From this year, 30 automotive companies will be included in the annual (CHRB), providing valuable information for customers and investors on how those companies engage with the human rights issues to which their business activities gives rise.
In this article we take a brief look at the CHRB, why it is important and provide some tips for the newly included automotive companies.
What is the Corporate Human Rights Benchmark?
Led by investors and civil society organisations, the CHRB aims to create an open and public benchmark of corporate human rights performance and to facilitate a competitive environment for companies to improve their human rights impacts through a 'race to the top'.
It assesses and ranks the largest listed companies in sectors that have a particularly high risk of causing human rights impacts. Beginning in 2016 with 100 companies in the agricultural, apparel and extractives sectors, the CHRB expanded to 200 companies in 2019, including those in the ICT manufacturing sector. This year it will expand again, adding 30 companies from the automotive manufacturing sector.
The CHRB aims to make corporate human rights performance easier to see and simpler to understand and wants to publicly acknowledge companies putting human rights at the core of their business. Doing so enables investors to incorporate social 'costs' into capital allocation decisions and equips society, workers, regulators and consumers with evidence-based information to challenge poorly performing companies.
Why is it important?
The benchmark highlights failings in companies' treatment of and impact on workers, communities and consumers. Apart from assisting companies to gauge and improve their human rights performance, the CHRB is important because of the influence it has with investors, consumers and potential business partners.
Human rights considerations are of increasing importance to investors, in particular, many of which have their own human rights responsibilities under local laws and international frameworks. Such investors look to benchmarks such as the CHRB when choosing where to put their money, and can also use them as a lever to facilitate change.
On 23 March 2020, a group of 176 investors, representing over 4.5 trillion USD, co-signed a letter sent to 95 companies, all of which scored 0 on human rights due diligence in the CHRB's 2019 ranking. The letter called for prompt and concrete action, with companies urged to make decisions before June 2020 when the next CHRB assessment begins.
More widely, benchmarks such as the CHRB have a trickle-down effect as the companies listed seek to improve their rankings by imposing human rights obligations on third parties in their supply chain. This means that upstream suppliers in the automotive sector will also need to pay attention to the CHRB where their customers are included in the rankings.
How does the CHRB get its data and what does it consider?
The data used by CHRB is drawn from publicly available information - from policies on company websites, reporting disclosures and coverage of human rights complaints - as well as additional data that the company provides to the CHRB Disclosure Platform.
The benchmark is based on the responsibilities placed on companies by the UN Guiding Principles on Business and Human Rights ('the UNGPs'). It scores companies against the following 'measurement themes':
- Governance and board level accountability for human rights issues and policy commitments to respect human rights.
- Embedding respect and human rights due diligence.
- Remedies and grievance mechanisms.
- Performance in dealing with key risks and enabling factors for human rights.
- Performance in response to serious allegations.
In order to aid cross-sector comparison, the methodology used for scoring companies in the automotive manufacturing sector will be based on that used for other sectors, but will include industry specific factors developed through extensive engagement with stakeholders including automotive manufacturers and human rights bodies.
What human rights impacts are particularly relevant for the automotive sector?
There are a number of risks that are particularly salient for the automotive sector. These include:
- employment and labour impacts, particularly in jurisdictions where employment law is weak,
- risks around the sourcing of raw materials, and
- impacts on communities where automotive operations are located, such as abuses by unaccountable security forces or negative impacts on surrounding land, water and other natural resources.
Of course, the industry has been alive to such risks for some time. Many automotive manufacturers have already introduced initiatives and published human rights statements to tackle these risks and there are a number of industry initiatives involving a number of stakeholders. An example is the Responsible Cobalt Initiative which has commissioned a development agency to conduct a three-year study on how to improve living and working conditions in small-scale mining in the Democratic Republic of the Congo.
However, inclusion in the CHRB will bring such issues to a wider audience and will thus provide impetus to build on existing efforts.
What can the automotive industry learn from the 2019 CHRB results?
The CHRB's 2019 key findings report, indicates that against its criteria, only one company scored more than 80% and only one in ten scored more than 50%. The average score was 24%.
Newly included companies tend to fare worse than those that have been in the rankings for some time. However, automotive companies can learn lessons from those areas in which companies fell down in 2019. These were due diligence, failure to remedy severe allegations of human rights impacts and transparency.
Almost half of all companies listed scored 0 across all indicators of human rights due diligence. Due diligence is a fundamental plank of the UNGPs and can be split into the following four parts, all of which a company will be expected to evidence:
- Firstly, a company should identify and assess any negative human rights impacts resulting from its own activities and its business relationships.
- Secondly, the findings should be integrated into internal decision-making to prevent and mitigate any negative impacts.
- Thirdly, the responses need to be tracked and feedback collected.
- Finally, this all needs to be communicated externally to stakeholders and customers.
Due diligence is set to become even more important with the recent announcement of plans to introduce EU-wide mandatory human rights due diligence legislation.
In terms of remediation, out of almost 150 severe human rights allegations brought against the companies considered last year, only 3% of the cases resulted in a remedy satisfactory to the victims. The CHRB assesses whether the company responds publicly and in detail to an allegation by looking for:
- a publicly available policy,
- appropriate action addressing the alleged impacts; and
- engagement with affected stakeholders and an effective remedy.
While the majority of companies met points (1) and (2), only in 26% of cases did they meet point (3), and there is a further drop when considering whether victims were actually satisfied with the outcome.
Finally, the 2019 report highlighted a need for increased willingness by companies to disclose information in relation to the other five measurement themes. This is of particular relevance to automotive manufacturers as transparency scores are particularly low for companies making their debut on the CHRB.
Such reticence is, however, understandable where companies are unwilling to expose themselves to criticism while still finding their feet in this complex area. Some companies may also be spooked by the importance given by the Supreme Court last year to published policies in establishing potential responsibility of parent companies for human rights impacts caused by their subsidiaries. However, in the context of increasing expectations from investors and customers in relation to respect for human rights, the benefits of a well-drafted suite of public human rights materials is undeniable.