There is no doubt that the field of business and human rights is advancing. As voluntary efforts evolve into regulatory requirements, companies have begun to recognize human rights as an integral part of their business operations. Many companies with international operations and supply chains have by now established human rights risk management (or human rights due diligence) systems, while continuing to build internal expertise. It is no longer unusual to meet corporate professionals with titles that include the term “human rights”.
With increased maturity, we also observe that companies are moving beyond mapping their supply chains and prioritizing human rights risks to developing actions to mitigate those prioritized risks.
While risk assessments are ongoing and continuous exercises, once this foundation is in place, companies are able to dedicate resources to mitigation (step 4) and, if there is actual harm, to remediation (step 6). This is the part where they move from assessment take action to prevent and mitigate negative impacts on people’s human rights.
This is also where a company’s influence over its business partners, also known as leverage, becomes a critical factor in effective human rights due diligence.
In this CORE Message, we outline what you need to know about leverage in human rights due diligence including how and when to use it to address human rights impacts along your value chains.
What is leverage in human rights due diligence?
Leverage is the ability to influence others. In the context of human rights due diligence (HRDD), it refers to a company’s ability to effect change in the wrongful practices of another party that causes or contributes to harm. More specifically, it refers to the leverage a company has over those who can indeed effect change and improve outcomes for people affected by business activities.
This is not a new concept for companies.
For example, many companies use leverage in the context of lobbying efforts with governments.
In the context of human rights, a company’s responsibility to respect human rights does not depend on its influence or leverage. This means a company does not have less responsibility where it has less influence. While it may be harder to address the human rights challenge, the scope of the company’s responsibility does not change.
What is a company’s responsibility to prevent and mitigate human rights risks and impacts?
Leverage does not exist in isolation but must be understood in relation to how the company is connected to the adverse impact.
The cause – contribute to – linked to framework is a well-established concept in human rights due diligence and very relevant for defining a company’s responsibility to address adverse impacts on people. As such, linkage determines what can reasonably be expected of a company.
CAUSE: If a company is directly causing a negative impact on people’s human rights, then it can change the behaviors that are causing the impact and therefore does not need to influence other actors. This is usually the case, for example, when a company’s practices are harming its own employees or local communities around its production facilities.
CONTRIBUTE TO: If a company is contributing to an adverse impact alongside others, for example through its business practices such as last-minute changes to orders which lead to excessive overtime at a supplier, then its responsibility is to cease or prevent the actions that are contributing to the harm anduse its leverage over the other party to mitigate the remaining impact.
LINKED TO: If a company is not causing or contributing to negative impacts but is linked to an adverse impact through a business relationship such as a supplier or a customer, the company is expected to use its leverage to improve outcomes for affected people. This means, if it has leverage, the company is responsible for influencing the other party to prevent or mitigate the impact.
Examples:
CONTRIBUTE TO: An example here could be for the company to recognize how its procurement practices affect working conditions at its supplier and considering these in future purchasing decisions. The company could also train procurement teams and its supplier on related human rights impacts and establish responsible purchasing policies and practices to prevent recurrence. If previous orders have led to violations of workers’ rights, then the company must also contribute to remediating that harm, for example by contributing to overtime payments.
LINKED TO: An example for this could be an automotive brand that buys batteries which contain cobalt, where the battery supplier is known to be sourcing from mines with high child labor risks. In this case, the automotive company has the responsibility to use its influence as a buyer and as an industry actor to prevent child labor risks in cobalt mining and remediate actual impacts of child labor.
Limited leverage:
Sometimes, companies cannot exert sufficient influence over the parties that cause or contribute to adverse impacts. Where a company has limited leverage, it is expected to look for ways to strengthen it. One common example to do this is by engaging with peers and other actors that tackle the same human rights issues, for example through multi-stakeholder initiatives. This is especially valuable when addressing complex and systemic human rights issues.
Lack of leverage:
Where it is impossible for a company to increase its leverage over the third-party actor, it should consider ending the business relationship. However, a critical concept to know here is termination as a last resort.
While the threat of termination can, in some cases, be a powerful incentive for improved performance, termination of a business relationships should be sought only as a last resort. An exception to this rule are structural and severe human rights violations such as state-imposed forced labor, where companies almost never have any leverage over the actor causing the harm (i.e., the government).
Responsible disengagement:
Where the company has no option but to end the business relationship, it must do so responsibly. In the case of termination or disengagement, the company must take into account the potential negative impacts of terminating the business relationship. It must evaluate whether the negative effects of termination would be significantly worse than the (potential) harm that could not be prevented, mitigated, ended or minimized by continuing the business relationship.
What are the types of leverage a company can exercise to advance human rights?
Leverage can take various forms
For example, a company may use its commercial and contractual leverage. In this case, it is useful to identify key moments in a business relationship when a company has greater influence and can push for improvements.
Then there is broader business leverage, where a company can use its expertise or valued business relationships, a type of leverage that a company can exercise on its own but through activities that are not routine or typical in commercial relationships, such as capacity building.
In other cases, leverage can be strengthened through collective action with peers and other actors in the industry or through multi-stakeholder collaboration which can involve governments, international and civil society organizations or using podium power or in other words, using the weight of an organization’s voice, brand or recognition to advance human rights.
When can leverage be exercised? How can leverage be exercised?
It is useful to identify key moments in a business relationship when a company has greater influence and can push for improvements. Some important moments to use leverage in a business relationship include at the time of negotiating contracts, setting tender or bidding requirements, renewing service agreements, approving or releasing payments and conducting audits.
For example, a lender may have limited leverage after a loan is signed. However, by including human rights reporting requirements in the loan agreement, the lender creates a clear opportunity to follow up on these issues. This is the case in sustainability-linked loans. (Side note: In practice, these loans have been criticized for relying on high-level ESG metrics and self- disclosure, which do not necessarily reflect real improvements for affected people. However, they can still create financial incentives for companies to take human rights more seriously in their operations and supply chains.)
Another example is offering longer-term business relationships in exchange for adherence to human rights standards. There are various real-world examples of buying companies offering multi-year commitments to suppliers that uphold safety and human rights standards.
In practice, how does a company assess its leverage?
Decision-makers in companies can consider the following guiding questions (in the order below) to determine their leverage and define adequate mitigation measures in their specific contexts. (Source: Shift)
- How are we engaged with the risk or impact? How are we linked to it?
- If we are not causing it, do we (as a company) have influence over the party that is causing the risk or impact?
- Can we use this influence to mitigate the risk or remedy the harm?
- How can we use our influence to mitigate the risk?
- If not, can we increase our leverage alone, with others, or through collaboration?
- If we are not able to increase our leverage, can we responsibly replace the third party? What would be the potential impacts on people if we were to end the business relationship?
- Are those impacts greater than the current negative impacts? In this case, can we justify continuing the relationship?
If you are looking to define the most appropriate actions to address your company’s salient human rights risks, it is critical to understand both how your company is connected to those risks and what leverage it has to influence outcomes. As stated in this article, whether a company is causing, contributing to, or linked to an impact will shape the measures it is expected to take.
CORE supports companies in assessing these responsibilities in practice and identifying appropriate and effective measures to prevent and mitigate risks and remediate actual impacts across their operations and value chains.
If you’d like to know more about how we can support you, feel free to reach out to me directly: serra@peopleatcore.com
Serra for the CORE team
