If companies fail to understand how human rights issues could impact investment opportunities they and their shareholders will pay the price. This was the message that Howard Carter, chief executive of F&C gave at the recent Business and Human Rights Seminar.
Recent issues around the world have posed questions for companies relating to human rights issues.
There are two main areas of concern. The first relates to unstable communities in developing countries where there may be some resentment towards the investor. Examples include Shell’s operations in Nigeria where oil is being siphoned off unlawfully. Shell is seen by some locally as not doing enough for the welfare of the population.
The second concern relates particularly to companies operating in extractive industries, which are being driven to find resources in more remote and less stable parts of the world. “These companies are operating in areas where one would expect the government to take care of issues like internal security, but doesn’t,” says Kirsty Jenkinson, senior analyst, governance and SRI team at F&C. “So they have to take these matters on themselves to protect their staff and operations.”
Health is a related issue. In South Africa for example, the government failed to take timely action to stop the spread of HIV-AIDS and as a result 30% of the workforce of the Anglo American group are infected. So does the company wait for the government to provide treatment for people? The commercial decision is based on the need to maintain the stability of the workforce so the company will have to start dealing with the problem itself. “That is classic example where a host government is failing companies,” says Jenkinson.
Where they are able, companies may want to work with the host government to make the working environment more secure. All of these situations are a business cost which shareholders have to be aware of.
And it gets worse. As well as dealing with human rights violations, companies might also find themselves accused of perpetrating violations by the NGO community. In this regard Jenkinson cites the example of the recent law suit brought against Unical in Burma by a group of Burmese villagers who claimed that US manufacturing company Unical had been aware that forced labour had been used by the government to construct their pipeline. They were accused of complicity in these human rights violations that were going on. In December Unical decided to settle out of court. “For us as an investor that is a massive price that they are having to pay to settle that legal agreement,” she says.
She adds: “The amount of management time used dealing with these situations, in extensive community consultations for example, is always an additional cost for the project. If there is any way a company can minimise these risks to its daily operations, is it in its best interests to do so early on.”
An example is current situation in Sudan regarding its reserves of oil. Jenkinson: “The view is that before companies activate their concessions they should come to an agreement with the host government whereby everything is done to minimise the amount of resource companies have to devote to dealing with human rights issues.”
Also, if companies are already paying legitimate revenues to governments that are perpetrating human rights issues do they too have a responsibility to use their leverage to stop those abuses?
To get it right on the ground companies need to speak to local and national governments and enlist help from the NGOs. There are a number of international standards for businesses some are UN declarations; a lot of them are voluntary; there are standards and in initiatives to inform companies so that, as Jenkinson says, “they don’t make a judgement call without the expertise”.
Many companies argue that dealing with human rights issues is more a responsibility for government than for business. “Governments need to provide clearer guidance as to their expectations of businesses where human rights violations are concerned, says Jenkinson. “They have more leverage than companies and arguably should use it on behalf of companies. I hear about this problem so often from companies and I really feel for them in that situation.”
The cost of poor human rights policy for businesses is clear. F&C CEO Howard Carter sounds a note of caution for investors: “The financial sector will increasingly draw the link between human rights and performance. It is in its own interests to do so. If it doesn’t, it will face ever greater scrutiny for its role in protecting and upholding human rights internationally and, in the case of specific companies, their shareholders could be disappointed by investment returns.”