Increasing concern about human rights around the globe underscores the risks to businesses and the need for them to address related challenges. Here are five key developments likely to demand attention in 2022:
Regulating the Spread of Harmful Content on Social Media and Addressing Threats to Privacy on the Cloud
Mounting frustration over the role that the social media industry plays in stoking polarization and spreading falsehoods about elections and public health will move the European Union closer to enactment of new regulations meant to rein in how Meta (formerly Facebook), YouTube, Twitter and other global tech companies operate. The prospects for meaningful action have improved in recent months as a result of the revelations by Facebook whistleblower Frances Haugen, who leaked thousands of pages of internal documents, sparking intense media coverage and renewed calls for some kind of regulation. But while the U.S. Congress is considering dozens of bills meant to hold social media platforms accountable, it is far less clear that American legislators will overcome partisan differences — amplified by online vitriol — to pass actual reform.
One way Congress could address this problem is to empower the Federal Trade Commission to use its consumer protection authority to conduct more vigorous oversight. Working with colleagues at the Harvard Kennedy School, among others, the NYU Stern Center for Business and Human Rights made this idea the centerpiece of recommendations to the Biden Administration and lawmakers which we released last March. Invigorating the FTC, if done judiciously so that regulators hold companies to their promises and demand greater transparency, without making decision about content, would provide a strong foundation for regulators to keep pace with changes in the swiftly evolving tech industry.
On another front, companies that provide cloud computing services will come under increased pressure to protect user privacy under international human rights law. While governments have legitimate law enforcement and national security interests, there is a danger that officials, especially in autocratic countries, will abuse the ever-growing storehouses of personal data in the cloud. Acknowledging this potential harm, Microsoft, Google, Amazon, and five other cloud-services companies collectively published a set of principles they vowed to follow in responding to data demands by governments around the world. These companies have committed to challenge overly broad government access requests and to work collectively to reforms laws in countries where legal privacy protections are inadequate. In the next year, these companies, as well as democratic governments, need to devote time and resources to make this commitment a reality.
Making Mandatory Corporate ‘Due Diligence’ Requirements Effective
Mandates that companies exercise “due diligence” in upholding human rights principles will continue to spread, especially in Europe. Under these laws, companies are required to identify human rights risks, undertake measures to mitigate potential problems, assess the effectiveness of their prevention efforts, and publicly report on their actions. In 2021, Germany and Norway enacted such laws, as France had done several years earlier. Similar proposals are being debated in Austria, Belgium, and Luxembourg. In 2022 the E.U. Commission is likely to adopt a long-awaited directive calling for member states to adopt mandatory due diligence laws. Due diligence laws have not been advanced in the U.S., a reflection of almost certain industry opposition.
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As mandatory due diligence laws come into effect, a key question for courts and regulators is how to define and apply the new requirements consistently and in a way that will improve corporate conduct. One approach, proposed by my colleagues Dorothée Baumann-Pauly and Isabelle Glimcher, would build on the standards, metrics, and assessment systems that are used by multi-stakeholder organizations such as the Fair Labor Association, which I currently chair. For 20 years, the FLA has put global apparel companies through a rigorous accreditation process assessing labor conditions throughout their global supply chains. Governments should judge companies on their performance, not simply whether internal management systems are in place.
Responding to Worsening Human Rights Conditions in China
The Chinese government continued to undermine human rights in 2021, as illustrated by its roll-back of democratic guarantees in Hong Kong and mass detention of more than one million Uyghurs in Xinjiang. Corporations need to assess more thoroughly whether elements of their operations are directly contributing to human rights violations , and if they are, reform or suspend those operations as swiftly as possible.
Many global businesses have significant business interests in China, reflecting the country’s rising economic power, both as a manufacturing hub and a massive market for goods and services. In order to do business there, companies need to navigate a stifling environment where Chinese government officials are increasingly intolerant of companies or others who dare challenge government conduct. This hostility to criticism is likely to be on full display in the run up to the February 2022 Winter Olympic games in Beijing. The governments of the U.S. and several other countries have recently announced that they will not send diplomatic delegations to the Winter Olympics, a response to the serious, ongoing human rights abuses. Companies and investors should send a similar message to China’s leadership. The commitments a number of Western apparel companies have made to seek alternatives to Xinjiang cotton are one example.
Refining ESG Investing Strategies To Have a Social Impact
More than $35 trillion is invested worldwide in funds that assess environmental, social, and governance (ESG) factors. By one estimate, ESG investments will soon account for a third of all global assets under management. While considerable attention is being paid to developing useful metrics for environmental and governance issues, the measures for companies’ social performance — the “S” in ESG — are failing. In almost all cases, analysis of S factors focus on company promises and processes, rather than performance and outcomes. This weakness means that companies are lauded for environmental progress even as they continue to treat workers poorly and avoid needed reform of manufacturing supply chains and other aspects of their operations.
There is a growing demand to standardize ESG measures and to improve the collection of relevant data. This year, the Security and Exchange Commission announced that it is examining mandatory reporting requirements for information relating to ESG risks. As a part of its ongoing review of what “human capital” data companies should be required to disclose, the SEC should demand information about labor conditions in global supply chains.
In deciding whether to invest in companies, asset owners and investment managers need to broaden and deepen their analysis to include such factors as the treatment of factory workers in developing countries who actually make the goods sold by Western brands. The U.S. government can apply added leverage for improvement by incorporating human rights criteria into its own procurement practices. As major consumers of most goods and services, government agencies should condition their purchases on satisfaction of these standards, making compliance a cost of doing business.
Improving Racial and Gender Diversity in Corporate Management and the Investment Sector
George Floyd’s murder in the summer of 2020 became a catalyst for renewed national attention to racial inequality and led to calls for greater diversity in many institutions. In the year ahead, corporate leaders need to build on these commitments and apply them to C-suites and boards of directors. While more Black Americans are going to college and have received advanced degrees in the last decade, relatively few have climbed to the highest rungs of the corporate ladder. There are only five African-American CEOs of Fortune 500 companies, and a third of those companies have no Black board members. Meaningful change must come from the top.
Less than 2% of U.S. investment firms, which collectively have $82 trillion in assets under management, are owned by women or underrepresented minorities. Yet studies show that companies with more diverse workers and leadership teams perform better over the long term. Business leaders committed to promoting diversity and inclusion need to establish specific plans and concrete performance metrics for making diversity a reality throughout their companies.