Critical Perspectives on Accounting 22 (2011) 762–764

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Critical Perspectives on Accounting

journal homepage: www.elsevier.com/locate/cpa

No accounting for human rights

Peter Frankental
Amnesty International, United Kingdom

a r t i c l e i n f o

Article history:
Received 1 September 2009
Received in revised form 1 October 2009
Accepted 1 June 2010

A lot of water has flowed under the bridge of the social and environmental accounting movement since John Elkington
catapulted the Triple Bottom Line onto the mainstream CSR agenda with his 1998 publication Cannibals with Forks. But are
we any closer to the Triple Bottom Line today than we were a decade ago? Will social accounting always be the poor relation
of environmental accounting? Why has not human rights become more embedded in social reporting given the high political
profile that the impacts of business on human rights have had in recent years? Is it primarily because of deficiencies in the
tools that companies and their auditors have at their disposal to measure and objectify the human right impacts of business?
Or are there more fundamental reasons?
The UN Special Representative on Human Rights and Transnational Corporations, Professor Ruggie, has been very clear
in his analysis:
“The root cause of the business and human rights predicament today lies in the governance gaps created by globalization
– between the scope and impact of economic forces and actors, and the capacity of societies to manage their adverse
consequences. These governance gaps provide the permissive environment for wrongful acts by companies of all kinds
without adequate sanctioning or reparation. How to narrow and ultimately bridge the gaps in relation to human rights is
our fundamental challenge.” (Report to Human Rights Council, April 2008)
Of course Professor Ruggie is right to draw attention to the fundamental barriers that exist to holding companies account-
able for their human right impacts, rooted in complex international relations paradigms. He points out that the legal
framework regulating TNCs operates much as it did before the recent wave of globalisation, allowing parent companies and
their subsidiaries to exist as distinct legal entities, which means that the parent company is generally not liable for wrongs
committed by a subsidiary, even where it is the sole shareholder. This makes it difficult to hold the extended enterprise
accountable for human right abuses.
This is compounded by imbalances in the relationship between states and investing companies. Investor protections have
expanded with little regard to States’ duties to protect human rights, skewing the balance between the two. Consequently,
host States can find it difficult to strengthen domestic social and environmental standards, including those relating to human
rights, without fear of foreign investor challenge, which takes place under binding international arbitration.
It is paradoxical that while companies operate seamlessly across borders, they are in general subject only to national laws
of the countries where they have operations. The mobility of capital would make it difficult for any individual state to enact
effective accountability legislation. This is particularly the case with developing countries, which often lack the institutional
capacity to enforce existing national laws and regulations against transnational firms, even where the will is there. Or they
may feel constrained from doing so by having to compete internationally for investment. This points to the need for a level
playing field of rules, developed at international level, which are either directly enforceable on companies, or indirectly

E-mail address: peter.frankental@amnesty.org.uk

1045-2354/$ – see front matter © 2011 Published by Elsevier Ltd.

doi:10.1016/j.cpa.2011.07.005
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through effective implementation by states that are signatories to these rules. EU directives provide a good example of
how international rules can be made binding on both member states and companies operating within the EU. In the sphere
of human rights, we are still a long way from a set of international rules that can be made binding on companies. There
was a failed attempt to develop such a framework a few years ago – the UN Norms on the Responsibilities of Transnational
Corporations and Other Business Enterprises with Regard to Human Rights. There is some expectation that when Professor
Ruggie presents his recommendations to the inter-governmental UN Human Rights Council at the end of his mandate in
2011, these may serve as a catalyst for further attempts to develop an international framework of human right standards
for companies.
However, the fact that there are fundamental legal and governance issues that have yet to be resolved should not obscure
the significant progress that has been made in establishing some of the key underpinnings for companies to become more
accountable for their human right impacts. There is a lot of encouragement that we can take from developments at a
normative level. The Business Leaders Initiative on Human Rights, which was established by a small group of companies
to road-test the UN Norms, has developed very sophisticated tools and methodologies for applying human right principles
and standards across a range of business sectors, issues and geographical locations. The Danish Institute for Human Rights
has developed a Compliance Assessment Tool for companies, which covers all internationally recognized human rights and
their impact on all stakeholders, including employees, local communities, customers and host governments. It incorporates
a database of approximately 350 questions and more than 1000 indicators, each measuring the implementation of human
rights in company policies and procedures. The database reflects the Universal Declaration of Human Rights and more
than 80 human right treaties and ILO conventions. The Global Reporting Initiative (GRI) has produced perhaps the most
widely recognised set of human right benchmarks for companies, addressing wide-ranging issues including procurement
policies, investment agreements, non-discrimination, freedom of association and collective bargaining, child labour, forced
and compulsory labour, security practices and indigenous rights. The GRI is also developing sector specific human right
performance indicators for the Mining and Metals Sector that cover lifecycle impacts.
Perhaps the most significant normative changes are taking place in the context of Professor Ruggie’s mandate. His findings
have been widely welcomed by business, government and NGOs. They include far-reaching observations on the corporate
responsibility to respect human rights, which only a few years ago would have been highly contentious and would have been
resisted strongly by business. One of his most fundamental assertions is that all companies have the responsibility to respect
all human rights on which they have an impact. Professor Ruggie has drawn attention to the importance of monitoring
and auditing systems to address issues of non-compliance. He has suggested that when corporations adversely affect the
enjoyment of human rights, mechanisms need to be in place to provide remedies for grievance or harms. He contends that
knowledge that a company’s conduct is likely to contribute to a human right violation amounts to complicity. He has also
tried to address the gap between national law and international standards, indicating that when a company faces an outright
conflict between national and international standards, it should articulate guiding principles in support of human rights,
outline steps it is taking to deal with the conflicting standards, engage third parties for assurance and evaluation of its actions,
and disclose as much as possible about how it has addressed the human right dimension of the situation.
These developments are an illustration of the progress that is being made in establishing human right principles and
benchmarks that are beginning to have traction. Despite this progress, limitations remain in the development and imple-
mentation of human right indicators for companies, which are still many years behind environmental indicators. This is
partly because the human right impacts of companies are often indirect, in so far as the company is not the primary agent of
a particular abuse, but contributes to it through its relationship with other parties. This means that the formula for assigning
responsibility to a company has to address factors such as complicity, causation, the control that a company has over a
particular situation, and the benefit that a company derives from abuses to which it is a party (example of Shell in Niger
Delta). These are difficult to analyse and measure.
Looking to the future, we should ask what are the most fundamental building blocks of human right accountability, which
offer realistic opportunities for progress at the political as well as the methodological levels.
At the political level, there are two issues that I believe should be prioritised by the social auditing movement. The first of
these is the Duties of Directors and Reporting Requirements under Company Law. At the moment UK law requires company
directors to consider the environmental and social impacts of their decisions, and the largest public companies to report
annually on these impacts. However, the law is framed so that directors are only required to take account of, and their
companies are only required to report on, those social and environmental issues that are material to shareholders. So long
as companies are defined in law as serving only the purpose of their shareholders, and so long as this is reflected in the
Duties of Directors and in Reporting Requirements, then the scope for companies to improve their human right impacts will
remain severely limited.
A further development that is necessary to improve corporate impacts on human rights is for states to address the extra-
territorial activities of their companies. Extra-territorial jurisdiction over companies is beginning to occur in fields such as
the financing of terrorism, bribery and corruption, anti-competitive practices. However, when it comes to a company’s social
and environmental impacts, jurisdiction is rarely extended beyond national boundaries. One significant step that could be
taken is for the home state, where a parent company is registered and headquartered, to require the parent company to have
a duty of care to those affected by the company’s subsidiaries and joint venture partners. A similar duty of care could be
extended with regard to supply chains. This does not mean that parent companies would automatically be responsible for
all the activities of their subsidiaries, but it does mean that they would need to show that they have done their due diligence
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on human rights, which means having proper management and reporting systems in place to anticipate and address their
impacts.
At a methodological level, much greater emphasis should be given to the principle of materiality. At present, human right
reporting focuses on what companies want to report and not on their most significant impacts. Companies are often given
credit for reports that systematically ignore their most damaging contexts and those rights on which they have the most far-
reaching effects (As in the case of Vedanta, for example). This is a challenge not just to companies, but to the consultancies
and auditors involved in producing and validating such reports. Their client relationship with companies should not be
allowed to interfere with the application of a properly implemented methodology. Perhaps what is needed is some kind of
independent policing body to monitor standards of social and environmental reporting. At stake here is the integrity of the
industry.
A related methodological deficiency is the lack of stakeholder inclusiveness. Companies tend to be very selective in which
stakeholders they consult with, often ignoring those stakeholders whose rights are most affected by their operations. It is
of course much easier for companies to consult with international NGOs, such as Amnesty International, than it is for them
to put in place meaningful processes of consultation with the often poor and marginalised communities that subsist in the
area of the company’s operations. Social auditing processes should be designed not to further disadvantage and disempower
the poor. And there should always be a gender dimension, partly to address the greater invisibility of women, and partly
because the impacts of an investment project on women may be more far-reaching than impacts on men.
Another key building block of human right accountability are impact assessments. Professor Ruggie was unequivocal in
stating that no single measure would yield more immediate results in the human right performance of firms than conducting
human right impact assessments (HRIAs). He said that these should be conducted as early as possible in the project lifecycle,
and he pointed out that not only do relatively few firms conduct these assessments routinely, but those that do tend not
to publish them which limits their usefulness. He also drew attention to the fact that some companies are advised by their
lawyers not to undertake human right impact assessments as this could create liabilities for the company, in so far as
the very knowledge that a particular course of action might lead to human right abuses increases the company’s risk. The
social auditing industry should take a much stronger position on human rights impact assessments. If a company does not
undertake them, does not collect baseline data, then any subsequent reporting should be viewed as suspect (See for example
the case of the Baku-Tbilisi-Ceyhan Pipeline Company and also Vedanta).
While progress over the last decade in human rights reporting has been limited, there are significant developments at a
normative level which have yet to be reflected in institutional processes. For this to happen, there would need to be changes
to the national and international regulatory frameworks within which companies operate. We were on the cusp of such
changes in the UK with the Company Law Reform Bill, but these did not materialise. The momentum that Professor Ruggie
has developed around his mandate, and the cross-sector consensus that has been secured on a range of business and human
rights issues, offers a real prospect of more significant progress over the next decade in companies accounting for their
human rights impacts. The social accounting movement has a vital role to play in seizing the opportunities that arise from
this.