “clean”, assessing and addressing potential risk in this area is clearly also a role for the professional accountant.
In recent years, the operating environment for business has changed irreversibly. Companies will be increasingly called to account to show what they have done to prevent disasters like the 2013 Rana Plaza garment factory collapse in Bangladesh that cost over a thousand lives.
It is not only the clothing industry that is affected by human rights problems. Almost any product on your desk, from your stapler to your phone, could contain components sourced from a supplier that is guilty of human rights abuses—forced or child labor, dangerous working environments, land clearance, environmental degradation, harassment, and misuse of data (should privacy be breached and unauthorized sharing of content occur). Once home, open your refrigerator: agricultural sourcing and fishing can be rife with unscrupulous practices deep in the chain.
The UN Protect, Respect, and Remedy Framework (PRR) set out the role of the private and public sector regarding business and human rights, namely:
- States have a duty to protect, respect, and promote human rights;
- Companies have a responsibility to respect human rights; and
- Victims of business-related harm should have access to remedy.
The UN PRR was enhanced in 2011 when the Guiding Principles on Business and Human Rights were agreed to. Many different organizations around the world, including large and small enterprises representing diverse industry sectors, accept, endorse, and use these Guiding Principles in their day-to-day activities. The Principles have a growing influence on a range of sectors and communities, be it civil society, governments, investors, and multilateral and international organizations as well as a range of professional associations.
Professional accountants, as we know, are responsible for helping devise business strategies, analyzing the consequences for business decisions, forecasting performance, and suggesting improvements to a business. They also need to be aware of and address issues or risk. It is, therefore, clear to me that they have a particular role to play in regard to assisting companies to respect human rights throughout the business.
To this end a CGMA guide, Business and Human Rights: Evolution and Acceptance, was produced in partnership with the UN Global Compact’s UK network. The guide aims to help professional accountants reflect on how best they can both consider and then address human rights issues across their businesses and also how they can learn from and work with others in order to uphold human rights in the communities they operate in.
It outlines key questions that accountants should ask of themselves and of the business, starting with: Has the organization made a public commitment to respect human rights, or signed up to a responsible business standard, such as the UN global compact, and enquired into how functions like procurement factor into regulatory requirements or undertakes due diligence?
It is important to keep apprised of the changes in the regulatory and legal landscape. This area is gaining speed with the development of new national laws, such as the Modern Slavery Act in the UK, particular requirements under the Dodd-Frank Act in the US, or the National Action Plans different countries have, that are in line with the Guiding Principles.
Existing business strategies and corporate plans should be reviewed to identify any human rights risk that may adversely impact stakeholders. Should information arise that highlights risk, there needs to be an ongoing assessment of how such risk has been dealt with, be that directly or via the wider supply chain. It is worth recognizing that such responses may take time and need a concerted ongoing effort. For example, with potentially millions of stakeholders in their supply chain, global consumer goods company Unilever accepts that it can control some parts but only influence others. Identifying problems in the chain, then seeking feedback and sharing the knowledge gained, helps to address these issues, highlighting the need for continuous improvement with transparency and accountability as the critical drivers.
Working together with other organizations in the supply chain is an imperative, particularly in corporate reporting as well as training and development, to improve understanding and awareness of relevant processes and policies. Newmont Mining, for example, reflect this by engaging internally across regions and functions and externally with human rights experts and key stakeholders to identify the most salient human rights risks it faces. Mining is a particularly high risk sector, and fallout from human rights abuses could be significant. Integrating human rights risks and issues into management of the business helps secure the social license to operate.
Allocating funding across a number of different activities will always be necessary, be that for human rights country risk analysis, stakeholder engagement, impact assessments, or learning and development. And, depending on potential risk, there also may be a need to allocate restricted funds for remediation and reparation. Short-term savings will never make up for long-terms costs that may ensue.
With their commitment to professional codes of ethics and conduct, accountants need to also challenge not only information and data ensuring that human rights risks and impacts are effectively managed but also action plans to ensure approaches are cost effective and meet the needs of stakeholders.
Embedding human rights considerations into the business, particularly in complex organizations, is an incremental process. However, the sooner the journey begins, the faster progress will be made toward mitigating risk and realizing opportunities. The key to progress is enabling relevant and material information to be incorporated into management decision making, analysis, and reporting. Professional accountants globally should take up the mantle and consider human rights in their roles. Why not start today?