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February 26, 2015

Madam, there is a shrimp in the accounts

By Vincent Huck

Each time I face a row of king prawns and shrimps in the supermarket I find myself asking this daunting question: where were the auditors?

Before you think I have gone mental let me explain: That is since a The Guardian investigation revealed that prawns sold in all major UK retailers are somehow linked with slavery in South East Asia. The investigation exposed that the workers on boats catching the fishes that will then be used as food in the prawn farms which supplies the UK retailers were in fact held as slaves.

Putting aside the horror of these revelations and the terrible fate of these workers, this is one of the most interesting case studies of recent months regarding corporate responsibility which connects with the whole debate about non-financial and sustainability reporting.

Because it brings on the table questions such as: how far does a business’s supply chain go, in other words should the UK retailers know and feel concern about who the suppliers of their own suppliers are? And which standards those suppliers follow? And if they know and feel concern surely they have to report on it to their investors, stakeholders, customers? And if they report on it should it be audited?

From there comes in the debate about businesses reporting non-financial metrics, sustainability and human right issues. Non-financial and sustainability reporting has gained traction in recent years but is not as new an idea as what we might think. In the late 14th century Fransceco Dantini, a Florentine merchant and accountant, was already concealing in his accounts non-financial information.

The question of corporate reporting on human rights’ impact, on the other hand, is new. One that companies often and for many years said they were not concerned about. But in 2011, the United Nations (UN), after a six-year consultation, published and endorsed the UN Guiding Principles on Business and Human Rights (UNGP), proposed by then UN special representative on business and human rights John Ruggie.

The UNGP are a global standard for preventing and addressing the risk of adverse impacts on human rights linked to business activity, and is grounded in three key principles: the States’ duty to protect human rights, the corporates’ responsibility to respect human rights, and the access to remedy for victims of business related abuses.

Four years after the UNGP were endorsed, Shift, an independent, non-profit center which helps governments, businesses and their stakeholders put the UNGP into practice, have launched in collaboration with Mazars the UNGP reporting framework.

A matter of principleThe launch event was held in London and a panel of experts highlighted the importance of human rights reporting from companies. The panel moderator and European Parliament rapporteur on corporate social responsibility Richard Howitt started the debate by asking Ruggie, a panel member, why come back four years later with a reporting framework.

"The guiding principles have been accepted, there is a document companies have to comply with, isn’t that enough?" he asked. Ruggie replied by pointing out that the UNGP show that "treating people with dignity leads to market sustainability".

The UNGP offer the companies the right questions to look at on whether they know and can show that they respect human right, he explained. However he said a new tool, in the form of the reporting framework, is the next step which would enable companies to demonstrate to stakeholders that they in effect respect human rights.

"It is a journey and the journey continues," he said. "You reach a goal and realise that there is another goal hiding behind the one you just reached."

Shift president Caroline Rees opened and concluded the evening by presenting the reporting framework. Organised in a series of questions it enables companies to report on their human rights performance, regardless of their size and how far they have progressed in implementing their responsibility to protect human rights, she said.

She also highlighted that the questions included in this framework fall under most of the similar initiatives that already exist such as the Global Reporting Initiative.

"The questions in the UNGP reporting framework are aligned with the requirements of other sustainability reporting initiatives and frameworks, and therefore by answering the UNGP questions it helps companies to comply with other initiatives and reporting frameworks that they might be following," she said.

Other speakers and panellist were quick in emphasising this point as the number of initiatives in this arena seems to be blooming and there is an increasing risk that a sustainability fatigue might hit the financial market.

"Sixty-seven investors representing $3.91tr assets under management have signed a statement of support for the reporting framework, calling it, an essential tool for investors to review companies disclosure on their understanding and management of human rights risks, to incentivize improved disclosure on human rights issues, and to guide their engagement with companies," Rees said.

She added that five companies from different industries are already early adopters of the framework: Unilever, the first adopter, Ericsson, H&M, Nestlé and Newmont, a US mining company.

Unilever was represented in the panel by its global vice president for social impact Marcela Manubens who shared with the audience how Unilever dealt with the issue of human right in practice. "Prevent all the wrongs doesn’t lead to the goods," she said. "So we had to ask ourselves what does good represent to us and how we achieve it."

She had compelling examples of the benefits for her company, and told the story of workers in Bangladesh who protected Unilever’s factory against protestors in order to preserve their good working conditions and who in the process probably saved millions in damage to the company.

When an investor in the audience asked with striking honesty why the investor community should consider this issue, Manubens said investors always understood the importance of these issues when there is a crisis.

"And we are now in an evolution of mind set where we need to understand that it is important to consider these issues before there is a crisis," she said before presenting a strong case for her company’s commitment to respect human rights but also to participate in the remedies for victims.

Listening to her, one would almost forget that while Unilever has been hailed as a leader in sustainability, it has not always enjoyed the best headlines: Unilever and Reckitt Benckiser come out top in deforestation rankings. And it has often been associated with greenwashing.

In fact, Corporate Watch, an independent research group which investigates the social and environmental impacts of corporations since 1996, has a dedicated webpage for Unilever and lists amongst others the following as "Unilever corporate crimes": exploiting – relatively cheap – resources in the Third World, promoting unsustainable agriculture, environmental pollution, using consumerism to eradicate poverty, collaboration with oppressive regimes.

Some inspiring words, though, were voiced at the launch event, as well as encouraging signs. Indeed Rees announced that the launch of the reporting framework would be followed in a couple of months by the publication of an assurance guide, paving the way for the audit of this information.

And so the journey continues, as Ruggie suggested. While the reporting framework’s authors and the business community, represented by Manubens, said they didn’t have all the answers, they invited the audience to join in this journey and bring more people in.

But for the sceptics, a virtue for auditors and journalists alike, there will always be this second of doubts when facing a row of king prawns and shrimps in the supermarket.

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