Chapter 4: Social Factors Flashcards

Question

Corporate Human Rights Benchmark

Answer 1

The Corporate Human Rights Benchmark (CHRB) is a collaboration led by investors and civil society organisations dedicated to creating the first open and public benchmark of corporate human rights performance. The CHRB provides a comparative snapshot year-on-year of the largest companies on the planet, looking at the policies, processes and practices they have in place to systematise their human rights approach and how they respond to serious allegations. Initially, only companies from three industries – agricultural products, apparel and extractives – were chosen on the basis of their size and revenues. The measurement themes and indicators within the CHRB provide a truly rigorous and credible proxy measure of corporate human rights performance, which can be used by analysts and investors. The themes consist of multiple questions that are listed in the report. They are: 1. governance and policy commitments; 2. embedding respect and human rights due diligence; 3. remedies and grievance mechanisms; 4. performance – company human rights practices; 5. performance – responses to serious allegations; and 6. transparency.

Answer 2

Assessing how companies uphold labour rights is important for investors to gain insights into the corporate culture and the level of employee satisfaction. The most important labour rights have been summarised in International Labour Standards. These are aimed at promoting opportunities for women and men to obtain decent and productive work, in terms of freedom, equity, security and dignity, and are included in the fundamental conventions of the International Labour Organization (ILO). These include: 1. freedom of association and protection of the right to organise; 2. right to organise and collective bargaining; 3. forced labour and abolition of forced labour; 4. minimum age; 5. worst forms of child labour; 6. equal remuneration; and 7. discrimination (employment and occupation).

Answer 3

A company operates most effectively and efficiently when the workforce is positive and productive. This ensures that the costs of turnover, absenteeism or strike actions are reduced. In order to ensure that the rights of the employees are well served, employees should have the freedom to form or join an association or a trade union, which advocates for the interests of the employees. In some countries or industries this right is limited. For example, several companies within the retail industry are renowned for their anti-union stance. Walmart has been targeted by several international institutional investors to adopt a more pro-union stance. When freedom of association is established, often other labour rights violations, such as forced labour, child labour and discrimination, are better safeguarded. The lack of freedom of association can occur directly at the level of the investee companies, but is more likely to be an issue in companies’ supply chains. By engaging with their investee companies on this topic, investors can press for better industrial relations within a specific sector or country.

Answer 4

Two topics that are less frequently mentioned in responsible investment policies are modern slavery and forced labour. Modern slavery refers to situations of exploitation that a person cannot refuse or leave because of threats, violence, coercion, deception and/or abuse of power. This is considered to be an umbrella term encompassing practices such as forced labour, debt bondage, forced marriage and human trafficking. Forced labour is defined by the ILO as: “All work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily”. Modern slavery and forced labour can take place in every kind of work or service, either in the private, public, informal or formal marketplace, but typically occurs in industries that are poorly regulated, and where the production process requires many workers. In total, no fewer than 25 million people are estimated to be in forced labour. It is often hidden away in supply chains in the second tier and beyond. Most companies that address modern slavery and forced labour, however, both start and end their due diligence by focusing on their first-tier contractors and suppliers. Besides modern slavery, forced labour can take subtle forms, which makes detecting it very difficult. The use or threat of physical violence is not essential to characterise a labour relationship as forced labour. Debt bondage, threatening to denounce a worker to immigration authorities or the retention of identity papers can ‘force’ workers as well. The increasing complexity and international character of supply chains makes more transparency essential. In 2015, the Parliament of the United Kingdom adopted the Modern Slavery Act, which was designed to combat modern slavery.

Answer 5

In sectors that employ and rely on masses of manual labour (such as the garment and footwear, food and beverage, consumer electronics or retail sectors), wages are often insufficient to cover workers’ basic living expenses (food, clothing, housing, healthcare and education). The benefits of paying a living wage are clear. Workers who earn a living wage can meet their own basic needs and those of their families and put savings aside, thus being more likely to find their way out of poverty. They work regular working hours instead of excessive overtime to make ‘ends meet’ and are more likely to send their children to school instead of work. In short, the focus on a living wage also advances the respect for a number of other fundamental human rights in global supply chains.

Answer 6

A company that plans to develop on ancestral land or use resources of a territory owned by indigenous people, should establish FPIC: ▶ Free simply means that there is no manipulation or coercion of the indigenous people and that the process is self-directed by those affected by the project. ▶ Prior implies that consent is sought sufficiently in advance of any activities being either commenced or authorised, and time for the consultation process to occur must be guaranteed by the relative agents. ▶ Informed suggests that the relevant indigenous people receive satisfactory information on the key points of the project, such as: ``` » its nature;» its size; » its pace; » its reversibility; » the scope of the project; » the reason for it; and » its duration. ``` This is the more difficult term of the four, as different groups may find certain information more relevant. The indigenous people should also have access to the primary reports on the economic, environmental and cultural impact that the project will have. The language used must be able to be understood by the indigenous people. ▶ Finally, consent means a process in which participation and consultation are the central pillars.

Answer 7

Consumer protection refers to laws and other forms of government regulation designed to protect the rights of consumers. It is based on consumer rights, or the idea that consumers have an inherent right to basic health and safety. These are safeguarded by: a. enforcing product safety; b. distributing consumer-related information; and c. preventing deceptive marketing.

Answer 8

Product liability is the legal responsibility imposed on a business for the manufacturing or selling of defective goods. The laws are built on the principle that manufacturers and vendors have more knowledge about the products than the consumers do. Therefore, these businesses bear the responsibility when things go wrong (even when consumers are somewhat at fault). Product liability cases can result in civil lawsuits and lucrative monetary judgments for the plaintiffs. They can have consequences for the share price of a company if it has regular product recalls or lawsuits. Investors should take this into account in their investment analysis. There are three main types of product liability: 1. businesses being found liable to consumers when a court finds design flaws; 2. manufacturing defects; or 3. a failure to warn consumers of a possible danger Product liability is likely to lead to reputational risks, since consumers can easily express their opinions via social media or boycott the product or service when it is found to be liable. Especially around consumer products, analysts should be aware of such risks.

Answer 9

The tool analyses how 20 of the world’s largest pharmaceutical companies are addressing access to medicine in 106 low- to middle-income countries for 82 diseases, conditions and pathogens, evaluating them in areas where they have the biggest potential and responsibility to make change, such as research and development (R&D) and pricing.

Answer 10

FAIRR focuses particularly on the increased prevalence of antimicrobial resistance due to intensive farming practices and poor antibiotic stewardship. Companies operating in these ways are more likely to face lawsuits and pressures to change their practices.

Answer 11

The EU taxonomy sets performance thresholds for economic activities that make a substantive contribution to one of six environmental objectives: 1. climate change mitigation; 2. climate change adaptation; 3. sustainable and protection of water and marine resources; 4. transition to a circular economy; 5. pollution prevention and control; and 6. protection and restoration of biodiversity and ecosystems. The activity should substantially contribute to one of the objectives to become taxonomy-aligned, whilst doing no significant harm to the other five, where relevant, and comply with minimum safeguards (e.g. OECD Guidelines on MNEs and the UN Guiding Principles on Business and Human Rights). The European Parliament and the Council established that for an economic activity to be taxonomy-aligned, the activity should be carried out “in alignment with the OECD Guidelines for Multinational Enterprises and UN Guiding Principles on Business and Human Rights, including the International Labour Organization’s (‘ILO’) declaration on Fundamental Rights and Principles at Work, the eight ILO core conventions and the International Bill of Human Rights”. Where applicable, more stringent requirements in EU law still apply.

Answer 12

The Modern Slavery Act requires both medium- and large-sized companies to provide a slavery and human trafficking statement each year, which sets out the steps taken to ensure modern slavery is not taking place in their business or supply chains. Many of these statements provide not only general information but also specific numerical data, such as the number of audits initiated for suppliers at high risk or the number of suppliers that have established corrective action plans, which can help investors assess materiality. The regulatory pressure on companies to provide useful social data is likely to increase further. For example, in the USA, the Human Capital Management Coalition, which includes influential investors such as leading US pension funds, has petitioned the Securities and Exchange Commission to require issuers to disclose information about their human capital management policies, practices and performance. International collaboration is also key. The International Organization of Securities Commissions (IOSCO) connects regulators over the world and provides global frameworks to support worldwide standardisation, which regulators in each country can use as a basis for their own regulations.

Chapter 4: Social Factors Flashcards

(36 cards)