Corporate Social Responsibility and the Law : Foley Hoag LLP

More than a Resource: Water, Business, and Human Rights, a recent report by the Institute for Human Rights and Business ("IHRB") calls on companies to take action to respect the human right to water.

The report references the emerging consensus among international institutions that businesses have a responsibility to respect human rights, and highlights the Guiding Principles on Business and Human Rights, drafted by the former U.N. Special Representative on Business and Human Rights, John Ruggie, as providing the most authoritative guidance on how to implement this responsibility. The Guiding Principles specifically state that companies should conduct human rights due diligence in order to assess and respond to the actual and potential human rights impacts of their operations. 

As previously discussed, in July 2010, the U.N. General Assembly declared access to safe water to be a human right.  Soon thereafter, in September 2010, the U.N. Human Rights Council adopted a resolution recognizing access to clean water and sanitation as a fundamental human right, “equal to all other human rights” (emphasis added) and capable of legal enforcement.  These developments came at the same time as increasing water scarcity is impacting communities, and companies, around the world. 

The new report by IHRB suggests that

[i]n view of the fact that the right to drinking water and sanitation was formally recognized in 2010, all businesses should take account of this right when they implement human rights due diligence procedures and develop a human rights policy statement

as called for in the Guiding Principles.  In our previous analysis of the human right to water, we noted that companies will likely find that stakeholders increasingly expect due diligence efforts, especially with regard to human rights impacts, to include assessments of corporate impacts on community water resources. 

Notably, the IHRB report also predicts that "governments and intergovernmental organizations will increasingly call on businesses to be transparent and accountable for their impacts in relations to water, in human rights terms." That said, as the report observes, "most businesses do not yet consider water to be a social issue, and the great majority do not explicitly address the human rights impacts of their policies and operations in this area."  This is an emerging challenge that many companies, especially those with water-intensive operations, will need to address in order to manage their operations and stakeholder relationships effectively.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

On September 20, the Obama Administration announced its intent to join the Extractive Industries Transparency Initiative ("EITI"). Government members of the EITI are required to disclose the payments that oil, gas, and mining companies make to them, and companies operating in those countries publish their payments to the governments. The two can then be reconciled for greater transparency and certainty regarding payments to governments.

A working group in each EITI member country – made up of the government, companies, and civil society -- determines precisely how the reporting is conducted for that jurisdiction. In most countries, the information is presented in a partially aggregated manner so that, for example, the precise dollar amount paid in royalties by a particular company for a specific project is not clear.

The Obama Administration’s statement would make it the first G8 government to become a reporting country under the EITI. Other G8 governments are "supporters" of the EITI, but this does not require them to undertake reporting on their own extractive industry revenues. As a political gesture, the Obama Administration’s statement is significant because it implies that western countries should be subject to the same reporting standards as less-developed nations. It also means that oil, gas, and mining companies with contracts with the U.S. government would be required to report on their payments.

The Obama Administration’s statement arrives amid continuing controversy in the United States regarding the best way to increase revenue transparency. Section 1504 of the Dodd-Frank Wall Street Reform Act requires companies reporting to the Securities Exchange Commission ("SEC") to disclose their payments to the SEC on a project basis. Civil society celebrated this development, stating that it will increase the accountability of governments to their citizens regarding the use of oil, gas, and mining money, and thus ensure more benefits reach the general public. Industry, however, has raised concerns regarding the cost and political implications of the reporting required by Section 1504, which is likely to be more detailed than that required by the EITI. Industry maintains that the EITI remains the best mechanism to enhance revenue transparency. The SEC has yet to issue its final rule to guide implementation, so it is not clear whether it will demand reporting significantly more detailed than the EITI requires. Therefore, the precise implications of the law are uncertain.

NGOs have welcomed the Obama Administration’s intent to join the EITI, stating that it ensures that privately held companies with oil, gas, or mining contracts with the U.S. government will be required to report their revenues. Such companies do not report to the SEC, and therefore are not covered by Section 1504. At the same time, the American Petroleum Institute has welcomed the Obama Administration’s decision, claiming that, based on the Administration’s support for the EITI, the SEC should simply follow the EITI’s reporting standards when devising its rule. Time – and the SEC rule – will tell which side has read the tea leaves correctly.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Last week, I gave the keynote address at an Extraordinary Plenary Meeting of the Voluntary Principles on Security and Human Rights, held in Ottawa, Ontario on September 15-16, 2011. (Note: I did not deliver my remarks in my capacity as Senior Advisor to Foley Hoag's CSR practice. As noted previously on this blog, however, Foley Hoag serves as the Secretariat for the Voluntary Principles.) 

In my remarks, I observed that the Voluntary Principles "deals with the most palpable and widely recognized of all human rights: the physical security and integrity of the person."  I also recognized that the multi-stakeholder nature of the Voluntary Principle provides critical support to companies operating in difficult environments. Specifically, I noted that "companies need granular advice and assistance from home and host states alike. They need to be able to count on the in-country government-to-government interface that is a critical component of the [Voluntary Principles]—for example, to address the challenges of security sector reform, or to provide assistance in managing the predictable influx of people and corresponding demand for infrastructure when a new site opens."

The full text of my remarks can be found here.  

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In the Carbon Disclosure Project's 2011 analysis of the largest 500 companies, the Global 500, there is a very interesting statistical trend -- the companies who were the most strategically focused on accelerating low-carbon growth had returns from January 2005 to May 2011 that doubled the Global 500 as a whole, with returns totaling over 85%, compared to the 42.7% returns for the index.  Even more amazingly, the 13 companies that had been recognized by CDP for this strong focus for the last 3 years outperformed the Global 500 by over 60 percentage points over the same period.  Does monitoring and disclosing a company's carbon footprint and incorporating the risks and opportunities of climate change at executive levels actually lead to increased financial performance?  This report suggests there is a high correlation, at least. 

The report analyzes the responses the Global 500 companies submitted to a questionnaire that has CDP has sent on behalf of institutional investors every year since 2002.  Participation has increased each year -- up to 81% for 2011 -- as has the quality of the companies' answers and reporting, and the targets and goals that companies set for themselves.  This year's results show significant progress by all of the reporting companies in a few key areas, such as 74% of respondents setting greenhouse gas reduction targets, and 59% reporting a payback period of 3 years or less on their emission reduction activities. This year's survey also marked the first time that a majority (68%, up from 48% in 2010) of respondents have integrated carbon reduction efforts into the heart of their business strategies.

The set of 58 companies that doubled the returns of their peers were listed by CDP as part of the Carbon Disclosure Leadership Index (CDLI) (those that scored the highest on carbon emission measurement techniques and subsequent public disclosure) and Carbon Performance Leadership Index (CPLI) (those that fell within the top 10% of respondents when scored on strategic commitment to the business issues related to GHG emissions, energy use, and climate change).  There were 23 companies who made both lists.  Companies in Canada, Japan and the US were under-represented on these lists, compared to their peers in Australia, Germany, Italy, Switzerland and the U.K.  Surprisingly, given the regulatory focus it faces, the energy sector lags behind other sectors with the lowest proportion of companies setting targets (55%) and under-representation on both the CDLI and CPLI.

What did the CDLI and CPLI companies do differently?  As the report highlights, one notable difference between the companies named to the CDLI and those that were not is the practice of setting emissions reduction targets on which the company places significant emphasis -- 96% of the CDLI companies have emissions reduction targets, versus just 70% of the remaining companies.  Also significant seems to be whether the companies dedicated resources and time to identifying the new opportunities, investments and potential partnerships that a low-carbon economy could bring about -- the average score for the CDLI companies on this rubric is 88 (out of 100) compared to 54, across all respondents.  Similarly, all 29 of the CPLI companies have integrated their climate-related risks and opportunities into their business strategy, and used monetary incentives to encourage employees to meet carbon reduction goals.  The CPLI companies also universally submitted their emissions data for adequate verification -- something that only 37% of the remaining companies did, despite the importance of providing investors validated data.

Although the authors of the report argue that this data is a clear indicator that it makes good business sense to manage and reduce carbon emissions, correlation is not necessarily causation.  The companies who are better managing their carbon may just be better managed overall, leading to better performance.  Either way, the fast-rising number of Global 500 companies who are moving to capitalize on these opportunities highlights that more sustainable business models are, increasingly, simply the way business is done.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Human trafficking is a problem that is often hidden from sight, especially in the United States. The statistics on human trafficking and commercial sexual exploitation are unsettling. Nearly 800,000 people are trafficked across international borders every year. The U.S. Department of State’s 2010 Trafficking in Persons Report estimated that 2,000,000 children are exploited in the global commercial sex trade. ECPAT International, an international non-governmental organization, estimates that between 100,000 – 300,000 children are potentially subject to commercial sexual exploitation in the United States.

The U.S. Department of Justice has identified human trafficking as the fastest growing criminal industry in the world. Correspondingly, the level of advocacy seeking to address this problem has increased significantly in recent years, with a specific focus on engaging the private sector in efforts to combat the efforts of traffickers. Companies, especially in the travel industry, are facing increased pressure from stakeholders to play a role in addressing the problem. Companies have been subject to shareholder resolutions, online petitions, and legislative pressure asking companies to implement policies and procedures intended to promote the identification and reporting of trafficking activity.

For example, in June 2011, the Interfaith Center on Corporate Responsibility issued a statement asking 90 companies, including four companies in the travel industry, to take a leadership role in abolishing human trafficking and slavery. At the time of the statement, a representative of Boston Common Asset Management observed, “[i]t is no longer acceptable for companies to avoid this issue: each must do its part to eradicate the threat of human trafficking and slavery within its spheres of influence.”

Congress has also taken an interest in the travel industry’s actions to combat human trafficking. At a hearing in June 2011, Rep. Christopher Smith (R-NJ) observed, “No country and few industries are untouched by [human trafficking]. Traffickers use airlines to move their victims, [and] hotels to exploit sex trafficking victims.” His remarks focused on the potential for public-private partnerships. The U.S. Department of State, through the Office to Monitor and Combat Trafficking in Persons, has been involved in a number of these partnerships, working with companies in the travel sector on programs to protect and assist victims of trafficking.

As part of this advocacy and engagement, many companies have been asked to sign The Code of Conduct for the Protection of Children from Sexual Exploitation in Travel and Tourism (“The Code”). The Code, originally developed over ten years ago by ECPAT International, is not technically a code of conduct, but rather a set of business principles that can be adopted and implemented by companies in a manner appropriate to their business models. Consistent with The Code’s principles, advocates have urged companies to: adopt corporate policies against sexual exploitation; train staff to be observant to potential victims; provide staff with information on how to report suspicious activity; build alliances with police, anti-trafficking organizations, and child welfare agencies; and provide information to guests regarding national laws, hotline numbers to report potential incidents, and the penalties imposed for trafficking and the sexual abuse of children.

In 2004, Carlson became the first American company to sign on. In a recent statement, Beathe-Jeanette Lunde, Executive Vice President for People Development, Responsible Business, Safety and Security at Carlson, stated that affiliation with The Code represents “an opportunity to be open and proactive” about the crime of child exploitation and child trafficking “so all our stakeholders, be it employees, guests or suppliers, can feel safe while working or doing business with us.” More recently, in 2011, Delta Air Lines and Hilton Worldwide have also signed on to The Code.

That said, few American travel industry companies have signed The Code since its initiation over ten years ago. Some companies have policies against signing external codes of conduct, but the reluctance to adopt these business principles has also reflected industry concern regarding the legal and reputational risks of being associated with human trafficking. In recent remarks before a Congressional committee, Ambassador Luis CdeBaca, Director of the U.S. State Department’s Office to Monitor and Combat Trafficking in Persons, noted that many companies have stated that they “would love to do something” but find the notion of having their brands in any way associated with trafficking activity to be too “nerve-wracking.”

As companies worry about creating associations between their brands and human trafficking, the reality is that external stakeholders are already making this association. Companies increasingly risk being perceived as failing to address this criminal activity and its associated human rights concerns. Ultimately, companies are in the position of needing to define the narrative, rather than letting external advocates define it for them. As more and more companies are growing comfortable with taking proactive steps, those who have not yet addressed the issue will likely face increased scrutiny.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Press Release

September 7, 2011 -- John G. Ruggie, the former U.N. Secretary-General’s Special Representative for Business and Human Rights and current Harvard professor, has joined Foley Hoag LLP’s Corporate Social Responsibility Practice as a senior advisor.

Ruggie authored the Guiding Principles on Business and Human Rights, which the U.N. Human Rights Council unanimously endorsed in June after six years of development. The Guiding Principles set a standard of practice that is now expected of companies with regard to human rights. They also make recommendations to governments and are likely to affect legal and policy developments at national and international levels.

Key elements of the Guiding Principles have also been incorporated into the updated OECD Guidelines for Multinational Enterprises, under which complaints can be brought against companies in the 42 adhering countries. And the International Finance Corporation, the private sector arm of the World Bank, has updated its sustainability policy and corresponding performance standards it requires clients to meet to explicitly reference the business responsibility to respect human rights. More than 70 financial institutions worldwide and several national credit export agencies track the IFC standards.

As a senior advisor in Foley Hoag’s Corporate Social Responsibility Practice, Ruggie will help multinational companies navigate the Guiding Principles and apply them to their global business practices. He will also provide broad-based guidance in the area of business and human rights. Ruggie will continue to serve as the Berthold Beitz Professor in Human Rights and International Affairs at Harvard’s John F. Kennedy School of Government and as an Affiliated Professor in International Legal Studies at Harvard Law School.

Foley Hoag’s Corporate Social Responsibility Practice advises multinational corporations, governments, and multilateral institutions on a range of social, political, and environmental issues in the global business marketplace. Foley Hoag helps clients anticipate social, ethical, and environmental accountability challenges and limit their risks by incorporating internationally recognized standards into their strategies and operations and relationships with stakeholders.

Ruggie has long been involved in practical policy work, initially as a consultant to various agencies of the United Nations and the U.S. government. From 1997-2001 he served as U.N. Assistant Secretary-General for Strategic Planning, where he was responsible for establishing and overseeing the U.N. Global Compact, now the world’s largest corporate citizenship initiative; proposing and gaining General Assembly approval for the Millennium Development Goals; advising Secretary-General Kofi Annan on relations with Washington; and broadly contributing to the effort at institutional renewal for which Annan and the United Nations as a whole were awarded the Nobel Peace Prize in 2001.

• Email This
• Print
• Comments
• Trackbacks
• Share Link