Large corporations are ignoring human rights due diligence

In July 2024, the World Benchmarking Alliance (WBA) published a disturbing report on the social practices of the world's 2,000 most influential companies. It reveals that 90% of them have not put in place half the measures needed to meet fundamental expectations regarding human rights due diligence, decent work and ethical conduct. Worse still, 30% scored between 0 and 2/20, reflecting their lack of interest or attention to these crucial issues. These results also show that they fail to recognize that they have a role to play in fostering a more egalitarian, inclusive, and fair world. 

Even the top of the class, with marks between 15 and 15.5/20, still have a lot of work to do to improve their practices. There are only 15 companies in the top group, including 4 North American companies: Hershey, Teck Resources, Newmont and VF Corporation. Most of the others are European.

Due diligence and legal risks

Among the WBA's most worrying findings for investors, we note that 80% of companies assessed received a score of 0 for completing the initial phase of due diligence, which consists of identifying, assessing and taking steps to reduce their human rights risks and impacts. In fact, just 6% of companies have fully implemented the first stages of due diligence. Significantly, the latter are mostly from States with government directives and regulatory frameworks on human rights, namely Europe and parts of East Asia, and they tend to operate in sectors with a high impact on human rights, which have been subject to greater public scrutiny and have detailed due diligence tools and guidelines.

A large majority of large companies have not taken any notice of the United Nations Guiding Principles on Business and Human Rights. It will be recalled that the latter require companies to put in place a due diligence process to effectively identify, assess, prevent and mitigate actual and potential negative human rights impacts that they may have or contribute to through their activities or business relationships.

However, the situation could change. In 2024, the European Union adopted a Corporate Sustainability Due Diligence Directive (CSDDD) that will require large European companies, as well as large non-European companies operating on its territory, to take action, significantly increasing the legal risks for those currently neglecting their human rights responsibilities. The directive will start to apply from 2027, which should motivate many to catch up on their human rights obligations to meet its requirements. 

Under this directive, reporting companies and their upstream and downstream partners will be required to prevent, eliminate or mitigate their negative impacts on human rights and the environment, including in sourcing, production, and distribution. Offenders will face fines of up to 5% of their worldwide net sales, and will be required to pay full compensation to their victims. In this way, the European directive differs from legislation in California, the UK, Australia and Canada, which focuses on disclosure and transparency, and only requires the publication of reports on efforts to prevent and mitigate certain human rights abuses, such as modern slavery and child labor, without prescribing the adoption of measures to prevent them.

Living wage, decent working hours and pay equity

The performance of companies with regard to the fundamental aspects of decent work also leaves much to be desired. For example, although over 60% of companies publish some information about their “living wage” policy, just 4% pay or have committed to paying a living wage to their employees, while 3% support the payment of a living wage in their supply chain, either by making it a requirement for their suppliers, or by describing how they work with suppliers to ensure that their employees receive a living wage. On the other hand, although 45% of companies disclose information on working hours, only 3% have a policy on this subject that complies with International Labour Organization standards. What's more, companies lack transparency when it comes to pay equity, with 98% failing to disclose the gender pay gap in all the countries in which they operate.

Playing politics behind closed doors

Finally, the results of the WBA study are very disappointing when it comes to ethical business conduct. Their opacity in terms of political commitment and expenditure is particularly worrying. While the 2,000 companies surveyed generate revenues equivalent to 45% of global GDP, they are very discreet about how and how much influence they exert. What's more, only 11% have a policy that publicly outlines their approach to lobbying and political involvement. What's more, just 5% declare their lobbying expenses; the WBA notes that those who report on the specific issues they lobby on are even rarer. Yet the sums involved are far from trivial: lobbying expenses disclosed by companies average $14.4 million a year. As the WBA points out, at present, companies do not provide stakeholders with the information they need to verify whether there is a discrepancy between their public commitments and their social and environmental efforts, and their lobbying practices. 

Once again, a European directive could change all that in the next few years. Indeed, the Corporate Sustainability Disclosure Directive (CSRD), which could affect 75% of the 2,000 companies surveyed by the WBA, will require disclosure of information on political influence and lobbying activities, including expenses. The first reports are due in 2025.

Sources: World Benchmarking Alliance, 90% of world’s 2,000 most influential companies failing to ensure human rights, decent work and ethical conduct, July 2, 2024, ref. September 25, 2024, 90% of world’s 2,000 most influential companies failing to ensure human rights, decent work and ethical conduct | World Benchmarking Alliance ; World Benchmarking Alliance, 2024 Social Benchmark, July 2, 2024, ref. September 25, 2024, Social Benchmark | World Benchmarking Alliance ; Dominique Babin, Loi sur la lutte contre le travail forcé et le travail des enfants dans les chaînes d’approvisionnement : exigences et obligations pour les entreprises, BCF, May 22, 2024, ref. September 25, 2024 ; Parlement européen, Devoir de vigilance des entreprises : les députés adoptent des règles en matière de droits humains et d’environnement, 24 avril 2024, ref. September 25, 2024, Les députés adoptent les règles de devoir de vigilance des entreprises | Actualité | Parlement européen (europa.eu) ; KPMG, Nouvelle loi canadienne sur la lutte contre le travail forcé, July 21, 2023, ref. September 25, 2024, Nouvelle loi canadienne sur la lutte contre le travail - KPMG Canada