UNEP Finance Initiative - Human Rights Guidance Tool for the Financial Sector

Introduction

Human Rights and Business — risks and impacts

The UN Protect, Respect and Remedy Framework is seen as 'soft law' in international terms, strengthened by the support it receives from organisations such as the OECD and the European Union.

Meanwhile, many businesses recognise that managing risk and securing and maintaining a licence to operate depend on:

being aware of their own human rights impacts
recognising public and political expectations of corporate behaviour, both nationally and internationally.

Human rights extend into many areas where businesses have responsibility or influence. A business can contribute in a positive way - for example through its approach to:

employment practices
health and environment
safety and security
labour relations in the supply chain
vulnerable groups and minorities.

A company which has operations in regions where human rights abuses are widespread may find that its conduct is subject to scrutiny by regulators, governmental agencies, non-governmental organisations (NGOs), socially responsible investors (SRI) and its own employees and customers.

Any actual or perceived association with human rights abuses may give rise to material risks:

reputational damage (loss of custom, consumer protests, divestment campaigns, negative media attention)
operational risks (difficulty in recruiting and retaining quality people, costly delays to projects, business continuity, poor community relations)
political risks (the imposition of more stringent regulation and local investigations)
legal risks (hostile shareholder resolutions or legal claims under a foreign direct liability law such as the USA Alien Tort Claims Act or the UK Bribery Act)

In some cases a multi-national company may experience strong pressure to withdraw from a region altogether.

A positive stance on human rights can:

help a business to anticipate and manage risk more effectively
help a business to respond more effectively to allegations of human rights abuses
enhance a company's reputation for good governance
limit the risk of "sleepwalking" into avoidable controversy
enhance the competitive edge of a company, as consumers put a value on ethical behaviour
assist a company to establish operations or continue to operate in areas with poor human rights records by reducing the potential for association with poor practice and subsequent public criticism.

In summary, human rights can have material reputational, operational, financial, and legal implications for a company.

At the same time, the UN Guiding Principles indicate that human rights due diligence can be included in the company' risk management systems, provided that it goes beyond identifying only material risks to the company itself, and thus should include risks to the rights-holders.