Business and Human Rights Champions, or What Benchmarking Can Tell You
June 12, 2023
One of the tools in the field of business and human rights is benchmarking - when companies are publicly evaluated using "benchmarks" to determine how serious they are about their human rights commitments (commitment to human rights).
Benchmarking is part of a more global trend to encourage companies to respect human rights and address the risks of negative human rights impacts in their operations. If a company is compared to similar companies and the results of such comparisons are unsatisfactory, it may affect the company's reputation and its attractiveness for investors.
Benchmarks can assess the company's conduct in the context of human rights in general or focus on specific rights. Such benchmarks facilitate profiling either of a single company, the corporate sector as a whole (if they cover a sufficiently large number of companies), or a specific economic sector. They are conducted both at the global level and at the national level.
Examples of Benchmarking in Business and Human Rights
For example, one of the most authoritative and well-known benchmarks is the Corporate Human Rights Benchmark:
This benchmark assesses corporate respect for human rights in general. It uses more than 80 indicators. All indicators focus on the key expectations of the UN Guiding Principles on Business and Human Rights, namely: the company's commitment to respect human rights, conducting human rights due diligence (HRDD) and ensuring access to remedies.
In general, the benchmarking includes key indicators - which are relevant to any company, regardless of sector of operations, company size, and its local or global nature of operations - and more advanced indicators by sector of operations. In this part, the key indicators are complemented by more sector-specific indicators, such as automotive manufacturing, agriculture, apparel, mining, and information and communications technology.
Each year the Corporate Human Rights Benchmark (CHRB) ranks 150-250 of the world's largest companies in those sectors.
As the Benchmarking itself indicates:
"The Corporate Human Rights Responsibility Standard (CHRB) evaluates the human rights disclosures of the largest companies since 2017. By ranking companies based on corporate policies, procedures and practices, as well as how companies respond to serious allegations of human rights abuses, Benchmarking aims to provide a competitive environment in the chase for first place, and in this competition, companies work hard to meet their commitment to respect the human rights of both individuals and communities impacted by such companies."
This benchmarking is widely used. For example, at the initiative of the German government in 2020, the 20 largest companies in Germany were assessed by Benchmarking key indicators to determine how well they meet the expectations of the UN Guiding Principles on Business and Human Rights. In 2022, 30 of the largest companies in Denmark were assessed against Benchmarking key indicators.
These benchmarks usually use publicly available information about the company (on its website, in published reports, public statements and interviews of the company's owners and managers) and available in other public sources. At the same time, to ensure the transparency of the process, benchmarking may stipulate that prior to the publication of the assessment results, preliminary results are communicated to the company with an invitation to comment, supplement or challenge the data reflected in the benchmarking within a certain reasonable period of time.
For instance, another well-known business and human rights benchmark is KnowTheChain. https://knowthechain.org/
KnowTheChain assesses companies' efforts to identify forced labor risks in their supply chains and publishes benchmarks for selected industries every two years. Companies are assessed using a methodology that is based on the UN Guiding Principles on Business and Human Rights and covers topics such as recruitment and many others.
In addition to the information that the company itself discloses about itself on its website and/or in company reports, etc., KnowTheChain also includes collecting feedback on the company's performance from a variety of stakeholders, including representatives of the company itself, investors and civil society organizations.
The results are then sent to the evaluated companies (in 2022/2023 KnowTheChain evaluates 185 of the largest companies in sectors with a high risk of forced labor). The companies have two months to review the results of the assessment. During this time period, they can provide their feedback, including the right to have a one-hour conversation with the experts to discuss the results of the assessment. After that, the benchmarking results are finalized and published.
Another benchmarking based on the UN Guiding Principles, Banktrack. In 2022, this benchmarking evaluated 50 banks based on their publicly available documents. A customized spreadsheet was then sent to each bank detailing the preliminary scores and rationale for the assessment, as well as inviting banks to add comments. The banks were given three weeks to comment on their preliminary scores. Banktrack also sought advice from an independent academic advisory panel on the dilemmas that needed an independent external evaluation.
There are also benchmarks that focus on a particular area of human rights.
Among the best-known – RankingDigitalRights (https://rankingdigitalrights.org/). Each year this benchmarking evaluates 26 of the world's most influential digital platforms and telecommunications companies on how well they implement human rights standards.
The benchmarking methodology is based on rights such as freedom of expression and information, as well as the right to privacy.
In Ukraine, an example of benchmarking that focuses on a specific area of respect for human rights is the Corporate Equality Index, a study of corporate policies, rules and practices of private companies to prohibit discrimination in the workplace and to maintain equality and diversity. The Index includes research on the prohibition of discrimination on the grounds of gender, disability, sexual orientation and gender identity. By its methodology, the Index differs from the benchmarks mentioned above in that, firstly, it is based on the voluntary participation of companies in the assessment and, secondly, the company itself provides answers to the questions included by the Index in the questionnaire.
What are the benefits of benchmarking?
- Benchmarking results stimulate internal business management procedures.
Benchmarking provides companies with information for internal analysis, pointing out existing or potential risks, helping companies practice how they assess these risks, and comparing company results to those of their competitors. The results of benchmarking can help a company's management understand what the problems are, including supply chain performance.
More importantly, benchmarking provides companies and investors with examples of good practices, the information they need to understand efficiency.
- Investor interest is largely driving the increasing demand for benchmarking.
Investors, creditors, and other stakeholders need data, and benchmarking results are increasingly determining their decisions. Good benchmarking performance can improve a company's access to investment. Thus, benchmarking is becoming part of investment decisions.
Creditors are also increasingly committing to incorporating environmental and human rights metrics into their financing decisions.
- Stockholders use benchmarking to insist on responsible corporate actions.
3) Stockholders use benchmarking to insist on responsible corporate actions
The results of benchmarks such as CHRB and RankingDigitalRights have been used by corporate shareholders to influence corporate behavior based on the benchmarks of these benchmarks.
In 2017, the Australian Center for Corporate Responsibility formally licensed the CHRB methodology as the basis for its study of the human rights condition of listed Australian companies and presented a shareholder resolution at the annual general meeting. US-based shareholder advocacy organization As You Sow called attention to the CHRB and KnowTheChain results for selected companies and made proposals to pressure company boards to notify companies' processes to identify and analyze human rights risks in their operations and supply chains.
4) Benchmarking demonstrates preliminary results to consumers and government agencies that regulate economic activity.
Today, there is little evidence that benchmarking significantly affects consumer purchasing decisions or leads to a boycott of a company because of its poor performance. Nevertheless, one of the stated goals of some benchmarks is to influence how consumers view socially responsible companies, and some are exploring ways to raise consumer awareness of these issues.
A number of governments are interested in benchmarking methodologies and are using them to evaluate companies at the national level. Some European countries have sought to use key indicators from benchmarking methodologies as evidence for legislation requiring human rights due diligence. Benchmarking results can also influence the National Action Plan on Business and Human Rights.
- Benchmarking encourages companies to disclose more information about their business.
5) Benchmarking encourages companies to disclose more information about their business
Two of the most prominent business and human rights benchmarks, CHRB and KnowTheChain, conduct their research based on publicly available data. They collect and evaluate information from a company's website, publicly available policies and codes, regulatory and stock exchange documents, and financial and nonfinancial statements. The CHRB further verifies corporate responses to allegations of human rights abuses using, among other things, media and nongovernmental organization reports.
The benchmarking results signal the need for companies to improve the quality of the information they self-report in corporate policies and practices.
Dr. Olena Uvarova, international expert, leader of the International Lab on Business and Human Rights at Yaroslav Mudryi National Law University (Kharkiv, Ukraine)
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