Industry

Companies Identify Human Rights Issues but Lag on Remedies

Workforce Disclosure Initiative 2021 report warns of incomplete picture provided to investors.

While companies are increasingly able to identify human rights risks, they are less effective at meaningfully addressing issues, according to a study of employment-related practices by ShareAction’s Workforce Disclosure Initiative (WDI).

In its latest survey, Workplace Disclosures in 2021: Trends and Insights, WDI highlighted six key findings around the workplace practices and reporting of large corporates.

The annual survey, supported by a 66-strong investor coalition with over US$10 trillion in assets under management, including Amundi and the Universities Superannuation Scheme, revealed companies that commit to workforce reporting over the long term typically embed more robust workforce practices.

It also found that companies which employ ‘top-down’ management styles are more likely to experience a disconnect between levels of disclosure and worker engagement. Further, survey results suggested firms displaying an understanding of diversity issues and supply chain complexity were typically more inclusive and better able to improve conditions along supply chains, but the report warned that firms overall lacked the data to address inequality.

The WDI asks large firms to submit detailed disclosures on how they manage workers across their operation and supply chains, particularly with regards to issues surrounding pay, which in turn helps investors assess the overall social position of investee firms.

A total of 173 companies responded to the 2021 survey, up 23% from 2020, with a combined market capitalisation of US$13 trillion, representing around 11 million direct employees.

“Successful sustainable companies know and value their staff, often their biggest asset. Investor engagement on workplace ESG risks, and the demand for information on how companies are managing them, is increasingly rapidly,” said Councillor Gerald Cooney, Chair of the Northern LGPS, which oversees  the Greater Manchester, Merseyside and West Yorkshire local government pension schemes.

“Many of the initial questions investors ask of companies about their workforce practices could be dealt with by enhanced reporting. The more information we have, the better job we can do in working with companies to create value for both investors and the workforce.”

Source of grievance

The 2021 WDI report found that many firms had not implemented the measures needed to adequately handle and reduce human rights risks, including recourse to remedies and grievance mechanisms, despite improvements in other respects.

Notably, up to 67% of companies provided data on how they were tackling key human rights issues in 2020, with the figure increasing to 85% in 2021. But just 47% provided data on the number of grievances reported, and just 36% revealed how they were resolved.

Over a third, or 40% of companies, failed to provide any data on how they had moved to remedy a human rights grievance raised during a reporting period.

“Information on risks is most useful when it’s used to identify and respond to actual instances of poor treatment and rights abuses of workers. Failing to collect data on remedy prevents organisations from tracking where risks are manifesting into concrete harms and whether their approaches are effective,” said the report.

WDI noted that 39% of reporting companies don’t have a commitment to provide a remedy where the company has caused or contributed to adverse human rights impacts, while 45% do not appear to monitor whether supply chain workers have access to a grievance mechanism.

The report suggested that improvements needed to be made in how firms assess the effectiveness of their human rights policies and practices, noting that the proportion of firms assessing effectiveness had increased by just two percentage points since 2020 to 69%.

Lack of openness

More broadly, the survey reflects the difficulties for investors in improve oversight of employment practices and related social issues at investee firms. Last year, WDI’s report highlighted that a lack of evidential data was prohibiting investors from ascertaining whether or not companies were being true to their workforce policy commitments, particularly on driving ethnic and racial diversity.

Nearly all, or 98%, of firms assessed in the 2020 report, prioritised action on diversity and inclusion but failed to present data that indicated progress in key areas.

Investors face challenges assessing the performance and progress of investee firms on a range of social metrics, with providers generally focusing more on environmental data, partly due to increased mandatory disclosure requirements around climate risks.

A further reason for the lack of firms specialising in supplying social data is the relative complexity of measuring the impact of these factors. Such challenges are gradually being addressed in response to growing demand from investors, driven by issues such as gender discrimination, inadequate pay for gig economy workers, and harmful climate impacts on vulnerable communities.

However, WDI’s 2021 report revealed that companies globally were restricting the amount of data they made available to the public, possibly indicating a reluctance to expand knowledge of corporate workforce management and reporting.

Companies made just 65% of their responses publicly available, while in 2020 they made 85% responses public, up from 76% in 2019.

Pandemic effect

According to the WDI report, the onset of the Covid-19 pandemic in 2020 led many businesses to make a lower proportion of data available.

In 2021, just 50% of companies disclosed their wage levels and pay gaps, down from 76% in 2020, and 69% in 2019.

Meanwhile up to 71% of companies reported on their risk assessment and human rights due diligence, though this was down from 91% in 2020.

“Disclosure on workforce topics generally lags and lacks specificity, and this benchmark helps facilitate the engagement between companies and investors. We continue to encourage companies to increase the quantity and quality of information that is disclosed publicity and welcome this latest report,” said Mary Beth Gallagher, Director of Engagement at Domini Impact Investments.

 

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