There is a need to quantify and measure human rights impacts in a meaningful, robust way. This should entail (1) measuring data that provides a stronger indicator of actual impacts on people such as freedom of association, ratio of full employees to contract workers, CEO-worker pay ratios, and gender and racial equity and pay gaps, (2) measuring underlying structural factors that can be determiners of human rights risks, such as business model, corporate culture and governance and (3) moving away from metrics that can generate perverse incentives not to find issues (Caroline Rees and Robert G. Eccles)

In Quantify Your Company’s Impact on People published by Harvard Business Review, Caroline Rees (Co-Founder and President of Shift, leading centre of expertise on the UN Guiding Principles on Business & Human Rights) and Robert G. Eccles (Visiting Professor of Management Practice at Saïd Business School, Oxford University and a senior adviser to the Boston Consulting Group) argue that, alongside ongoing efforts to “develop a single, coherent reporting system that would allow investors and other stakeholders to assess a company’s impact on the environment,” it is critical that we also find ways to meaningfully measure impacts on people. Fundamentally, they emphasize that “when it comes to impacts on people, there has been far less scrutiny, standardization and innovation in the data used to evaluate which businesses are ‘getting it right’ than we see in the environmental field. This must be reflected in the systems we build if we are not to amplify the mistakes of the past.”

Below are some of the key takeaways of the article:

• • In 2018, Shift conducted a review of the “so-called ‘social’ indicators and metrics in the reporting of nearly 500 companies and in 8 major ESG (environmental, social and governance) rankings, ratings and benchmarks.” Shift found that “around 70% of the indicators were based on words in documents, stated activities and their near-term outputs” rather than on quantitative metrics.
  • The remaining 30% of the indicators focused on “outcomes for people,” including health and safety and diversity metrics. The authors point out that “[b]oth [of these types of data] are important reflections of company impacts on their workforce. However, they are narrowly focused within the workforce itself and do not offer a wider understanding of how the business may affect people within and beyond the workplace, let alone across value chains.”
  • While qualitative metrics—such as the presence of human rights policies and risk management structures—are an important piece of the larger picture, they do not necessarily capture the actual human rights impacts of a company on the ground: “[T]he absence of relevant human rights related policies, processes or grievance mechanisms can be an indicator of a company that is failing to recognize and address various risks to people. However, the presence of these things is often not a good indicator of whether a company is managing risks to people effectively and thereby delivering positive impact in their lives.”
  • Companies often rely on social audit data as a quantitative measure of human rights impact, however “[r]esearch has long since shown the inadequacy of relying on social audit data as a metric of progress in improving the daily realities of vulnerable workers.” That is, without the bigger context, metrics may not capture the full picture, or may mislead companies as to what the underlying human rights concerns are.

Toward an approach to “coherent corporate reporting”

The article proposes “a three-fold approach that captures what we have that works, discards what doesn’t and dares to think differently about how we address the gaps”:

• • “First, we can and should recognize those metrics that have proven sound indicators of how companies treat people.” These include “measures of freedom of association, proportions of the workforce that are employed rather than on temporary or limited-hour contracts, ratios of CEO to median worker pay, as well as data on gender and race pay gaps” and health and safety and diversity. The authors point to the Workforce Disclosure Initiative as a source of these types of metrics.
  • “Second, we should pay attention to indicators of whether a company is hard-wired in its business model, governance and leadership to act with respect for people’s human rights. These are critical leading indicators — a “canary in the coal mine” — for impacts on people.” The authors point out that every large company is likely to have at least some negative impacts on people, whether through their own operations or through their value chains. However, “where leaders embed risk to people into their business model, it’s a fair bet that people will be hurt — again and again — because it’s a result of how the business is designed to operate.” As a resource to help companies assess where their business models and corporate culture are likely to pose human rights risks, the article points to Shift’s ongoing work to develop “business model red flags and leadership and governance indicators that point to whether a company’s culture is fostering respect for people inside and outside the workforce.” 
  • “Third, when it comes to human rights impacts for which current indicators are known to be inadequate, we should not assume that ‘something is better than nothing.’” The authors emphasize that companies need to move beyond narrow metrics such as the “proportion of a supply chain at risk of forced labor or child labor, or the numbers of incidents found” towards more meaningful measures of what is actually affecting people on the ground. Crucially, these types of narrow metrics “can generate perverse incentives not to find problems or not to label them in terms that would require their disclosure. This undermines the very behaviors we need to encourage if we are to make progress.”