Ksapa recently joined the 9th annual United Nations’ Business & Human Rights forum, marked in particular by the publication of the Corporate Human Rights Benchmark. World leaders thus reflected on why Human Rights due diligence average scores would appear lower now than in 2018. In a volatile context where businesses and investors primarily focus on recovering from the Covid crisis, they must also change their methods to better manage their Human Rights risks regardless of these seemingly contrary injunctions.
Conflicting Geopolitical Pressures Muddle Regulatory Readability
Ksapa also tuned in for the Paris Peace Forum. This was an opportunity to discuss a new white paper against a backdrop of efforts to reconsider multilateralism and build more effective cooperation systems. The violent socio-environmental and digital crises that so challenged global economies and political frameworks demand no less.
A Fragmented Global Order
Debate at the Paris Peace Forum echoed deep-rooted concerns over varying global cooperation scenarios. Not even the election of Joe Biden managed to dispel dread on the substance of the matter.
On the one hand, economies and their broader spheres of influence have opted for all-out power-based relationships, setting the scene for a Thucydides trap between rivals. Tensions indeed open margin for error for economies involved in such configurations. This in turn gears them towards contrary pathways, notably in terms of corporate and investors’ human and civil rights risk management. The European Union is vying for a moral high ground, especially now that Brexit has come to pass. It is similarly strengthening its framework for cyber-surveillance. Meanwhile, India is engaged in a race to the bottom of its social and civil rights foundations. The pressures generated by Covid-19 and the digitalization of economies seem to invite Europeans to think of their social framework as a protectionism lever. Conversely, Indians seem ready to trade in their social and civic framework as a competitive edge – albeit short-term and opportunistic.
On the other hand, economies are increasingly interwoven, thanks in particular to the highly integrative power of the digitalization and financialization of global economies. So when the United States and China exert pressure upon one another, they overlook that same interdependence of their two economies. By contrast, as Europe moves to strengthen its social base, it is operating on a clear understanding of the major dependencies of its imports and exports outside the EU zone. India’s attempts to do away with its civic and social framework therefore directly contradicts the social and environmental commitments made by a growing share of its European and Northern American economic and financial investors. The latter are in fact increasingly required to demonstrate socio-environmental risk control to their own investors, authorities and clients.
Profoundly Illegible Control Systems
Discussions at the Paris Peace Forum stressed how these contradictory geopolitical pressures are likely to weigh heavily on the legibility of current and future socio-environmental regulations. This ring even truer in the context the unprecedented economic crisis generated by our global pandemic.
As during the Paris Peace Forum, referring to concrete case studies was the through-line for discussions at the UN Business and Human Rights. A key takeaway, however, lies in the profound uncertainty voiced by participating economic decision-makers:
- Will the global management of health issues and pandemic risks favor cooperation, not competition, in the design of concerted solutions? The more economies cooperate, the more clarity there will be regarding how to broaden access to health solutions to vulnerable groups. The more economies compete, the more exclusion. This can only reinforce social unrest around the world and further complicate the planification of numerous economic activities.
- Our current health crisis has undoubtedly accelerated the digital transition of our societies. But will that trend extend to less developed societies? Will it not amplify the current divide and inequalities between populations and economies? Ongoing efforts to lend an ethical framework for Artificial Intelligence or implement a Digital Bill of Rights may prove all the more relevant.
- To what extent will Covid-19 recovery packages be “green” in a way that generates solutions commensurate with the environmental challenges (climate change, water stewardship, biodiversity loss) at stake? European efforts, having notably been coopted by the Biden administration, offer an undeniable glimmer of hope. That said, we are far from able to accurately estimate the direct and indirect costs of Covid-19. This could hamper an ambitious green recovery, at a time in History when we can collectively ill afford to procrastinate or backtrack.
3 Principles for Decision-Makers to Manage Contrary Injunctions
Forecasting and planning are increasingly expected of economic decision-makers and investors. The decade ahead will likely call these efforts into question. So where do we go from there? We resolutely spring into action, but knowing full well which levers to prioritize:
Improving Socio-environmental Risk Predictability
The profound environmental, social and digital transformations underway prompt companies and investors to rethink their business models. They must indeed reduce their socio-environmental risks, given how they already challenge their production and value creation patterns. To that end, Ksapa outlines 3 key levers:
- Futureproof business models. This would for instance entail tackling planned obsolescence or forgoing models overly reliant on low-cost subcontracting to create hefty margins. In short, this cuts risk at its source.
- Production and value chain innovation. This involves, for example, substituting carbonaceous materials – or those with uncontrollable social risks – with better alternatives. There is indeed a clear pathway for the food industry to cut fat on a large scale (therefore ending its reliance on otherwise problematic palm oil). For the time being, local solutions could be efficient from an industrial point of view, yet their margins still need to be restructured.
- Socio-environmental issues on par with quality control. Key economic players are increasingly encouraged to embed social-environmental considerations in their quality processes, either to assess an investor’s portfolio or to select an industry’s production processes. This starts with fully integrating socio-environmental considerations in the identification and characterization of assets or industrial activities.
Addressing Legal Uncertainty With Stringent Compliance
The Business & Human Rights Forum also confirmed converging trajectories for the coming years in terms of expectations and pressures on companies and investors alike. The prospective European duty of vigilance directive is one such case. Business representatives are indeed aligning with civil society and rights advocates expectations for a clear, stringent legislative framework.
Readability, however, is still lacking – as highlighted during our recent webinar on European and American perspectives with regards to Human Rights due diligence across economic and financial activities. Barring that, it is only through strengthening procedures that decision-makers may comprehensively map their risks, reduce them, demonstrate their impact… and ultimately influence their stakeholders to do the same. Such is the condition for companies to (relatively) serenely navigate the ever-complex regulatory landscape – bearing in mind the necessary humility and permanent questioning that entails.
Meeting Volatility With Integrity
Finally, a panel of topline CEOs closed the UN virtual forum with a conversation on bridging the gap between aspirations and practice. This raises the question of activating effective management systems, capable of ensuring that any decision-maker or operative fully understands high-risk situations and acts with integrity. There lies the feat of securing sound decision-making in an otherwise complex and illegible environment. Solutions will also need to be dovetailed to each organization’s cultural and organizational specificities. Finally, pushing for vigilance on integrity hinges on streamlined expectations for individual responsibility.
Conclusion | Key Traits to Remain a Leader
Geopolitical considerations have direct operational implications for investors and companies. It is indeed interesting to note the forums we mention were held in the midst of a pandemic and nevertheless converged to call for a new and more demanding managerial space. Decision-makers will be expected to demonstrate agility in face of the unpredictable as well as a bold strategic and operational ambition, to pull their businesses upwards regardless of that same uncertainty. Finally, they must display extraordinary emotional intelligence to embody unimpeachable integrity and set employees on the same path.
Strategic vision, operational agility and organizational integrity are indispensable principles to manage the contrary injunctions of our day. This demands companies and investors embed Human Rights and socio-environmental responsibility in their business approaches, particularly as they operate in markets that are becoming as illegible as they are volatile.