Role of Human Rights in ESG

What Are Human Rights?

We have all heard of the term, haven't we? Be it in school or from the media, human rights are something that we come across daily. For a lot of us, it could be something that we see or experience around us, directly or indirectly, without even realizing it is actually a human rights issue.

In its simplest form, human rights mean that everyone deserves to be treated with dignity and respect, no matter their nationality, background, gender, ethnicity, religion, language, or any other factor. The essence of human rights is violated when individuals or groups are discriminated against, and it is a company’s responsibility to ensure that human rights are followed according to internationally recognized standards. This will enable responsible business conduct among all organizations and keep adverse human rights impacts at bay. It's also critical to respect human rights while respecting humans. Needless to say, it's our core responsibility to respect humans.

It is quite interesting to see how human rights and ESG principles are interconnected in the context of supply chain management. The latter is a critical component of business operations, as it allows for the seamless flow of goods, services, and information from sourcing raw materials to delivering the final product. Along with helping to reduce production costs and enhance customer satisfaction, an efficient supply chain also drives consumer growth in urban and rural areas.

We are all part of an interconnected global community where discriminating factors like language and ethnicity play significantly less important roles than before. Yet, such deterrents are still present, spurring companies to move to a stakeholder-centric approach.

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How Does ESG Play an Important Role?

The idea is that, by neatly tying in ESG principles into the fabric of supply chain management, we can more efficiently drive sustainable business practices. It is not just consumers and investors, but even regulators, the financial sector, and other stakeholders are increasingly assessing companies based on ESG performance and environmental, social, and governance (ESG) factors, identifying them as a long-term value driver, even beyond financial metrics.

As a result, businesses are re-evaluating their approach to human resources across global value chains. Till now, while much of the ESG discussion has centered on diversity, equity, and inclusion, other critical human rights issues such as child labor, forced labor, and unsafe working conditions must also be addressed within supply chains.

To better understand the relationship between ESG and human rights, various social factors that influence corporate responsibility must be considered. These can include labor rights, workplace diversity, supply chain ethics, consumer protection, and even data privacy. Strong governance is the only workaround to harmful business practices and poor working conditions that impact vulnerable communities, especially those living near industrial zones.

Governance built on transparency, ethical leadership, and regulatory adherence will surely serve as a deterrent against human rights violations, thereby reinforcing accountability across business operations. It's important to note that human rights are recognized the world over through the international human rights standards found in core documents like the Universal Declaration of Human Rights (UHDR) and the International Covenant on Civil and Political Rights (ICCPR), among others.

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What Are the Human Rights Concerns in Global Supply Chains?

At a time when the business landscape is evolving and the lines between physical boundaries are vanishing, it is these global supply chains that help businesses source raw materials and services from all across the world.

While supply chains drive economic growth by playing a vital role in the production and distribution of goods and services, they also bring about a number of human rights challenges at different stages of the production process. Thanks to the immense complexity of global supply networks, such issues are difficult to track down. Due to a lack of proper accountability, violations like forced labor, exploitation of children, and unsafe working conditions not just impact workers and communities, but also worsen over time. These can also be referred to as human rights abuses that necessitate their eradication.

Forced labor is akin to modern-day slavery in a way. Victims are trapped in an exploitative situation through deceptive methods, and are not able to escape the dire situation due to threats and, at the extreme end, violence.

Exploiters take advantage of poverty, lack of education, and weak legal systems to prey on the most vulnerable populations. Such inhuman practices are in stark contrast to the values of modern society, but the truth is that forced labor is closely tied to the dynamics of a market-driven global economy, where suppliers face immense pressure to meet consumer demands.

Supply chains operate in two segments; upstream refers to the early stages, such as raw material production, while downstream involves the final stages leading to retail sales. It is quite evident that forced labor is most prevalent in upstream operations, where cost and delivery pressures from downstream industries push companies to cut corners.

In today's cut-throat business scenario, profit margins are paramount, and businesses often overlook the labor conditions of their suppliers, allowing exploitative practices to persist.

Children are easy targets for exploitation, thanks to their dependence on adults, lack of awareness about their labor rights, and limited ability to resist authority. Economically backward classes and underprivileged groups also fall prey to exploitation due to many reasons, the most important being debt bondage. In this case, workers are compelled to work for an employer in deplorable conditions, such as low pay and long working hours, until their loans are cleared.

We often read or hear about the appalling working conditions of Indian laborers in the Middle East. While many individuals reach the shores of the Gulf without a clue of what awaits them, some others have a reasonable idea of what lies in store. They still take up jobs, mostly in construction, even after being aware of the challenges and dangers they might confront. Why? Simply in the hopes of giving their families in India a better life. And it is this very dream that is exploited by ruthless recruitment agents, who turn migrant workers into victims of forced labor and human trafficking.

Agents con hapless migrants by charging exorbitant amounts in the name of (illegal) fees, forcing them into debt. Proper travel documents are also not provided many a time, yet another unethical tactic that traps workers in abusive conditions with little to no legal recourse.

Passports of migrant workers are confiscated upon arrival, ensuring they are without legal documentation or residency permits. This instils the fear of being deported to their home country or spending time in a foreign prison. Many migrants, including women, are forced into jobs different from what they were promised, often at significantly lower wages, making them even more vulnerable to abuse and unfair labor practices.

Due to the nature of industrial growth, developing countries often bear a disproportionate burden of hazardous manufacturing and unsafe working conditions. With rising economic competition, many nations not only compete on quality but also strive to lower labor costs. To attract foreign investment and improve ease of doing business, these countries have weakened labor protections, leaving many workers exposed to unsafe working environments that pose serious risks to their health, safety, and overall well-being. These issues highlight the significance of responsible investment and how crucial it is to protect human rights and respect human rights.

For women, unsafe conditions take yet another turn in the guise of sexual harassment at the workplace. And disturbingly, this unfortunate trend is on the rise, according to numerous studies and research conducted globally. Workplace safety at higher levels of the supply chain goes beyond physical hazards - it also includes the effects of toxic work cultures.

Toxic work cultures negatively affect employees and take a long-term toll on their health, thanks to chronic stress, anxiety, and burnout. If we look at the bigger picture, it is not just a company's workforce that is affected, but also the overall success of the business itself. Toxic work cultures drive up healthcare costs, reduce productivity, and increase employee turnover. When workers feel unappreciated and disconnected, they are likely to seek employment elsewhere.

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The Impact of Human Rights Violations

Human rights violations in global supply chains have far-reaching consequences and affect a variety of relevant stakeholders. Workplace accidents, for instance, not only run up significant costs, but also affect workers, employers, and society as a whole.

Workers lose their salaries, obviously, but they also have to pay for medical bills that are not fully covered by compensation policies. The society at large is affected by rising insurance premiums, and if you think employers remain unaffected, think again! Companies suffer direct losses through compensation payouts, and indirect losses by virtue of delays, lower productivity, and reduced work quality.

Workplace safety isn’t just a legal obligation but a priority. It is a responsibility that benefits everyone by reducing risks, improving productivity, and supporting long-term growth.

Certain links in global supply chains continue to profit from human rights violations between workers and employers, resulting in social unrest. The impact can be severe when businesses ignore workers’ rights, especially for those at the bottom of the global supply chain.

Employees, consumers, and institutional investors are more aware of the situation today, and strongly advocate for ethical business practices and transparent governance. With concerns rising, human rights issues pose a serious reputational risk not just for businesses but for governments as well. Companies that shirk these responsibilities will surely see their investments and share prices suffer, as their actions directly reflect their values and corporate culture.

All across the world, workers respond to human rights violations through activism, strikes, or even quitting their jobs, leading to production delays and financial losses. Not just that, companies also risk legal action from employees, advocacy groups, and regulators. A knee-jerk reaction to protect their reputation and avoid further consequences, companies often find new suppliers or adjust production methods. But what it does is create additional costs and operational challenges.

Suffice to say that ethical labor practices are not just a moral responsibility but also a smart business decision that can help in conducting robust human rights.

Steps To Mitigate the Impact of Human Rights Violations

Concerning human rights, there is no one-size-fits-all approach. Every business must evaluate and develop a strategy response to the risks and challenges that are unique to its supply chain. Having said that, there are a few main actions that may be performed to make supply chains more moral and accountable.

Transparency in the Supply Chain

As in any relationship, transparency plays an important role in the case of businesses too. Companies should go the extra mile and map their supply chains to identify areas where human rights risks are highest. Conducting extensive due diligence, including supplier audits and risk assessments, will allow businesses to detect potential issues and take remedial action.

Joint Initiatives

In a perfect world, companies would be strongly advising their suppliers on the importance of fair labor practices, but that's easier said than done. What would foster a more responsible and sustainable supply chain are open communication, training programs, and support for safe working conditions. Businesses can also work together with industry peers, NGOs, and regulatory bodies to develop best practices and improve labor conditions.

Ensuring Ethical Sourcing Through Certification

Numerous big-ticket global businesses source their raw materials or end products from unverified sources, which is a veritable landmine of human rights violations. Companies can ensure ethical sourcing by partnering with certified suppliers. Certifications like Fair Trade, SA8000, Rainforest Alliance, B Corp, and WRAP (Worldwide Responsible Accredited Production) ensure compliance with fair labor standards, environmental sustainability, and responsible sourcing.

Building a Culture of Human Rights

A workplace culture that prioritizes safety and human rights is not a utopian dream. Companies should implement awareness campaigns, training programs, and open communication channels so that employees and suppliers are made aware of the risks associated with unethical labor practices. Open dialogue should be encouraged so that concerns that are identified can be raised and resolved effectively.

Prioritizing Human Rights Risks in Complex Supply Chains

In big and complex supply chains, tracking every supplier’s operations can be challenging. Since human rights risks vary by industry, businesses should focus on sector-specific concerns and categorize risks based on their severity and impact. Conducting thorough risk assessments to identify vulnerable groups most affected by exploitation, mapping key stakeholders, and reviewing past human rights violations to recognize patterns are some of the methods that help to pinpoint high-risk suppliers and prioritize efforts accordingly.

Developing a Strong Human Rights Policy

It is a no-brainer that companies should frame up detailed human rights policies that set expectations for employees, suppliers, and business partners alike. A nicely structured policy outlines the company’s ethical standards and commitment to fair labor practices, includes measures for monitoring compliance and resolution of issues, and also aligns with international human rights frameworks.

To sum up, gone are the days when big businesses could get away with anything and everything. Today, multinationals have caught up to the fact that they have unavoidable responsibilities to fulfil. Basic human rights should be guaranteed in supply chains where issues like forced labor, exploitation of minors, and unsafe working conditions are rampant.

By integrating ethical practices into their supply chains, ESG principles help companies ensure that fair working conditions, transparency, and accountability are accessible to all, with zero discrimination. Businesses need to conduct regular audits, adopt ethical sourcing, collaborate with organizations, and develop strong policies. For long-term success, human rights considerations and putting human rights at the top of the list are not just a moral responsibility, but an intelligent business move! In other words, people need to assume the role of human rights defenders while tackling environmental and social issues.