Human rights issues have been elevated within the legislative agenda. No longer is the monitoring and management of human rights a "nice to have" for corporations. Governments around the world are forcing companies to report on their own human rights impacts and those of their own supply chain. By forcing companies to report on their own human rights impacts, governments seek to shine a light on the human rights abuses occurring upstream within supply chains and bring about change from within.
The current position for quoted companies
In the United Kingdom, changes to the law that came into force in 2013 require quoted companies to include information about human rights within their annual strategic report. Quoted companies include companies which are on the official list of the London Stock Exchange, officially listed in an EEA State, or dealt on either the NYSE or the Nasdaq.
The law requires all such quoted companies to report publicly on environmental, social, community and human rights issues, where this information is necessary for an understanding of the development, performance or position of the company’s business. The reporting requirements include providing information on a company's human rights policy and its effectiveness.
The Financial Reporting Council, the UK’s independent regulator responsible for promoting and policing corporate governance and reporting, has produced guidance that helps explain when human rights issues need to be included in a strategic report. They have said that such issues should be included where they influence, or have the potential to influence, the development, performance, position or future prospects of the company's business in a way which might be material to the company's shareholders. This is very similar to the text in the legislation, but indicates that any human rights issue that poses a salient risk should be reported.
This reporting requirement is significant, as it became the first time that directors could be formally held liable for a failure to report on human rights issues. Where a company publishes a strategic report which contains untrue or misleading statements or omits material facts concerning human rights issues its directors may be liable to the company under statute if the company suffers any loss as a result. Arguably, where investors are able to show reliance on misstatements to their detriment, they will be able to claim against both the company and the relevant directors.
The 'new' European position - a much wider net
Under the new EU regime, to be implemented into national laws by the end of 2016, companies must disclose in their management report a non-financial statement containing information relating to its respect for human rights to the extent necessary for an understanding of the undertaking’s development, performance and position and of the impact of its activities. Reporting on bribery and anti-corruption measures will also be required.
These obligations will apply to companies operating inside the EU with an aggregate employee population (ie across group) of over 500 employees. This is expected to impact over 6,000 companies across the EU.
Going beyond the narrower application of the UK's quoted companies regime, this new requirement to report will place greater emphasis on a company's need to be aware of the activities of its supply chain. Companies are not expected just to report on their own human rights impacts. Under the new EU framework, companies will need to disclose due diligence processes, the outcomes of human rights policies and products or services likely to cause adverse human rights impacts.
They will be expected to include a description of their human rights policy, their due diligence processes and the outcome of their policies and procedures in this area. The EU directive also requires companies to consider not only their own operations but also those of their business relationships, which is likely to include their supply chains. Companies will be expected to disclose the principal risks to human rights within their supply chains and provide information on what the company is doing to mitigate risk.
Reporting requirements elsewhere
The California Transparency in Supply Chains Act was signed into law in October 2010 and came into force in 2012. It applies to manufacturers and retailers with annual global revenues of more than US $100 million who do business in California. These businesses are required to report on their supply chains and disclose on their websites their "efforts to eradicate slavery and human trafficking from their direct supply chains..." Companies are required to verify their supply chains by auditing and accounting for human trafficking and slavery risk and by requiring direct suppliers to certify that the materials incorporated into their products are 'slavery-free'.
Stock exchanges and market regulators around the globe require companies to either report on their material human rights impacts or explain why they have not. These include Bursa Malaysia, the Indonesian Capital Market and Financial Institution Supervisory Agency (Bapepam--‐LK), the Singapore Exchange (SGX), the Stock Exchange of Thailand (SET), the São Paulo Stock Exchange (BM&FBOVESPA) and the Johannesburg Stock Exchange.
The Sustainable Stock Exchanges Initiative was launched in 2010 to promote reporting on environmental, social, and corporate governance risks and opportunities by publicly traded companies. Eight exchanges belong to the Sustainable Stock Exchanges Initiative, namely from the US (NYSE Euronext and NASDAQ OMX, BSE Ltd.), Brazil (BM&FBOVESPA), South Africa (the Johannesburg Stock Exchange), Egypt (The Egyptian Exchange EGX), Turkey (Borsa Istanbul) and India (MCX Stock Exchange Ltd. MCX--‐SX and Bombay Stock Exchange BSE Ltd.).
The global proliferation of standards and reporting requirements makes it important for companies to assess the standards which apply to them wherever they do business, consider to what extent those standard need to be adapted and/or supplemented in any event, and ensure they obtain expert support to ensure they do not fall foul of local law or applicable international standards wherever they have a presence.