How Investors can implement rights | Working towards the SDGs with true ESG

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INSIGHT by Kristina Touzenis, Managing Partner BST-Impact and Head of the investRFP Expert Group on Sustainability

It is no longer a shocking notion that non-state actors have a role to play in protecting human rights, nor that they can violate rights (even if legally speaking they would not, in most cases, be directly accountable under international law). What perhaps needs to be brought to the forefront is how having a norms-based approach, is in the interest of such actors.

There is no doubt that the State is the duty bearer under international (human rights) law and thus has the obligation to respect, protect and fulfill. An act which violates human rights and which is initially not directly imputable to a State (for example, because it is the act of a private person or because the person responsible has not been identified) can lead to international responsibility of the State, not because of the act itself, but because of the lack of due diligence to prevent the violation or to respond to it as required by international standards.

This is part of the State’s obligation to protect, and it is the basis for why e.g. the European Union is developing mandatory reporting mechanisms and legislation related to human rights due diligence and sustainable finance.

It is important to understand that many internal violations of rights found in international instruments are dealt with by national institutions; this is why it is so important to respect the due diligence if a violation has been committed and to have effective and fair legislation, law enforcement and an impartial and effective judiciary.

In these cases the State is dealing with violations as it is supposed to – taking steps to prevent and address (and redress) actions of private parties. In these cases the national system is functioning and thus direct international responsibility (as in “liability”) for a violation will not follow as it would if the State did nothing to prevent/address/redress violations, or actively participated in them.

There is thus a responsibility to prevent/protect from wrong-doing and act if wrongs have been done, not an expectation that wrongs will never ever occur.

It is a question of a responsibility
to have in place legislation/regulation
that is effective and is impartial and
non-discriminatory and effectively
implemented to create a society based
on respect for fair rules.

 

An understanding of obligations that stops at the understanding of the levels of State obligations however fails to take into adequate account the changing environment, at both the national and international levels, where nonstate actors-such as corporations and investors, are having an increasing impact on the enjoyment of especially Economic and Social rights, but also by promoting or hampering sustainable development and participation can directly or indirectly influence political and civil rights, such as political participation, the freedom of association and the freedom of assembly.

The history of human rights law indicates that human rights were intended to protect the individual against excessive use of state power. But ultimately the obligations put on States to protect shows that what human rights are all about really is to protect any potentially more vulnerable individual/group against others with disproportionate power, which clearly includes not only multinational corporations but any influential economic entity.

Business enterprises of all sizes, sectors, operational contexts, ownerships, and structures, do have roles and responsibilities when it comes to respecting human rights. The fact that enterprises are not direct duty bearers does not absolve them of responsibility – first and foremost under national legislation, but considering developments over the last decade in understanding the impact that non-state actors have on rights issues/implementation and societal impact.

It is by now completely accepted that corporations should support, further and respect the protection of human rights and should make sure that they are not complicit in human rights abuses. This does not mean that the State can relieve itself of its human rights obligations by delegating them to non-State actors. In situations where a non-State actor does not have ties with the State, the State may still violate its human rights obligations if it fails to exercise due diligence, i.e. does not do everything in its capacity to protect the population from violations and abuses committed by non-State actors.

There is no doubt that business enterprises can impact the entire range of human rights positively or negatively, including discrimination, health, access to education, labour exploitation freedom of association and to form unions, freedom of expression, privacy, adequate standard of living (not in poverty), food and water, housing.

So, what does it mean to “respect” human rights when one is a private enterprise? It means taking active steps to be in line with human rights obligations, often even if not always enshrined in national laws and regulations. A State has an obligation to exercise due diligence under its obligation to protect. A non-state actor has such an obligation in order to respect rights. That means first of all having internal policies which from an internal governance perspective sets up a regulatory framework safeguarding workers – all the way down the supply chain – as well as the more extended communities in which the enterprise operates.

But looking at broader societal impact is also necessary. This has become very clear in the environmental impact area but is no less relevant for rights and societal issues. In order for a non-state actor to actually respect rights it needs to not have a negative impact on i.a. education, health care, poverty related issues (of which education and health care as well as corruption and lack of political participation are part), respect for the rule of law, access to justice, freedom of speech and association and freedom from exploitation. But for a private actor respecting rights means more than simply not having a negative impact. It means measuring and monitoring ones broad impact on society and make certain it promotes the enjoyment of rights. Otherwise the result is a complicity in continued violations – and that does not amount to “respect”.

So what does it mean for an entity, be it a company or an investor to use a norms-based approach?

A norms-based approach is a conscious and
systematic integration of international
norms and rights principles in all aspects
of activities and policies.

 

Very simply put it means considering how activities and policies influence the enjoyment of rights of the societies in which one operates, as well as having regard for the underlying principles such as participation, accountability and non-discrimination. It is a tool to implement standards that are binding first and foremost on States, but a norms-based approach can be applied by all actors.

Although there is no standard universal understanding of how to apply a norms-based approach to activities, it basically means that rights principles and standards from the international law guide are integrated into the process of activities.

This means that there needs to be an evaluation of the rights situation at the outset, an identification of effected individuals and groups, possibilities for redress for violations, but more importantly that the effect on the rights situation needs to be taken into account all through the duration of an activity.

This could mean evaluating whether activities are furthering economic and social rights, or hindering their realization (very simple example could be the access to health care; does an enterprise provide health insurance and paid sick leave? Or education in areas where minors have to work in order to even eat: will an enterprise put in place vocational training which furthers young peoples’ skills and possibilities and put in place guarantees to avoid child labour?)

Human Rights are basically a legal picture of
a society in which people are free from fear,
hunger and suffering and where
people have choices.

 

Human rights focus on the worth of every human being and are concerned with fair distribution of influence and participation and the possibility for people to advance their lives in regulated and safe societies. Having a rights based approach is very much about protecting the individual from any aggression from a stronger more powerful entity be it the State or others. But the end result is also about maximizing the “utility” of society as a whole, in a sustainable way, both by guaranteeing individual rights as well as prioritizing the rights of the most marginalized groups in order to have prosperous and fair societies (and also markets).

Human rights are a legal expression of protection for everyone to avoid becoming/continuing to be disadvantaged, and as such would seem to endorse significant national and international redistribution of incomes, so that greater parts of the population can have a meaningful participation in society – including being engaged consumers, employees and employers.

Having minimum essential levels of socio-economic rights for all, including a distribution of the means to realize socioeconomic rights necessary for a dignified life, will benefit societies largely speaking and have a direct impact on collective buying power, but also on how people are e.g. able to focus on recycling their waste and buying sustainably produced products instead of concentrating only on how to obtain their next meal or getting clean drinking water.

One specific social right that could be mentioned here is the right to, and effective access to education.

Without education about sustainability,
history and broader societal issues people
will be less able to make informed choices
both for themselves as well as making
decisions that may affect others.

 

Furthermore, a rights-based approach helps to measure social impacts of environmental strategies and investments, helping to answer the following questions (and many more): what are the social impacts on workers, populations, and broader societies in circular economy strategies? How do decarbonization pathways mitigate adverse impacts on livelihoods and biodiversity?

How to measure and link environmental and social performance in sourcing, production, and trade patterns?  How to assess social risks related to technology advancement? What poverty-reduction strategies should be considered in providing energy services to promote efficiency and long-term and scalable impacts at local, regional, and global levels? Does the company work with local or central authorities to address issues of discrimination and exploitation? Does the company positively influence education levels – including by offering vocational training to youth as a form of employment?

There is also a huge need
to harmonize reporting.

A norms-based approach to creating indicators and impact measurement will automatically be harmonized since the international standards will be the same for everyone measuring and reporting – but it will allow you to focus on the issues relevant for you.

It also allows you to openly face issues of delays in implementation when these are due to difficulties in societies where you operate. In these cases, putting in place processes and actions addressing the difficulty in a meaningful way would avoid having to pull out of such situations (which can have an enormous negative impact on the environment and on the affected population, if the space you occupied is subsequently taken over by actors who do not care about impact or sustainability). Finally, it would allow to report on actions taken from a norms-based perspective.

One crucial point underline is the positive impact a norms-based approach can have on the concerned non state enterprises and how such an approach affects societies where they work. The business case is not only about risk management, it is increasingly important for enterprises to understand how social (and environmental) change, or lack of change, may pose risks for their supply chains, operations as well as markets.

The obvious risks to an enterprise will be operational disruptions and delays as well as reputational risks which will directly influence opportunity to engage partners, ever more aware financing partners as well as consumers looking more and more at how product have been produced and the impact that production had. There will be risks of lawsuits as more and more cases are brought against non state enterprises for violating rights and for having a negative impact on sustainable development.

But having a norms based approach is about more than “just” mitigating risks it is about moving away from doing no harm and “charitably” handing out help, towards understanding that it is in the best interest of all concerned to operate in societies in which rights are promoted and respected.

People who have the possibility to go to school, be healthy and operate in a safe society, will be better able to cope in a well and fairly regulated labour market, with social benefits which allows them to maintain buying power should they e.g. lose the jobs for a period of time or become incapacitated. Thus a norms based approach also contributes directly to the creation of a society as a whole which is based upon Rule of Law and respect for rights where all interaction will be more predictable.

Many investors or regulators do not necessarily
have an appreciation of the fact that worldwide
implementation and respect for rights happens
in extremely complex settings.

This means that progress may be slow and even at times hindered. Having a norms-based approach will help show how impact is made, at a different speed, even in complex settings where e.g. weak infrastructures, low educational level, general lack of respect for rights, lack of access to basic services, presence of corruption or widespread unrest may require to take into consideration and evaluate different contextual elements using specific parameters.

The notion of “progressive realization” of rights was developed to allow for States with lesser available resources to not be held in violation if they did not reach the same levels of e.g. health care as developed countries, and to reflect a recognition that the realization of economic, social and cultural rights can be hampered by a lack of resources and can be achieved only over a period of time.

But a lack of resources cannot justify inaction in protecting and promoting these rights nor indefinite postponement of measures to implement these rights! This is a notion which often escapes people living in the global north when reading reports or set due diligence standards. A norms-based approach will help create REAL impact and REAL engagement, both in societies where investees are operating as well as with regulators in e.g the EU.

Kristina Touzenis, Managing Partner BST-Impact and Head of the investRFP Expert Group on Sustainability

about

Kristina Touzenis is the Managing Partner of BST Impact and Head of the investRFP Expert Group on Sustainability. A lawyer and a recognized leader in the effective and concrete operationalization of international human rights standards and principles in complex settings worldwide requiring long-term engagement with a multitude of stakeholders, form both the public and private sectors. She has more than 20 years of experience in advocacy, human rights reporting, monitoring, and evaluating as well as in policy making and negotiating at national, regional, and global level. Kristina founded BST Impact with two other partners in mid 2020, together with a pool of experts to help companies and investors to effectively operationalize ESG criteria, SDGs, international norms and the Business and Human Rights agenda into their respective sustainable business strategies, investment processes and risk assessment management systems. Previously, Kristina created the International Law Unit at the International Organization for Migration – IOM, the UN Agency for Migration and served as Head of the Unit from 2011 to 2020. She engaged with government counterparties on legislation development and review as well as with other Agencies within the UN common system, on advocacy and implementation of programmes worldwide. Prior to her appointment at the IOM HQ, Kristina worked from 2006 to 2011 in the IOM Regional Office for the Mediterranean Region, on translating international norms and standards into practice on the ground and from 2002 to 2006 on implementing children’s rights in the Mediterranean Region for an NGO.

All opinions expressed are those of the author. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.