THE BLOG

Benchmarking Business Ethics

18/12/2014 07:32 GMT | Updated 16/02/2015 10:59 GMT

For decades, a company's performance has been measured almost exclusively in economic terms. Social and environmental issues such as health and safety in garment factories in Bangladesh, the use of conflict minerals in our mobiles, the privacy policies of internet service providers or forced labour on our doorstep have been seen as immaterial to how a company should be valued and how investors should assess performance.

This is finally - and thankfully - changing. Increasingly, companies are asked to demonstrate good performance in social and environmental terms. In the UK, listed companies are already required to report on social and environmental matters. We have recently agreed enhanced non-financial reporting requirements across Europe, to apply from 2016. Just as the market is moving on pricing contributions to environmental risks, then we should increasingly expect that valuations do not reward companies that systemically abuse human rights, either by design or default.

Poor human rights performance is not just an issue for business executives' consciences: there is a cost impact. A recent report by the University of Queensland estimates that community opposition to mining operations can cost a large operator up to $20 million a week in lost sales. Ecclesiastical Investment Management recently assessed the destruction of shareholder value through corporate misconduct in the UK and USA at $150bn. The business case for respecting human rights is becoming increasingly clear, as Government recognised in its 2013 Business and Human Rights Action Plan. What is still needed, however, is an objective way of assessing what 'good' and 'bad' human rights performance actually looks like in practical terms - a way of comparing one company's performance against another's.

That is why I am pledging start-up funding to a new scheme that will benchmark the human rights performance of international corporations. The Corporate Human Rights Benchmark will drive responsible business practices by developing a transparent, publicly available and credible assessment and ranking of company human rights performance. The six leading contributors include three investors - Aviva Investors, Calvert Investments, and VBDO, along with a world-leading investment research agency (EIRIS) and two respected civil society organisations - the Institute for Human Rights and Business and the Business & Human Rights Resource Centre. They have consulted with over 100 companies, NGOs, governments and investors around the world, and have been encouraged by all these stakeholders to make this timely idea a reality.

From 2016 the first companies will be able to track their performance on human rights, with more businesses being added in future. The benchmark will help highlight areas that companies should focus on in order to improve their ranking, and will create greater leverage for policy-makers, communities and consumers. Investors and regulators will have a clearer basis for challenging companies where performance is poor and improvements are necessary. It will provide the incentive for a 'race to the top' of corporate responsibility, rather than a 'race to the bottom' in which price is the only measure.

Similar projects have been successful in other areas. The Access to Medicine Index independently ranks pharmaceutical companies' efforts to improve access to medicine in developing countries. Bill Gates, one of the funders, believes the model could be expanded beyond the pharmaceutical industry and help a broader range of companies "get credit for doing good work". The way to improve the treatment of workers, their human rights and the rights of communities in which businesses operate is through continuous improvement in corporate behaviour and culture.

Business can and should be a force for good. Some investors might still overlook corporate involvement in human rights abuses in exchange for a quick return on their investment. But local communities, the media and an increasing number of consumers and responsible investors aren't willing to do the same.

I believe that the Corporate Human Rights Benchmark - unpinned by the UN Guiding Principles on Business and Human Rights - will play a major role in bringing about a world where more companies play their full part in social and economic development. I'm urging other countries to join the UK in supporting this initiative.