An explorative study into human rights due diligence disclosure in the Netherlands:
salient supply chain risks in the electronics and financial sector
Thesis MSc Accountancy & Controlling, specialization Accountancy (D. Miedema)
“Sustainable development without respect for human rights is an illusion.” (Dutch minister Ploumen, April 2017)
MSc thesis Accountancy & Controlling, specialization Accountancy University of Groningen (RUG), Faculty of Economics and Business Date: 19-06-2017
Name: D. (Dian) Miedema Student number: S2197979
E-mail: d.miedema.1@student.rug.nl
Supervisor RUG: Prof. Dr. D. A. De Waard RA MA Co-assessor RUG: Drs. L. M. Wielens RA
1 ABSTRACT
Despite stakeholder concerns and recognized accountability by organizations to respect human rights, reporting falls short. With an eye on the EU Directive Non-Financial Information mandating human rights disclosure, and the flexibility this directive allows in reporting content and use of guidelines, the aim of this study is to map current human rights due diligence disclosure in the Netherlands, to stimulate future research and provide insights for practice. Prior research in this field is limited, therefore this study adopts an explorative research design. A content analysis is performed of CSR reports from Dutch organizations in the financial and electronics sector. Human rights reporting is interpreted in its context by also using policy and transparency data from the ASSET4 ESG database and the Dutch Transparency Benchmark. CSR theories are addressed to find possible explanations for current disclosure. Overall, the findings show sector specific disclosures on supply chain due diligence and a gap between stakeholder expectations and the identification of material reporting topics. Furthermore, the findings show increased human rights commitments disclosure as a response to media attention, consistent with legitimacy theory.
2 TABLE OF CONTENTS
INTRODUCTION ... 4
The problem (statement) ... 5
Research question ... 6
Outline of the paper ... 6
THEORETICAL FRAMEWORK ... 7
CSR reporting and underlying theories ... 7
Stakeholder theory (and the business-society relationship) ... 7
Legitimacy theory and impression management... 8
Voluntary Disclosure Theory ... 9
Triple Bottom Line reporting ... 9
Human rights and business due diligence ... 11
Human rights definition ... 11
Current developments ... 11
The UNGPs and due diligence ... 11
Prior research on Human Rights reporting ... 12
The EU directive ... 13
RESEARCH DESIGN ... 14
Method ... 14
Content analysis ... 14
ASSET4 ESG data ... 15
Dutch Transparency Benchmark 2016 ... 16
Sample ... 16
Electronics sector ... 17
Financial sector (banking and insurance) ... 17
Final sample ... 17
Data collection process ... 18
ANALYSIS AND DISCUSSION ... 18
Analysis ... 18
Findings content analysis ... 18
Mutual relationships content analysis ... 24
Contextual interpretations ... 27
Discussion ... 30
Stakeholder theory ... 30
Legitimacy theory and impression management... 30
Voluntary Disclosure Theory ... 31
Triple Bottom Line reporting ... 31
3
Conclusion ... 32
Limitations of this study ... 33
Recommendations for future research ... 34
Implications for practice... 35
APPENDIX A Questionnaire content analysis... 41
APPENDIX B description ASSET4 variables ... 42
4 INTRODUCTION
In March 2017, the first Corporate Human Rights Benchmark (CHRB) was launched. The benchmark stems from a collaboration between investors and Human Rights organizations1. It is aimed at both increasing transparency in human rights policies, processes and practices, as a public good for all stakeholders, as well as stimulating change in the challenge for organizations to address human rights (due diligence)2. In addition, the UN Guiding Principles Reporting Framework, recently developed by the Human Rights Reporting and Assurance Framework Initiative (RAFI), is a first extensive guideline for organizations to report on human rights issues, and in the EU, the Non-Financial Reporting Directive now even mandates human rights reporting as part of the management report3. These recent developments highlight the importance that human rights (due diligence) gained with respect to organizational accountability and accompanied reporting.
It is now widely accepted that organizations have a responsibility to respect human rights4. The collapse of the Rana Plaza Building in Bangladesh in 2013 is one of the most well-known recent incidents that led to Human Rights concerns and the involvement of organizations in these violations (De Roo, 2015). Multinational organizations have an incredible amount of power and influence5, and are often involved in severe abuses like forced labor and land expropriation4. Increased accountability on human rights issues should go hand in hand with external disclosure about this topic. To inform relevant stakeholders about their corporate social responsibility (CSR), organizations voluntary disclose CSR information. According to the latest corporate responsibility reporting survey by KPMG (2015), 92% of the Global Fortune 250 (G250) companies disclosed CSR information in 2015.
However, the disclosure of CSR information is not (yet) mandatory, and despite the increase in CSR reporting and accompanied guidelines over the years, the credibility of these reports is questioned and human rights disclosures are limited. Several studies show that CSR reports are used as a legitimizing or impression management tool (Hahn and Lülfs, 2014; Cho et al. 2010; Hooghiemstra, 2000).
Guidelines have been developed to provide a framework for CSR reporting to increase the transparency and comparability of CSR disclosures. The world’s most widely used standard for CSR reporting is provided by the Global Reporting Initiatives (GRI) (KPMG, 2015), guiding disclosure on economic, environmental and social aspects of performance. In the Netherlands, the Transparency Benchmark (TB) has been developed, studying the content and quality of corporate social responsibility reports of the largest organizations in the Netherlands (Transparency Benchmark, 2016). Next to being a study, this benchmark also serves as a practical tool of the Dutch Ministry of Economic Affairs to stimulate self-initiative by organizations (Transparency Benchmark, 2016). However, despite the efforts to increase transparency and indirectly CSR practices, disclosures with respect to human rights remains limited (EY, 2017; Islam et al. 2016) and do not meet the required level of disclosure as set for example by the Corporate Human Rights Benchmark (CHRB, 2017).
1 Trappenburg, N. (2017, March 13). Beleggers lanceren benchmark die bedrijven screent op mensenrechten. Retrieved from: https://fd.nl/economie-politiek/1192002/beleggers-lanceren-benchmark-die-bedrijven-screent-op-mensenrechten 2 CHRB (2017) https://www.corporatebenchmark.org/why-benchmarkvisited on 22-03-2017
3 Directive 2014/95/EU of 22 Oct. 2014 available at: http://eur-lex.europa.eu/legal-content/en/ALL/?uri=CELEX:32014L0095 4 Amnesty International (2017) https://www.amnesty.org/en/what-we-do/corporate-accountability/ visited on 22-03-2017 5 Amnesty International (2017) https://www.amnesty.nl/wat-we-doen/themas/bedrijven-en-mensenrechten visited on 22-03-2017
5 The problem (statement)
Despite stakeholder concerns over human rights (Islam et al. 2016) and the recognition of accountability by organizations (EIU, 2015)6, human rights disclosures seem to fall behind. According to a concise study by EY (2017), only 2 out of the 12 most transparent reporters participating in the Dutch Transparency Benchmark reported about respect for human rights in accordance with the new EU Directive. In addition, when companies do report, they seem to fall short in the content. The latest study by the CHRB (2017) shows that only 3 out of 98 companies score more than 60% on the benchmark, with an average of 28.7%. The Economist Intelligence Unit (EIU) shows this gap between private awareness of human rights issues by organizations and public disclosures. 83% of the organizations find human rights for business important, however, only 11% report on human rights related issues on an annual basis (De Roo, 2015). De Roo (2015, p. 278) refers to this phenomenon as the “dichotomy between private awareness and public disclosure”.
The EU Directive on Non-Financial Disclosure (hereafter: The Directive) anticipates on this development, and mandates organizations to not only report about environmental and diversity issues, but also about respect for human rights. The goal of The Directive is to increase relevance, consistency and comparability of disclosures in the EU7. Information about human rights should be included in the management report, covering the policy, risk assessment and organizational outcomes. However, organizations are still free in choosing the content and the use of guidelines in this disclosure. This flexibility in the content of human rights reporting allows companies the opportunity to withhold information on certain risks, for example relating to the impact of supplier’s conduct in the organization’s supply chain (De Roo, 2015).
In the light of this increased accountability, stakeholder demand, the upcoming reporting benchmarks and (the possible shortcomings of) The Directive, the question is not anymore whether organizations disclose this information, but how and why they report about these issues as a first step for further research to explain the reporting gap. The Directive mandates disclosure on human rights related policy, risks and performance, but still allows flexibility in the implementation hereof. Due to its broad concept (McPhail and Adams, 2016), human rights disclosures may differ to a great extent from one another and, as the CHRB (2017, p. 4) notes: “it takes commitment, resources and time to embed respect for human rights into the ways that a large and diverse workforce thinks and acts”, highlighting the complex nature of human rights issues and its possible implications for reporting. In addition, the social and economic council of the Netherlands (SER) mentions that companies ask for further tools to implement human rights due diligence (SER, 2014).
Since implementation of human rights due diligence takes time and effort, we might question whether mandatory reporting on the aforementioned three aspects of human rights disclosures (policy, risks, performance outcomes) will actually reflect true (change in) human rights policies and actions, and whether the information is possibly biased due to a box-ticking mentality or impression management. Questions arise, such as: What does having a human rights (HR) policy say about HR performance? Does human rights disclosure reflect a true and complete image of human rights (due diligence) performance? Are critical (i.e. salient) human right risks addressed? Do companies differ in their reporting on human rights? Is comparability through the use of human rights reporting frameworks desirable? (How) can guidelines add to the effectiveness of The Directive?
6Business & Human Rights Resource Centre
https://business-humanrights.org/en/economist-intelligence-unit-study-finds-businesses-recognise-responsibility-to-respect-rights-but-lag-behind-in-taking-action visited on 20-03-2017.
6 Research question
The problem statement highlights the gap in human rights reporting and the questions this gap raises with an eye on the new EU Directive. Most likely, it is not possible to answer all these questions in this study. However, an explorative study into human rights due diligence reporting might be a good start for future research, to explain the gap and provide insights for practice. To gain more knowledge in the field of human rights disclosures this study aims to answer the following research questions (inspired by Hahn and Lülfs, 2014):
1. How do organizations participating in the Dutch transparency benchmark disclose human rights due diligence information and address specific human rights risks in the supply chain?
2. How can this disclosure be explained in the light of CSR reporting theories?
To answer these questions, a content analysis is performed of human rights disclosures by Dutch organizations participating in the Transparency Benchmark 2016 (reporting year 2015). The sample consists of 10 organizations in the financial and electronics sector. The content analysis is based on a self-developed questionnaire and is focused on due diligence and salient human rights issues in the supply chain. In addition, data on (human rights) disclosures and policies from the ASSET4 ESG database and data from the Dutch Transparency Benchmark are used to interpret disclosures in its context. The findings are examined using CSR disclosure theories to provide possible explanations for current human rights reporting practices. The aim of this study is not to provide conclusions about (the relevance of) current human rights disclosures, but to map current reporting practices and find possible explanations, as a starting point for future (quantitative) research.
Research in the field of human rights disclosure is not very extensive. Besides a gap in practice, as noted by De Roo (2015), there also seems to be a gap in research. In line with the increase in CSR accountability and practices, research into CSR reporting has increased over the last years (Perrini, 2005, cited by Campopiano & De Massis, 2015), as well as studies focusing on the more specific environmental disclosures (D’Amico et al. 2016). However, Islam et al. (2016) note that, despite stakeholder concerns regarding human rights violations by organizations, research on human rights accountability and associated reporting is relatively limited. Therefore, by answering the research question, this study aims to contribute to the development of both qualitative and (indirect) quantitative human rights disclosure research and is thereby partly a response to the call for interpretative content analysis of human rights reporting by Islam et al. (2016).
The study contributes to human rights disclosure research by focusing on content rather than volume of disclosure. Results of this study are relevant for research in this field in the sense that it maps current disclosure practices and provides possible explanations for these disclosures. These findings can be a starting point for future (quantitative) research. In addition, this study contributes to overall research in social and environmental accounting by looking at a specific topic within CSR disclosures, instead of overall CSR reporting, and the application of existing disclosure theories hereon. The results of this study might also be relevant for practice, since regulators and standard setters can use the insights gained in this study to further improve their policies and guidelines.
Outline of the paper
This paper is organized as follows. First, general CSR disclosure theories are discussed in the theory section, followed by an elaboration of human rights and business due diligence and prior research in the field of human rights disclosures, including current practices. Hereafter, the research design is discussed, followed by elaboration of the findings and a discussion of the results. The paper ends with a conclusion, the limitations of this study and recommendations future research.
7 THEORETICAL FRAMEWORK
The aim of this chapter is to provide a theoretical framework for human rights disclosures. First, general CSR reporting theories are addressed, after which the more specific field of Human Rights (due diligence) disclosure is discussed. In line with Gray et al. (1995), the general CSR reporting theories discussed in this chapter are not competitive in explaining relationships or findings, but serve as a tool for interpreting the results later in this study. The theories might enrich the analysis of interpreting very rich CSR data-sets (Guthrie & Parker 1989, 1990, cited by Gray et al. 1995).
CSR reporting and underlying theories
Stakeholders demand organizations to be transparent regarding social, economic and environmental performance (Logsdon and Lewellyn 2000; Rasche and Esser 2006, cited by Herremans et al. 2016, p. 417). In addition to stakeholder demands, leaders and staff in organizations now seem to recognize their role and responsibility and aim to increase sustainability either direct or indirect. This led to, among others, sustainability reporting (Lozano and Huisingh, 2011). In recent years, the number of organizations disclosing information on their CSR performance has increased considerably (Diouf & Boiral, 2017). The latest survey of Corporate Responsibility reporting carried out by KPMG (2015), showed that the current rate of CSR reporting is now over 90% among the G250. This shows the transition towards sustainability reporting as being a common practice (Diouf & Boiral, 2017). Before discussing the most important theories underlying CSR reporting, it is important to note the definition of CSR reporting used in this study. Terms as CSR reporting, sustainability reporting and environmental reporting are used interchangeable. Despite the differences in sustainability practices (Diouf & Boiral 2017) and the differences in terms used to express these practices (Archel et al. 2007), they all highlight the phenomenon of disclosing information on non-financial topics, both on a voluntary as well as mandatory base. In this study, the term CSR reporting covers this broad topic of non-financial disclosures, in line with the definition that Gray (1987, p. 9) gave to corporate social reporting, involving:
“... the process of communicating the social and environmental effects of organisations’ economic actions to particular interest groups within society and to society at large. As such, it involves extending the accountability of organizations … beyond the traditional role of providing a financial account to the owners of capital...”.
As a result, this information can be disclosed in several ways, for example in a separate CSR report, or integrated within the annual (financial) report.
Stakeholder theory (and the business-society relationship)
Stakeholder theory cannot be ignored in the study of (CSR) reporting. CSR is often linked to the study of stakeholder relations (Steurer et al. 2005), focusing our attention on the relationship between business and society, which is a fundamental in this field of research. Neo-classical economists saw organizations as closed systems and focused their attention on shareholders, whereas those who focused on the business-society relationship placed the organization in its societal context (Dill, 1958; Androif et al. 2002, cited by Steurer et al. 2005). Williams and Adams (2013, p. 454) recognize the importance of stakeholder theory in their examination of employee disclosures in the light of moral accounting:
“First, stakeholder theory underlies our overall approach because it draws attention to the multiple organisational stakeholders that must be addressed for an organisation to be regarded as accountable.”
Stakeholder theory thus highlights the importance of defining stakeholders in order to be accountable. According to Gray et al. (2014, p. 105), accounting and social accounting procedures are important because there are many
8 and complex interactions between organizations and society, and we take many of them for granted. In addition, Gray et al. (2014, p. 113) refers to work by Adams (2008) and states that the way organizations report is influenced by how organizations understand their CSR and how they understand their stakeholders and the organization's effect on these stakeholders. In this sense, CSR disclosures are part of the dialogue between the organization and its stakeholders (Gray et al. 1995).
Stakeholder theory might have different implications for reporting. In their study of stakeholder engagement strategies, Herremans et al. (2016) identify two views of stakeholder theory: a moral and a strategic view. Within the moral view, reporting follows from the idea that “stakeholder have a right to know”, whereas the strategic approach focuses on the benefits for the disclosing organization (in achieving its goals) as an explanation for reporting. However, what follows from both views is the importance of identifying relevant stakeholders and their needs, resulting in a stakeholder dialogue and diversity in reporting. In addition, Deegan (2002) refers to the moral view as an acceptance of accountability or responsibility by managers (to disclose information to those who have a right to know) and that this view would be in conflict with a legitimacy point of view. This brings us to the second theory used in this study; legitimacy theory.
Legitimacy theory and impression management
Legitimacy theory builds on stakeholder theory with regard to the business-society relationship. It relates to the strategic variant of stakeholder theory above, in the sense that it adds conflict and dissension to the picture (Gray et al. 2014). According to Hahn and Lülfs (2014), legitimacy theory suggests that organizations do not have an inherent right to exists and that society confers legitimacy upon the organization (Deegan, 2002). Cho (2009) adds to this latter viewpoint that therefore an organization's quest for legitimacy depends upon a social contract between the organization and society. This social contract plays an important role in legitimacy theory. Organizations will increase efforts to preserve the social contract, since a breach of this contract may negatively affect the organization's existence (Cho, 2009).
Organizations may use corporate social reporting as a strategy to obtain this legitimacy (Williams and Adams, 2013). Hooghiemstra (2000) mentions that legitimacy theory stresses that organizations engage in CSR reporting to affect public’s perceptions of the organization. They do this in a response to public pressure and increased media attention. In this sense, the author notes that there is a two-way relationship between an organization’s self-presentation and external perception. The way people perceive an organization thus also influences the organization’s self-presentation. This is because the media affect the organization’s perspective on how the external environment perceives the organization. Prior research also suggests that an organization’s reputation is influenced by both the industry in which it operates as well as the narratives in the mass media about that organization (Hooghiemstra, 2000). Hooghiemstra adds to this discussion that to manage perceptions, management is willing to report “good news” but unwilling to disclose “bad news”.
The use of CSR reporting as a public relations tool might trigger impression management (Milne and Gray, 2007, Merkl-Davies and Brennan 2007, cited by Cho et al. 2012). Management can take advantage of information asymmetries to distort a reader’s perception of corporate performance by altering the presentation and disclosure of information (Merkl-Davies et al. 2011). Merkl-Davies et al. (2011) further argue that this can be accomplished by either emphasizing positive outcomes (enhancement) and/or by concealing negative performance (concealment). Both strategies are an inaccurate view of organizational outcomes (Cho et al. 2012). Organizations can use various tools (e.g. visuals, narratives) as presentation strategies to manage impression via CSR reporting. Prior studies for example indicate an abundance of positive information (Cho et al. 2010), or the use of graphs as an impression management tool (Cho et al. 2012, Beattie & Jones, 2000). Impression management can thus be used as a tool for gaining legitimacy.
9 Voluntary Disclosure Theory
Voluntary disclosure theory (VDT), as opposite to legitimacy theory, explains CSR reporting by a voluntary desire of companies to disclose their (good) CSR performance. Guidry and Patten (2012) provide an overview of three primary studies in voluntary disclosure theory (Dye 1985; Lang and Lundholm 1993; Verrecchia 1983). Hahn and Lülfs (2014, p. 403) mention that these studies are economics-based, and imply that companies voluntarily disclose information to reduce information asymmetries between managers and outside stakeholders to announce their (good) performance. Guidry and Patten (2012. p. 82) state that research by Verrecchia (1983) and Dye (1985) shows that non-disclosure might be explained by proprietary costs of disclosure and that in case of non-disclosures, investors may doubt what information a manager possesses. Lang and Lundholm (1993, p. 249, cited by Guidry and Patten 2012, p. 82) conclude that “firms whose performance exceeds a certain threshold will disclose, while those performing below the threshold will not.”
Based on these findings, Clarkson et al. (2008, p. 304), for example, posit that firms with better environmental performance want to signal this via disclosure, whereas worse performing organizations disclose less or not at all, so they will be seen as average performers. In addition, these authors note that good (environmental) performers will disclose objective environmental performance indicators which are difficult to copy by less well-performing organizations. In their study on environmental disclosures, they find evidence for VDT in a positive association between environmental performance and the level of discretionary disclosures. These results are inconsistent with legitimacy and stakeholder theory. However, the authors do state that these theories are helpful in predicting what is being said. They find that organizations with unfavorable prior year media coverage “are more likely to make soft claims to be committed to the environment which are not readily verifiable” and conclude that socio-political theories (i.e. stakeholder and legitimacy) explain additional patterns in disclosures” (Clarkson et al. 2008, p. 305).
Triple Bottom Line reporting
This chapter started by focusing on general theories behind the broad concept of CSR reporting. However, the focus of this study is on human rights disclosures, a specific subject within this practice. Therefore, this paragraph will further elaborate on the content of CSR reporting, by introducing the concept of Triple Bottom Line (TBL) reporting and the guidelines developed for CSR reporting8.
The development of TBL reporting
Social and environmental accounting covers a broad range of activities. Gray et al. (2014, p. 108) summarize the development of sustainability reporting by dividing it in three periods, starting with a low level of social reporting in the 1980’s, followed by a dominance of environmental reporting in the 1990’s and moving to a broader definition of sustainability reporting since this century. The latter category comprises reporting on both economic as well as social and environmental topics, such as labor, health, safety, business ethics and human rights (Emeseh & Songi, 2014). In this latter period, Gray et al. (2014, p. 108) mention the rise of Triple Bottom Line (TBL) reporting, a term originally developed by Elkington (1997). Within Triple Bottom Line reporting, accounts are produced for three types of actions of an organization, namely economic/financial, social and environmental (Elkington, 1997; Henriques and Richardson, 2004, cited by Gray et al. 2014). The term TBL was originally developed as a management term, with the aim to focus an organization’s actions also at social and environmental value instead of only economic value and is sometimes referred to as “people, planet and profits”. However, the term became more powerful in external reporting (Gray et al. 2014, pp, 221).
8 Note: sometimes, the term “TBL reporting” is used as a substitute for sustainability or CSR reporting (see for example Archel et al. 2007). However, in this study I focus on the definition of TBL reporting as being a framework for reporting about Economic, Environmental and Social issues. A report based on TBL uses these three pillars for their content.
10 TBL in practice
Nowadays, most CSR reporting guidelines are based on the TBL concept. Based on research by KPMG9, Gray et al. (2014, p. 108) note that the transition to this all-encompassing concept over the years resulted in a less clear demarcation line between different reporting practices such as social, environmental, sustainability and employee reporting, and led to divergent titles of reports relating to for example ‘sustainable development”, “citizenship” and “social responsibility”. Even though (most of) these disclosures are voluntary, guidelines for reporting were developed, addressing issues of both preparation and content of the report (Gray et al. 2014, p. 141). To standardize disclosures, the Global Reporting Initiative (GRI) for example provides a set of standards that organizations can use to produce their reports (Comyns et al. 2013). In most cases, these CSR reporting guidelines tend to be based on the triple-bottom line, where economic, environmental, and social aspects are separated (Lozano and Huisingh, 2011). Not only the most widely used guideline, the GRI, is “built on TBL Foundations” (Elkington, 2004, cited by Gray et al. 2014), the Dutch Transparency Benchmark, uses this concept in their benchmark as well.
However, researchers question whether CSR reports really reflect a sustainable strategy. Emeseh and Songi (2014) note that despite the huge steps made in CSR reporting, one of the criticisms is that the term sustainability report is inappropriate when looking at the definition of sustainability. They cite an article by Gray and Milner (2002), who state that TBL reporting might be a better terminology for sustainability reporting. In addition, Milne and Gray (2013) question whether TBL reporting reflects corporate sustainability. They argue that the Triple Bottom Line (and GRI) do not imply contribution to a sustainable world by organizations. Hess (2008, p. 448) addresses this problem as well, raising the following question: “Is the substance of corporate social responsibility through voluntary social reporting under such standards as the GRI simply an empty process that does not lead to any substantive changes in corporate behavior?” In their study, they provide three conditions that need to be met for social reporting to be effective, namely disclosure of material information, dialogue with stakeholders and moral development of the organization.
Before proceeding, I would first like to make a short reference back to stakeholder theory mentioned earlier in this chapter. This theory highlighted the importance of the business society relationship and accompanied dialogue with stakeholders. As noted, the content of CSR disclosures should be an outcome of these dialogues, by focusing on the most material stakeholders needs. This seems contrary to the phenomenon of TBL reporting and the guidelines that use this as their starting point. By focusing on reporting separate social, economic and environmental issues, organizations are still free in choosing the specific topics addressed under these pillars. This might trigger impression management in CSR reporting by organizations. Despite the widespread use of CSR guidelines, the lack of human rights reporting could be an indication that TBL reporting inhibits reporting on this complex topic, and encourage reporting on more “easy” or positive topics, like employees and diversity. Erusalimsky et al. (2006, p.17) for example find that within social disclosures, employment information make up the largest part of this section and that “the space devoted to employees ... is more than that devoted to communities, customers and suppliers (the next three biggest stakeholder groups) combined” (Gray et al., 2014, p. 141). In addition, De Roo (2015) mentions that non-financial information is predominantly related to employee rights and sustainability.
TBL might therefore provide additional insights into reporting practices and the conditions noted by Hess (2008) could be important to determine the effectiveness of disclosures. A summary of the CSR reporting theories regarding the implications for the interpretation the content analysis is provided in the discussion section.
9KPMG (2002) KPMG 4th International Survey of Corporate Responsibility Reporting. Amsterdam: KPMG/WIMM. KPMG (2005). KPMG International Survey of Corporate Responsibility Reporting 2005. Amsterdam: KPMG International. KPMG (2008). KPMG International Survey of Corporate Responsibility Reporting 2008. Amsterdam: KPMG International.
11 Human rights and business due diligence
Before elaborating on the specific human rights reporting practices, one important question remains; What are Human Rights? This might seem obvious, however, as McPhail and Adams (2016) conclude, corporate constructions of human rights are broad: from labor rights, through social and political rights, to the right to health and a clean environment. In this paragraph, after elaborating on the definition of human rights, current developments and due diligence practices are discussed. Special attention is devoted to the UNGPs, as they provide the basis for the content analysis of this study.
Human rights definition
Literature on human rights disclosure offers a first definition of human rights. Gray and Gray (2011) refer to a definition cited by Griseri and Sepella (2010, p. 176); “entitlements that one holds by virtue of being a human being”. However, the authors also mention that this definition is not yet settled and that human rights are far from present in accounting and finance. They state a more elaborate definition of human rights from Sullivan (2003, p.15): “Human rights are the fundamental principles allowing individuals the freedom to lead a dignified life, free from fear or want, and free to express independent beliefs”. The description given by the Netherlands Institute for Human Rights is somewhat shorter, however, encompassing the same idea that human rights are “rights accrued to every human being, anywhere in the world.”10
Current developments
Gray and Gray (2011) note that one of the most important documents in the history of current human rights discourse is the Universal Declaration of Human Rights (UDHR), adopted by the UN General Assembly on December 10, 194811. However, while the obligations implicit in the UDHR may have moral consequences for organizations, they are not legal requirements (Hamann et al. 2009). Still, organizations are expected to respect human rights nowadays. In this sense, De Roo (2015) notes that in a response to business involvement in human rights violations, NGOs, governments and other (alliances of) companies introduced legal and non-legal mechanisms to increase the responsibility of organizations to respect human rights. Nowadays, an organization’s responsibility is stipulated in international guidelines such as the OECD guidelines for Multinational Enterprises (hereafter OECD), the UN Guiding Principles on Business and Human Rights (UNGPs) and the fundamental labor standards (ILO) that are part of these guidelines (SER, 2014).
The UNGPs and due diligence
The UN Guiding Principles on Business and Human Rights are based on the UN Protect, Respect and Remedy framework developed by professor John Ruggie as a representative of the UN Secretary General (Buhmann 2016). The principles in the UNGPs address three specific pillars: the responsibility of the state, the responsibility of organizations, and access to remedy (Shift and Mazars, 2015b, p. 17). Hamann et al. (2009) mention that the responsibility of organizations is not easy to define in the sense that it is not possible to address a specific set of human rights for which organizations are accountable. The accountability and impact of organizations should therefore be looked at in a context specific manner. The core of the requirement of the second pillar in the UNGPs is therefore due diligence. Hamann et al. (2009) describes due diligence as “the steps a company must take to become aware of, prevent and address adverse human rights impacts” (Ruggie, 2008, para. 56). The UNGPs identify four steps of due diligence including (i) assessment of actual and potential human rights impacts, (ii) integrating and acting upon the findings, (iii) tracking responses and (iv) communicating how impacts are addressed (UN, 2011).
10College voor de Rechten van de Mens (2017) Wat zijn mensenrechten. Available at:
http://www.mensenrechten.nl/wat-zijn-mensenrechten/wat-zijn-mensenrechten visited on 28-03-2017
12 Risk management and practice
The Reporting and Assurance Frameworks Initiatives (RAFI), facilitated by Shift and Mazars, developed a Reporting Framework to guide organizations in reporting about human right issues, in line with their responsibility as set out by the UNGPs (Shift and Mazars, 2015). The UNGP Reporting Framework is a good example of current efforts to put the UNGPs into (reporting) practice. An important aspect of (human rights) due diligence is the identification of salient risks (step 1), on which the disclosure should be focused (Shift and Mazars, 2015)12. In the Netherlands, the IMVO committee of the SER published a report about organizational due diligence to encourage both organizations and stakeholders to develop their CSR risk management. In this report, the SER (2014) notes a lack of familiarity with international guidelines among Dutch organizations and state that these organizations indicate a need for guidance on the operationalization and implementation of the expectations. Commissioned by the SER, the NEN (Dutch standardization Institute) developed a manual (NPR 9036)13 for the integration of due diligence based on the UNGPs and OECD guidelines into existing (risk) management systems of organizations. In this manual, explicit emphasis is placed on the different approaches between standard risk management and due diligence in the CSR context. Risk management is normally focused on the identification of risks and opportunities for the organization's activities and goals, whereas due diligence in the CSR context identifies risks with a negative impact on external stakeholders. This is an important distinction between common risk management and (human rights) due diligence. However, risks identified in the human rights due diligence process can also indirectly translate to risks for the organization itself (SER, 2014).
Prior research on human rights reporting
Research in the field of human rights reporting is, as mentioned earlier, limited, however, not non-existent. In this paragraph, this literature is discussed to provide a more defined background for the analysis developed in the next chapters. In addition, this paragraph addresses the EU Directive.
Islam and McPhail (2011) studied reporting practices on the ILO’s human rights standards in the global garment manufacturing and retail industry. At this stage, research on human rights disclosure was almost non-existent, therefore, they attempted to start with an exploration of the extent of human rights disclosures. From their study, it became clear that human rights were becoming part of CSR reporting. In addition, they highlight that this emergent discourse deserves more attention. Hereafter, Islam and Jain (2013) studied disclosures in the same industry, now focusing on workplace human rights in Australia, investigating the influence soft regulation on corporate accountability. They performed a content analysis (presence or absence of 47 specific disclosure items) of annual reports, CSR reports and websites of 18 major Australian organizations. They explain their findings of poor (low) workplace human rights reporting by the absence of oversight by the Australian government. The authors argue that ineffective soft regulation and absence of mandatory reporting allow organizations to remain silent on workplace human rights standards and breaches. “At present, failed regulatory attempts are letting corporations escape with reporting only those parameters required by law, and not divulging any human rights violations, Work-Safe or other infringement in their annual reports, as they may be damaging.” (Islam & Jain, 2013, p. 112).
Again, three years later, Islam et al. (2016) find evidence that legitimacy theory is applicable to human rights reporting. In their study on human rights performance disclosure in the Australian mineral sector, they find that organizations operating in high-risk human rights countries disclose more human rights performance information
12 The UNGP reporting framework defines salient risks as “Those human rights that are at risk of the most severe negative impacts through a company’s activities or business relationships. They therefore vary from company to company.” (Shift and Mazars, 2015)
13 NEN (2015, July 22), Nederlandse Praktijkrichtlijn ondersteunt bedrijven bij ‘Due Diligence’. Retrieved from:
https://www.nen.nl/NEN-Shop/Nieuws-over-ISO-26000-duurzaamheid/Nederlandse-praktijkrichtlijn-ondersteunt-bedrijven-bij-due-diligence.htm
13 than companies operating only in low risk countries. They base their findings on a content analysis of 88 specific human rights items in annual reports, CSR reports and corporate websites for the year 2010-2011.
Furthermore, Hamann et al. (2009) performed a content analysis of the top 100 South African organization’s public reports listed in the Johannesburg Stock Exchange (JSE). They find that human rights due diligence is not influenced by sector, size and participation in UNGC14 and JSE SRI index, but is influenced by leadership commitment, government regulations and stock exchange listing rules.
McPhail and Adams (2016, p. 650) studied corporate discourse on respect for human rights by analyzing the annual reports, CSR reports and websites of 30 Fortune Global 500 organizations in the chemical, mining and pharmaceutical industry. They find that “corporate constructions of human rights are broad: from labor rights, through social and political rights, to the right to health and a clean environment”.
The EU Directive
De Roo (2015) discusses the EU Directive and its effect on human rights reporting. The directive is an amendment of the existing directive 2013/34/EU. Large companies and groups with more than 500 employees are required to report, on a comply or explain basis, their review of policies, principal risks and outcomes on environmental and social/employee issues, as well as respect for human rights, anti-corruption/bribery, and diversity on the Board of Directors15. The Directive is applicable from 5 December 2014, and national laws must incorporate the Directive by Dec. 6 2016. In the Netherlands, the law is effective from reporting year 201716.
In his article, De Roo (2015) addresses shortcomings of the directive in accomplishing the positive effects it aims to have on human rights reporting and enforcement of corporate responsibility to respect human rights. The author states that targeted informational regulation (e.g. the Directive) can be effective only when the information that is communicated is embedded in the reporter’s decision-making process. There are two ways this can be accomplished: due diligence and mutual learning. Disclosure fulfills not only an information demand by stakeholders but also serves as a tool for comparison based-mutual learning by providing competitors with information on their responsibility to respect human rights. However, these processes will probably not provide optimal results when they are not facilitated by instruments such as specific reporting frameworks (De Roo, 2015). The author continues that the main weaknesses of The Directive can be divided in two categories: (i) lack of harmonization regarding integrated reporting and assurance, and (ii) an excess of possibilities for companies to deviate from reporting requirements. In addition to the latter weakness, De Roo (p. 283) states that “The Directive leaves companies a considerable margin for influencing the quality of their human rights reporting. … It seems that, …, compliance with the reporting requirements set by the Directive does not necessarily imply that the management report will contain sufficient information on the company’s supply chain.” Next to these shortcomings in the enforcement of supply chain disclosure, a second issue is the flexibility in framework choice that the Directive allows, both on the question whether to apply a framework as well as which framework. The author further argues that if the shortcomings are counterbalanced by Member State initiative or future amendments (e.g. national rules on assurance and integrated reporting) in combination with, well-established frameworks, the directive could be effective in achieving its aim to improve human rights disclosures and indirectly stimulating corporate responsibility to respect human rights.
14 United Nations Global Compact, principles available at https://www.unglobalcompact.org/what-is-gc/mission/principles last visited on 19-06-2017
15 Article 19a (1) of The directive, available at http://eur-lex.europa.eu/legal-content/en/ALL/?uri=CELEX:32014L0095 16 Summary of The Directive 2014/95/EU: Disclosure of Non-Financial information, available at
14 RESEARCH DESIGN
Method
The aim of this study is to map current human rights due diligence disclosure and to interpret this disclosure based on its context and in the light of CSR theories. Prior research mainly focused on volume of Human rights disclosures. This study will look at the content of human rights disclosure, with specific attention to due diligence in the supply chain. Williams and Adams (2013) and Hamann et al. (2009) already mentioned that the accountability and reporting of organizations is (should be) dependent upon its context. Therefore, I will perform an interpretative content analysis based on cross-sectional observations in CSR disclosures and data from the ASSET4 ESG database and the Dutch Transparency Benchmark 2016. In addition, Williams and Adams (2013) note that the use of a single theoretical framework to interpret disclosures has its limitations. Therefore, this study will look at multiple theories to find possible explanations for current human rights disclosures.
Content analysis
Content analysis is used to map human rights disclosures in CSR reports. This analysis is based on a self-developed questionnaire (see next paragraph). Krippendorff (2013, p. 24) defines content analysis generally as “a research technique for making replicable and valid inferences from texts (or other meaningful matter) to the contexts of their use.” (Cited by Drisko & Maschi 2016). Duriau et al. (2007, p. 6) state that content analysis covers a wide range of theoretical frameworks, methods and analytical techniques. Therefore, they adopt a definition proposed by Shapiro and Markoff (1997, p. 14): “any methodological measurement applied to text (or other symbolic materials) for social science purposes”. In addition, they mention that content analysis is used in studying corporate social responsibility, due to the difficulty of using traditional quantitative methods and archival (financial) data in this field of management research.
An advantage of content analysis is the choice in flexibility of the level of analysis. Duriau et al. (2007) describes two levels of analysis, whereby the manifest content text can be captured with numbers/statistics, while at a second, deeper, level, latent content can be studied, requiring more interpretation. This study focuses on the latter level and is both interpretative and qualitative in nature. Drisko and Maschi (2016) define these two different forms of content analysis as separate methods. However, there seems to be much overlap between the two research methods, and, to my knowledge, a specific definition of both concepts is not (yet) given. Schreier (2014, cited by Drisko and Maschi 2016, p. 87) also notes that there are “inconsistent explanations as to what actually constitutes the method of qualitative content analysis.”
Drisko and Maschi (2014) state that interpretive content analysis is also targeted at other academics and professionals. These studies are used as starting points for the development of concepts and theories for future research, by focusing on understudied populations, which fits the aim of this study. To ensure reliability of interpretative content analysis, it is important to explain the process and provide explanations of the steps followed in the analysis and the decision made. In addition, it appears that most authors assume the validity of content analysis (Drisko & Maschi, 2016 p. 46). However, by coding the data after the data collection, the validity of this study is further enhanced. More information on the data collection process is given in the data collection paragraph at the end of this chapter.
Questionnaire on due diligence disclosure
The focus of this study is on human rights due diligence disclosure, since due diligence is a fundamental part of an organization's responsibility and ability to respect human rights. Due diligence goes one step beyond on “commitment to” human rights (i.e. having a human rights policy). Due diligence is about how this policy is managed and implemented in the organization, focusing on identification of salient risks, actions, and
15 performance tracking. Important in this regard is the focus of risk on external parties, instead of risk to the organization, or “common” risk management. The content analysis in this study is therefore performed by analyzing disclosure based on a self-developed questionnaire, which highlight the due diligence aspect and the identification of salient human rights risks in the supply chain.
The UNGPs and the accompanied Reporting Framework are used as guidance for the questionnaire. The latter reporting framework already includes a list of questions per due diligence step which could be used for the content analysis. However, since prior research and practice shows that due diligence processes are often not yet in place and/or reporting is not yet well established, this framework might be too advanced due to its specific, in-depth questions focused on a Human Rights due diligence process. Therefore, I developed an assessment framework that is broader, however, still covering the, in my opinion, most important aspects of human rights due diligence disclosure based on both the UNGPs and the accompanied Reporting Framework. The UNGPs divide an organization's responsibility to respect human rights into three sections, wherein a specific distinction is made between commitment to human rights and a management approach to implement policies and track performance (UN, 2011):
1. Commitment: A statement of policy commitment to respect human rights; 2. Management: A human rights due diligence process to:
▫ assess actual and potential human rights impacts (salient risks);
▫ integrate the findings and take action to prevent or mitigate potential impacts; ▫ track performance;
▫ communicate performance;
3. Remedy: Processes to provide or enable remedy to those harmed, in the event that the company causes or contributes to a negative impact.
The questionnaire used in this study covers these three steps, as well as context specific topics to explore disclosures. The questionnaire can be found in Appendix A, and covers the following topics: Reporting Method, Stakeholder Engagement and Materiality, Human Rights Policy and Guidelines (commitment), Human Rights Due Diligence (management), Human Rights supply chain due diligence (as a salient risk) and Grievance Mechanisms (remedy).
Human rights due diligence in the supply chain
Specific attention in the questionnaire is also devoted to salient risks identified in the supply chain. The possible shortcomings in the EU directive identified by De Roo (2015) highlight the risks of omitting human rights issues in the supply chain. In the light of CSR reporting theories, e.g. legitimacy theory and accompanied impression management, this risk requires specific attention. The UNGPs (UN 2011, p. 14) state that, “in practice, some human rights may be at greater risk than others in particular industries or contexts, and therefore will be the focus of heightened attention”. Therefore, this study will focus on sectors with high human rights supply chain risks to provide more insight into this possible risk of omitting this information (i.e. salient risk) (see also paragraph “sample”). Important to note is that the broad concept of human rights implies that for example also health & safety, privacy, diversity and even environmental issues are related to human rights. However, disclosure on these topics as (indirect) indicators of a human rights (due diligence) policy is not taken into account in this study. ASSET4 ESG data
In addition to the content analysis, this study also uses data from the ASSET4 ESG database, available through Datastream. This database comprises data on Environmental, Social and Governance aspects of more than 6000 organizations worldwide. It covers over 400 metrics, including human rights indicators. The data in this database is manually collected, by gathering data from publicly available information sources (CSR reports, company
16 websites, NGO websites, media, stock exchange filings, annual reports and news sources). In addition, the ESG data is quality controlled and verified in a rigorous process by experienced analysts and automated checks17. The collected variables from this database are: (i) human rights policy and (ii) social policy (incl. human rights). A table with the descriptions of these variables is provided in appendix B.
Dutch Transparency Benchmark 2016
As previously mentioned, the Dutch Transparency Benchmark studies the content and quality of corporate social responsibility report of the largest companies in the Netherlands (TB, 2016). Transparency scores on 40 indicators are available in this dataset for reporting year 2015. Indicator scores that are taken into account in this study are: (i) total report transparency score (maximum is 200 points), (ii) transparency on social aspects of reporting (maximum 8 points) and (iii) reliability of the report (maximum 20 points). A table with the description18 of these variables is provided in Appendix C.
Sample
The sample used for the content analysis in this study comprises in total 10 Dutch companies from the Financial and Electronics sector. Country and sector choice is based on the increased attention that human rights attained in the Netherlands, as well as the increased attention that human rights receive in the supply chain in these two sectors. Globalization has led organizations to produce their products not (only) in the Netherlands, but where production and transport costs are low (KPMG 2014, p. 12). Global organizations use intermediaries to perform their core business functions at many levels within their supply chain. Besides positive effects on local economies in development countries, this development involves risks, for example by the either direct or indirect involvement in severe abuse of human rights (KPMG 2014, p. 12). A result of the complex supply chains is that organizations often do not know that they are exposed to human rights violations.19
In this study, Dutch organizations are chosen due to their, mostly, indirect impact on human rights in the supply chain. In addition, the Netherlands is one of the first countries with a National Action Plan on business and human rights20. In her speech at the International Business and Human Rights Conference (April 2017), Dutch Minister Ploumen says “Dutch companies should uphold the same high human rights standards wherever they operate”21. Furthermore, the VBDO (Dutch association of investors) is involved in the development of the Corporate Human Rights Benchmark. These developments might trigger Dutch organizations to develop or extend their human rights due diligence processes, including reporting. In addition, A CSR sector analysis by KPMG (2014, p. 7) shows that material risks are present in every sector, and large differences exist between sectors. Taking into account two sectors allows for both an in-depth investigation of, as well as a comparison between sectors disclosures. In the next sections, sector specific issues are discussed.
17 Thompson Reuters EIKON (March 2017) Thompson Reuters ESG scores methodology, Retrieved from:
https://financial.thomsonreuters.com/content/dam/openweb/documents/pdf/financial/esg-scores-methodology.pdf 18 full (Dutch) description of the Transparency Benchmark criteria (2016) are available at:
https://www.transparantiebenchmark.nl/sites/transparantiebenchmark.nl/files/fotos/Transparantiebenchmark%20-%20Criteria%202016%20Nederlands.pdf
19 D. Viederman (Dec. 6, 2010) Slavery in Supply Chains: What Companies Can Do. Retrieved from:
https://www.ihrb.org/focus-areas/migrant-workers/commentary-slavery-supply-chains-what-companies-can-do
20 The National Action plan of the Dutch Ministry of the Interior and Kingdom Relations, (Feb. 2014) is available at: https://www.government.nl/documents/policy-notes/2014/03/19/national-action-plan-on-human-rights 21 Speech by Dutch minister L. Ploumen on international business and human rights (April 19, 2017), available at
https://www.government.nl/documents/speeches/2017/04/19/speech-minister-ploumen-on-international-business-and-human-rights visited on 10-05-2017
17 Electronics sector
The International Labour Organization (ILO) performed a sectoral study on risks in supply chains, among which the electronics sector is one. In the current digital age, the electronics industry is one of the largest industrial sectors in the world economy industry and is characterized by vast and complex global supply chains (ILO, 2016). The ILO mentions that labor violations and poor working conditions related to among others low wages, forced labor, excessive working hours, health and safety risks and low levels of trade unions are faced by workers in the global supply chain. In addition, the ILO mentions that these violations often take place in the lower tiers of the supply chain. However, also branded firms as for example Apple are held accountable for labor violations in their supply chain (ILO, 2016). An example of a supply chain risk in the electronics industry is the extraction of tin in Indonesia, involving large-scale environmental pollution and human rights abuses. These metals are used in for example consumer electronics (KPMG 2014, p. 39).
Financial sector (banking and insurance)
The financial sector is unique due to its almost total indirect but large impact in responsible supply chains. Banks play an important role in a broad range of aspects of human activity, through their lending and investing practices (FFG International, 2016). KPMG (2014) identified several human rights risks for the financial sector, all related to investments in or providing services to organizations that are either direct or indirect involved in human right abuses. The National Action Plan on Business and Human rights (201422) provides an example where Dutch financial institutions were recently linked to land grabbing in Brazil via their investing practices.
Final sample
The final sample has been established through the following process. First, Transparency Benchmark scores for 2016 were collected, which was available for 252 organizations. Second, ASSET4 ESG data was available for 36 Dutch organizations. Third, organizations are selected that are included in both the ASSET4 database and the TB 2016. Since the focus of this study is on the electronics and the banking and insurance sector, this selection method provided 5 suitable organizations per sector (see Table 1 below).
Name Sector Industry
ABN AMRO Group N.V. Financial Banking
AEGON N.V. Financial Insurance
Delta Lloyd N.V. Financial Insurance
ING Group N.V. Financial Banking
NN Group N.V. Financial Insurance
Aalberts Industries N.V. Electronics Manufacturing - metal
ASML Holding N.V. Electronics Semiconductors
ASM International N.V. Electronics Semiconductors
Royal Philips N.V. Electronics Manufacturing - electronics
TomTom N.V. Electronics Manufacturing - electronics
Table 1, final sample.
22 Ministry of Foreign Affairs (April, 2014) National Action Plan on business and Human Rights, retrieved from: https://business-humanrights.org/sites/default/files/documents/netherlands-national-action-plan.pdf
18 Data collection process
First, CSR or Integrated Reports from reporting year 2015 are collected from the organization’s websites. In case of an absence of these reports, the annual report is collected. At NN Group, the sustainability supplement of the Annual review was disclosed as a separate document, and at ABN AMRO, a separate Human Rights Guide was disclosed. Both the Supplement and the Guide are taken into account. Hereafter, the content analysis was performed using the questionnaire. One person, the researcher, collects the data. Drisko and Maschi (2016) note that the first step in qualitative data is to become very familiar with the data set to build awareness to context and nuance. The authors state that this will help to notice key content and omissions of what might be expected content or perspectives. In addition, it will allow identifying connections within data and preliminary categories. The authors cite work by Schreier (2014), who states that qualitative content analyses may involve data reduction, by using descriptive categories or themes. Therefore, during and after the data collection, the data is restructured to compare and analyze the results in a consistent manner. Hereafter, part of the data is summarized using codes to highlight different reporting patterns (e.g. indirect and direct policy statements). Furthermore, additional data on use of the GRI guideline and external assurance is collected and additional data is encountered during the process which did not yet fit the questionnaire. This data is collected separately and is partly classified and considered in the analysis as well.
ANALYSIS AND DISCUSSION
In this chapter, the findings of the content analysis are presented, interpreted in its context and discussed in the light of CSR reporting theories. First, in the analysis section the main findings of the content analysis per disclosure topic are presented. Secondly, mutual relationships between these findings are discussed. Hereafter, the results are interpreted in its context, by including data from the ASSET4 ESG data set and Transparency Benchmark. Lastly, in the discussion section, the findings are examined using CSR reporting theories.
Analysis
Findings content analysis
In this subsection, the main findings of the content analysis of the CSR reports are presented per topic of the questionnaire.
1. Reporting method (questions 1 and 5)
The reporting methods in this sample are diverse. Four reporting types can be distinguished; separate CSR reports, Integrated Reports (IR), Annual Reviews and Annual Reports, the latter with a small part devoted to CSR. In figure 1, the number of reports per type is displayed. Except the two annual reports, all reports are prepared in accordance with the GRI. Three organizations used the” Comprehensive” option of this framework, which requires a higher level of disclosure than the “Core” option used by the other five organizations. In the financial sector, all reports are Integrated Reports (IR) or Annual Reviews, the latter also comprising non-financial information. Whereas in the electronics sector, we see two CSR reports, one integrated report and two annual reports.
19 Figure 1, reporting method
2. Stakeholder Engagement and Materiality
The GRI guidelines focus on materiality23. The report should cover aspects that (i) reflect the organization’s significant economic, environmental and social impacts; or (ii) substantively influence the assessments and decisions of stakeholders. The topics are often identified by the organization and verified or rated by stakeholders, usually leading to a matrix. Only the topics that are material to both the reporting organization as well as stakeholders (i.e. the upper right of the matrix) are usually taken into account in the report. Reporting according to the TBL framework is therefore almost not present in our sample. In figure 2, a summary of human rights materiality disclosures is displayed. In this figure, we see that only two organizations identified “human rights” as a separate topic in their materiality paragraph. In addition, two organizations mention human rights in combination with conflict minerals or investment activities as a material topic. Two out of these four reporters also rated these topics as material to both the organization and the stakeholder(s).
Figure 2, human rights materiality disclosures
23 GRI (2013) G4 materiality principle, available at https://g4.globalreporting.org/how-you-should-report/reporting-principles/principles-for-defining-report-content/materiality/Pages/default.aspxlast visited on 19-06-2017
20 3. Human rights policy statements and guidelines (question 8 and 9)
When looking at the presence of a human rights policy (“commitment” in UNGPs), figure 3 below shows that six organizations mention human rights related policies either direct or indirect. In the electronics sector, we see that only two companies report indirectly about their human rights policy. In the financial sector this disclosure is more elaborate, with one direct disclosure by AEGON, who specifically states that they have a human rights policy, and three indirect disclosures. ING and ASMI report that their commitment to human rights in reflected in their employment standards, whereas ABN AMRO reports that their commitment to human rights is stated in a separate Human Rights Guide. NN only shortly mentions “the NN statement of Living Our Values includes the commitment to respect human rights” in the appendix. ASML states that respect for human rights is imbedded in their code of conduct and related business principles. Two organizations, TomTom and Aalberts, do not report “human rights” at all in their Annual Report, whereas Philips does mention human rights, but they do not report to have a human rights policy.
Figure 3, human rights policy disclosure
When we look at the standards and guidelines reported (question 9), figure 4 shows that both human rights related guidelines (OECD, UNGPs, UNGC, UNGP Reporting Framework, ILO24 and UDHR25), as well as sector specific guidelines for responsible supply chains (CFSI, EICC, PSI and PRI) are often addressed in the reports of our sample. In the financial sector, we see that four organizations refer to the UN Principles for Responsible Investment (PRI), and three organizations adhere to the UN Principles for Sustainable Insurance (PSI). The latter is only adhered by insurance organizations. In the electronics sector, four organizations adhere to the EICC and three organizations also mention adherence to the CFSI.
21 Figure 4, guidelines disclosures
4. Human Rights (supply chain) due diligence
General Human Rights due diligence (question 10-12). The content analysis of CSR reports based on the questionnaire firstly shows a remarkable but not unexpected finding on due diligence. In figure 5 below, we see that only two organizations in our sample disclose information related to a human rights due diligence process. Disclosures in this field are only present in the financial sector, none of the organizations in the electronics sector reports about a human rights due diligence process. The disclosures were limited to “we perform a human rights risk assessment and communicate this with business units” (AEGON), and the disclosure of a salient human rights risks list (ABN AMRO). None of the reporters disclosed specific information on integration, action and performance outcomes (questions 11-12).
ABN AMRO however does report about a separate Human Rights Guide. In this document, they show their commitment and how they are connected to human rights, including the identification of their salient risks. They also report the actions they have taken until now, based on the UNGPs. Actions are for example related to stakeholder dialogues, risk assessments for transactions and value chain, internal audits at suppliers, and urging suppliers to implement grievance mechanisms (remediation). However, noticeable is that in this document of 41 pages, no (quantitative) performance indicators are mentioned, and that their human rights due diligence efforts are not reflected in their Integrated Report, in which they only state their commitment and salient risks. In addition, in the human rights guide ABN AMRO state that research related to due diligence on for example diamonds in the value chain are reported, however, this is not reflected in the Integrated Report as well. Overall, the human rights guide indeed summarizes ABN AMRO’s commitment and risks assessments, but reporting on (quantitative) performance indicators and outcomes is limited. They do report that these disclosures are their current and future plans, based on an ongoing process on which they are open to suggestions and improvements.
