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One of the challenges for companies seeking to manage the
adverse human rights impacts of their operations is how to deal
with impacts that are most directly tied to business partners,
suppliers, and even governments. Companies have varying degrees of
control over the actions of third parties, and yet the activities
of third parties have the potential to expose companies to a range
of reputational – and legal – risks.
In the
U.N. Guiding Principles on Business and Human Rights, Guiding
Principle 19 states that appropriate actions to prevent and
mitigate adverse human rights impacts will vary according to the
extent of a company's leverage in addressing the impact.
The commentary to Principle 19 states that
"leverage is considered to exist where the enterprise has
the ability to effect change in the wrongful practices of an entity
that causes a harm....If the business enterprise has leverage to
prevent or mitigate the adverse impact, it should exercise it. And
if it lacks leverage there may be ways for the enterprise to
increase it.
Companies evaluating how best to operate in a manner that
respects human rights must therefore evaluate not only their
business relationships, but also how best to exercise leverage in
the context of those relationships. In an
interpretive guide to the Guiding Principles, published earlier
this year by the United Nations, the authors identify a series of
factors that companies should consider when evaluating the extent
of their leverage in specific business relationships. These factors
include:
Whether there is a degree of direct control by the enterprise
over the entity;
The terms of contract between the enterprise and the
entity;
The proportion of business the enterprise represents for the
entity;
The ability of the enterprise to incentivize the entity to
improve human rights performance in terms of future business,
reputational advantage, capacity-building assistance, etc.;
The benefits of working with the enterprise to the entity's
reputation and the harm to its reputation if that relationship is
withdrawn;
The ability of the enterprise to incentivize other enterprises
or organizations to improve their own human rights performance,
including through business associations and multi-stakeholder
initiatives;
The ability of the enterprise to engage local or central
government in requiring improved human rights performance by the
entity through the implementation of regulations, monitoring,
sanctions, etc.
All companies should evaluate the extent to which it is
appropriate to develop short- and long-term strategies to increase
their leverage in the context of specific business relationships.
There are a variety of means by which a company can increase its
capacity to engage third parties in order to mitigate the potential
for adverse human rights impacts, including:
The development of a clear human rights policy helps to ensure
that the company's expectations and commitments are understood
by both internal and external stakeholders;
The integration of corporate human rights expectations into
contracts with business partners and suppliers supports both
oversight and accountability mechanisms as well as systems to
incentivize good behavior;
Comprehensive human rights due diligence efforts ensure that
key personnel have sufficient understanding of the human rights
contexts in which the company is operating, including the relevant
roles and capacities of specific third parties;
Regular training and appropriate capacity-building initiatives
for corporate employees, as well as for key suppliers and partners,
helps to ensure that all relevant parties have the knowledge and
skills necessary to engage in collective efforts to address human
rights concerns; and
Effective and ongoing engagement with stakeholders, including
civil society and government institutions, can provide a company
with critical capacity to address human rights concerns
multilaterally.
As companies examine the extent to which particular business
relationships might raise human rights concerns, it is important to
remember that, in many instances, the extent of a company's
leverage in those relationships is not fixed. Companies should
assess their own capacity to increase their leverage, as
appropriate, in specific relationships in order to mitigate the
potential for adverse human rights impacts. Developing
strategies to increase leverage manages risks to the company and
serves to protect those who may be subject to human rights harms in
connection with the company's activities.
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