Companies – soft law or hard law? It’s your decision!

On his website, Richard Karmel discusses issues relating to human rights and corporate social responsibility in corporate society. 

Richard Karmel is responsible for Mazars’ award winning business and human rights reporting service line. Richard and his team have devised an innovative solution to help protect the reputation of businesses whilst ensuring compliance with their social obligations.

On his blog today, he suggests to companies that there are two ways to respect human rights – and it is up to them what they decide.

The UNGPs provide the foundations for corporate behaviour

Following the unanimous endorsement of the UNGPs by the United Nations Human Rights Council in 2011, it was hoped that they would become an authoritative reference point for businesses to understand what it means to respect human rights.

Adherence to the UNGPs is voluntary for companies, but with the expectation that they would provide a floor – not a ceiling – for all corporate behaviour.

In fairness, it would appear that the majority of people who are aware of the UNGPs do view them as the authoritative reference point. This includes governments, which reference them in their National Action Plans and institutions, such as the EU, who also reference them in such documents as the 2014 non-financial reporting directive.

What is being done to help companies embrace the UNGPs?

So, given this backdrop, why in 2014 did the UN Human Rights Council endorse the motion put forward by Ecuador and supported by South Africa demanding a binding treaty for business on their human rights performance?

A treaty that would act as a form of hard law that would make companies legally accountable for their activities, which have negatively impacted peoples human rights.

The answer is, I believe, because in the three and half years since the endorsement of the UNGPs, companies have not yet demonstrated publicly any sea-change in their behaviours on their respect for human rights.

The UNHRC supported the introduction of the UNGPs, but it’s becoming clear that they are becoming agitated for change. Is their endorsement of negotiations on a binding treaty a statement to show others that the UNGPs aren’t changing corporate behaviour quickly enough? I have discussed the merits of a binding treaty in my previous blog, which concluded that in its current proposed form it wouldn’t work and is potentially undermining of the UNGPs.

Shift and Mazars are co-facilitating to help bring change

Of course, the issue is more complicated than this. Whilst the corporate world appears to accept the UNGPs as the authoritative guidance, it’s clear that putting them into practice is proving difficult.

This was an issue that Mazars and Shift identified in 2012. Whilst businesses understood the UNGPs, the feedback from them was that they needed more help on how to implement them.

Mazars and Shift suggested that businesses needed guidance on how to report their compliance with the UNGPs and that, given this reporting needed some form of credibility, Assurance guidance would also be necessary.

Out of this, the Reporting and Assurance Frameworks Initiative (RAFI) was born. This is a joint project co-facilitated by Mazars and Shift, which is officially supported by the UN Working Group on Business and Human Rights.

In November 2014, following an 18 month multi-stakeholder process, the first draft of the Reporting Framework was published. In its complete state, this framework will be known as the United Nations Guiding Principles Reporting Framework.

What is the Reporting Framework?

The idea behind the Reporting Framework is straightforward – companies will be unable to adequately report unless there is behavioural change within the company and its supply chain.

At the 2014 UN Forum in Geneva, the UN High Commissioner for Human Rights, Prince Zeid Ra’ad Zeid Al-Hussein, asked in the plenary session for all stakeholders to come together to work out how best to make the UNGPs real. Hopefully, in February 2015, at the public launch of the United Nations Guiding Principles Reporting Framework, Prince Al-Hussein will have his answer.

Whilst various regulators and governments are requiring companies to report on their Human Rights performance, and in some cases, have even included this in law (the UK’s Companies Act 2006), there has been little in the way of sanction or follow through.

Even though this is hard law, there appears to be only minor understanding of what reporting should look like. Also, companies aren’t being held to account on their current levels of reporting.

This is why there are certain stakeholders who believe the soft law route is not working and hence their cries for a binding treaty, that will hold companies to account.

Now we have the UNGPs Reporting Framework (well, at least a draft today with the final version due for release on 24 February 2015) which sets out what corporate respect for human rights should look like, companies will have no excuse for not implementing the UNGPs and reporting on their effectiveness.

If they don’t, it could be the hard law route, with increased legal costs and greater sanctions.

Richard Karmel

Mazars LLP