Global shift towards public reporting

The first reading of the Modern Slavery (Transparency in Supply Chains) Bill 2016 took place on 23 May 2016 in the House of Lords. The Bill requires commercial organisations and public bodies to include a statement on slavery and human trafficking in their annual report and accounts. For more information see Legal update, Modern Slavery (Transparency in Supply Chains) Bill 2016 first reading in House of Lords.

This is in addition to the requirements of Companies Act 2006 (Breach of the requirement to make a human rights disclosure under section 414C(7) Companies Act 2006 is a criminal offence ) and the EU Non-Financial Reporting Directive 2014.

Domestic legislation is shifting towards public reporting, in step with global changes. In the US for example, California Transparency in Supply Chains Act (TISCA) is in force and Congress is currently considering the Business Supply Chain Transparency on Trafficking and Slavery Act (2015), a bill amending the Securities Exchange Act of 1934.

As well as statutory requirements to report, soft regulation is also geared towards public reporting. The Guiding Principles on Business and Human Rights (UNGPS) are based upon a protect, respect and remedy structure and provide a blueprint for companies to manage the risk of having an adverse impact on human rights, They have been endorsed by many companies, civil society organizations and trade unions. They do not create any new international legal obligations on companies, but they can help boards to operate with respect for human rights and meet their legal responsibilities set out in domestic laws. They include a principle to report on how they address severe human rights risks. This enables a company to publicly explain how they meet their commitment to a wide range of stakeholders in a clear and consistent way that aligns with company values. The UNGPs provide an effective framework to do this.

The UK Equality and Human Rights Commission, which promotes equality and diversity and safeguarding human rights, has published guidance to help companies assert human rights leadership from the top-down.  The guide provides five steps boards may take to identify, mitigate, remedy, and report on the human rights impacts of their operations. In respect of reporting the guide suggests that companies should report on their relevant or most serious human rights risks and satisfy regulatory requirements. It explains that regardless of the approach taken, whether providing information in an annual report, sustainability report, or standalone documents, reporting should be easy to locate on a company’s website and written in an accessible manner.

In order to assist companies, Shift has produced a “Reporting Database” that demonstrates which companies are reporting on the UN Guiding Principles. For more information see Legal update, Shift Reporting Database demonstrates which companies are reporting on the UN Guiding Principles.

The Reporting Database was developed on the premise that where a company pays attention to the nature and quality of their human rights reporting, the corollary will be to focus on the nature and quality of their human rights practice and performance. The database shows what companies say about how they are implementing the UNGPS based on their public disclosure and is intended to allow companies and their stakeholders to infer how accurately a company is reporting on its progress and allows investors to examine the extent to which a company’s reporting meets expectations for meaningful disclosure.

Currently, few companies report on their management of human rights risks.

A regulatory compliance approach to reporting is unlikely to be successful not just because of the lack of global legally binding human rights law but because people obey rules that correspond to their own moral value and so ethical alignment is crucial. A regulatory system that supports ethical and fair behaviour is likely to be successful.

Equally a business that demonstrates, through evidence, its commitment to fair and ethical behaviour will reinforce the trust of regulators, customers, suppliers and other investors as well as internally though all levels of management and employees.

The soft law impact presents a challenge for businesses that need clarity on how human rights are being fixed into domestic law frameworks. While companies may resent the need for further reporting, lawyers can play an important role in advising what format the report is made and how best to maximise the impact of the report. Theresa May has been explicit that it is not acceptable for organisations to ignore the issue because it is difficult and that it is insupportable for businesses to put profit above the welfare of its employees and those working on its behalf.

This presents an opportunity for in–house teams to improve ethical leadership and raise human rights awareness in business. Lawyers who demonstrate ethical leadership in business by resolving human rights issues fairly in accordance with the UNGP will further embed the ethical business commitment and values and enhance the company’s reputation externally and internally.

Practical Law Morag Rea

Leave a Reply

Your email address will not be published. Required fields are marked *