Human Rights - it's not just a values issue
There are financial implications for companies, their advisors, and their investors.
Human rights are a big sustainability theme in their own right. What is sometimes less appreciated is that they are intrinsically linked to a series of wider social and environmental topics. Companies and investors need to stay ahead of the curve on this. These are not just good corporate citizen topics anymore; they are becoming a critical driver for a company's long term financial success or failure.
Saturday (10th December) was Human Rights day. Its importance for companies, advisors, sustainability professionals, and investors was the topic of a long blog that I co-wrote with my colleague Kristina Touzenis, a human rights lawyer with more than 20 years of experience. You can read the full long blog here, this post is a summary of why its important.
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We don't send children up chimneys anymore
Our view on what constitutes acceptable work practices changes, as societies become safer and more prosperous. Maybe slowly, but they change. Up until the 1840's, children under 10 years old used to be allowed to work in UK underground mines. Now, the debate is less about working practices in a company's home country, and more about how it treats its employees elsewhere.
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The Chimney Sweeps Act (1834) required that no child was to be actually engaged in cleaning chimneys under the age of 14. This was largely ignored due to the absence of any means of enforcement, and children under ten were still being made to climb chimneys. In 1863 the publication of 'The Water-Babies', a novel by Charles Kingsley, raised public awareness. Finally, in 1875, a successful solution was brought in which licensed sweeps, and handed enforcement to the police.
Our definition of socially acceptable behavior follows our values
Our main point is a simple one. What we think of as socially acceptable behaviour by companies follows our wider values. The legal framework normally plays catch up, sometimes driven by a reaction to events that are seen as being so horrendous, that they create a consensus to make sure that something "like that" should never happen again.
Sometimes social pressure on its own works; sometimes we need the law but, and this is the important point, it's not the law that drives the process. It's social pressure. Enough social pressure and you can be sure that the law will follow. And social media spreads the word faster than Charles Kingsley (the author above) could ever have imagined.
But of course, its more complex than this. Social pressure on its own is seldom enough. Without legal rights those who are vulnerable will not be able to obtain redress or justice, and those with power and wealth will have disproportionate strength. The law is not abstract notions in a language few can understand (although sometimes to non lawyers it might feel like that)– the law is there to ensure that everyone gets a fair deal, to avoid oppression, and to obtain redress for those who suffer abuse.
At this point most blogs on human rights would begin to talk about values, why being a good corporate citizen is the right thing to do. It protects a company's reputation, and it supports staff recruitment and retention. Plus, staff who work for companies whose values they believe in and support, will be more productive. This is all largely true, and it is a really important aspect of the debate.
But, today, we want to take a different tack.
Human rights is more than just values, as important as they are
We are going to look at Human Rights as a strategic issue for companies and investors, one that can have a very direct impact on a company's long term value creation. This is not to diminish the values-based arguments. Many investors want to know that their capital is used in a way that is aligned with their values.
And some are working out that they are effectively "universal owners" - so these systematic issues have the potential to materially damage the returns from their wider portfolios of equities and debt. Put simply, universal owners are effectively invested in the wider society, and so externalities that damage wider society also damage their portfolios. This covers most long term investors, insurance companies and family offices.
Making sense of this different approach
We wrote our long blog to make sense of this different approach to human rights, and to dig in deeper as to how this should change how:
companies manage potential abuses in their supply chains, and the consequences if they do not,
they think about possible human rights abuses outside of their home territories, and;
they might be impacted by changes in the application of international law, or as someone once put it “actions that make countries fulfil their obligations”
This is already a big issues, and its going to get more and more important. Its one that companies, their advisors, sustainability professionals, and investors need to get on top of, and quickly.