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Confronting business models that put people at risk: The why and the how

This blog is part of a series that focuses on some of the key changes to the revised methodology for the Corporate Human Rights Benchmark (CHRB), which was published on 30 September 2021. Mark Hodge from Shift – an organisation specialising in the UN Guiding Principles on Business and Human Rights – explains why companies must examine their business models and strategies for risks to people as a part of building a
sustainable future where profits don’t come at the expense of people’s basic dignity.

It is great news that the revised CHRB methodology integrates the idea that a company, at the level of the board, should “discuss and review its business model and strategy for inherent risks to human rights”. See the revised Corporate Human Rights Benchmark Methodology.

That may sound like something quite disconnected from business realities and stakeholder experiences on the ground. But it’s not. For example, when a company’s value proposition is based on them selling products at the lowest price possible, we see this commonly leading to poverty wages and excessive overtime in the supply chain. Or where a company’s strategy involves expanding product and service use in developing markets, we regularly see harms occur due to lack of consumer human rights protection. In other words, the root cause of risks to people can lie inside a company, in how it is designed to create value.

Aspirations such as ‘Building Back Better’ and a ‘Just Transition’ will remain little more than lofty goals without company top leaders playing their part.

As part of Shift’s multi-year Valuing Respect project, we examined the connections between different features of business models and impacts on people’s human rights. We also engaged business leaders, investors, civil society, workers organizations and governments to articulate the logic for why attention to business models must become a key aspect of how a company, in any sector, delivers on its commitment to respect human rights. The consensus was that: Learn more about Shift’s ‘Valuing Respect’ project.

  1. Business model-related risks to people are likely to be salient risks: Where risks to people are baked into a company’s value proposition, value chain or revenue model they are likely to occur and re-occur, making them salient human rights risks.
  2. Addressing business model risk is a signal of seriousness and better outcomes: Evidence of boards and executives reviewing how their business model might create risks to people shows a willingness to ask the hard questions to ensure that their company is acting responsibly. And evidence of meaningful steps to address these business model risks can be leading indicators of positive outcomes for people.
  3. Risks to people that are embedded in business models are likely to be financially material: When business-model related risks remain unaddressed by companies, their social and even legal license can rapidly deteriorate, in turn causing risks for investors and lenders.

Building the basis for good disclosures

A consensus among diverse stakeholders that business models matter is only a small step in the journey of change. The next, possibly harder, challenge is to help companies get a handle on how their own business model may be leading to harm, so they are thinking about and adapting their practices before it even comes to a question of public reporting.

In this spirit, the revised CHRB methodology references Shift’s Business Model Red Flags (BMRF) resource, which we developed as part of the Valuing Respect project. As the two-minute video below explains, the resource is an interactive menu of 24 ways in which companies’ business models may carry inherent risks to people’s human rights. See Shift’s full interactive menu of Business Model Red Flags.

In my experience, company practitioners using the resource tend to identify several red flags relevant to their business. The section below exemplifies this for three of the five sectors that the CHRB will focus on in the coming years.

Sector Potential Business Model Red Flags

Automotive manufacturing

  • Using commodities with unclear provenance and visibility to impacts on workers or communities
  • Using data such that privacy and other rights are undermined
  • Shifting inventory risk to suppliers with knock-on effects to workers
  • Automation at speed or scale that leaves workers little chance to adapt
  • Sourcing low-paid labour from labour providers

Extractives

  • Project timelines that undermine consultation with communities
  • Depleting natural resources or public goods such that it undermines access or health
  • Land use in countries where ownership may be contested
  • Business relationships with limited influence to address risk to people
  • Automation at speed or scale that leaves workers little chance to adapt

Food and agricultural products sector

  • Products that harm when overused
  • Land use in countries where ownership may be contested
  • Commodities with unclear provenance and visibility to impacts on workers or communities
  • Sourcing low-paid labour from labour providers
  • Sales-maximizing incentives that put consumers at risk
  • Sourcing commodities that are priced independent of farmer income
  • Markets where regulations fall below human rights standard

Each red flag is supported by guidance to help companies interrogate their existing business models or changes to their business models, including by offering real-world examples of risks to people and business of not addressing the red flag. Crucially, to avoid creating paralysis by analysis, each guidance document has a substantial section focused on taking action that sets out due diligence lines of inquiry, examples of actions by companies to address the business model risks and additional resources that companies can draw on.

We need boards and executives to look more closely at some fundamental assumptions about how their company creates value.

The big picture

The harsh realities faced by workers during the global pandemic, the inequalities that are now driving social and political movements, and the gaps in human welfare that lie behind the United Nations’ Sustainable Development Goals are in many ways rooted within business models that generate risks to the most vulnerable, notwithstanding the economic benefits and other opportunities they generate for many other people.

Aspirations such as ‘Building Back Better’ and a ‘Just Transition’ will remain little more than lofty goals without company top leaders playing their part. We need boards and executives to look more closely at some fundamental assumptions about how their company creates value; to see where their business models may be part of the problem, and to work out how to make them part of the sustainable future we need where profits don’t come at the expense of people’s basic dignity.

We get this for climate. We are only now just grasping it in relation to the social impacts of business. By crystallizing this in their methodology, the CHRB will, I hope, aid all stakeholders to lean into the challenge.

About the author: Mark Hodge is a Senior Associate at Shift and co-leads their Valuing Respect Project, focused on developing better ways to evaluate business respect for human rights.

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