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Vigeo rating July 2012

What measures are listed companies taking to protect, respect and promote human rights?

A comparative analysis of European, North-American

and Asia Pacific corporate strategies for the respect

for human rights between 2009 and 2012

Vigeo rating July 2012 2

Summary

Foreword 3

Key findings 4

Introduction 7

Methodology 12

Universe of the study 13

Global Human Rights performance 14

Regional Human Rights performance 20

Specific sectorial issues 24

Prevention of social dumping 40

Conclusion 50

Bibliography 53


Foreword

There is growing evidence that good practices

enhance reputation, resulting in improved staff

morale, leading to higher motivation, productivi-

ty, and the ability to attract and retain the best

skills. It strengthens the license to operate, giv-

ing improved access to new markets, consumers

and investors, creates more stable operating en-

vironments and promotes better community re-

lations. Conversely, companies implicated in hu-

man rights disputes often see their reputations

and brand images suffer, sometimes resulting in

the loss of share value, increased security or in-

crease of insurance costs, as well as lawsuits, or

consumer boycotts. Companies that adopt ex-

plicit and appropriate human rights principles

and goals along with mechanisms for their im-

plementation and reporting are better prepared

to prevent human rights abuses and to deal ef-

fectively with allegations of wrongdoing that

may arise.

In this study, companies’ approach towards hu-

man rights is assessed through the performance

on three human rights sustainability drivers

(Respect for human rights standards and preven-

tion of violations; Respect for freedom of associ-

ation and the right to collective bargaining; Non-

discrimination and promotion of equality) and

one sustainability driver related to human rights

in the supply chain (‘Prevention of social dump-

ing’).

The first section assesses how far human rights

considerations are integrated in company’s man-

agement, in terms of leadership and implemen-

tation (including due diligence process), result-

ing in a ‘global’ Human rights score for the dif-

ferent regions and sectors. This section will also

show which human rights issues are most

“sensitive” to stakeholder feedback. Finally, a

comparison between the global Human Rights

score and other ESG sores (Environment, Com-

munity Involvement, Corporate Governance,

Business Behaviour and Human Resources) will

be made, in order to measure corporate aware-

ness for human rights issues into a broader ESG

perspective.

The second section will consider our findings

per region: Europe (EUR), North America (NAM)

and Asia Pacific (AP) for the three main human

rights drivers under Vigeo’s framework. It will

consider how regional/national specificities can

appear in human rights corporate behaviours.

In the third section, we focus on the human

rights performances by sector for each of the

three human rights drivers under review, looking

for correlations between companies behaviour

and their activities and asking, which sectors are

most vulnerable to specific human rights risks

and how do they deal with it.

Finally, we assess how far prevention of social

dumping is incorporated into companies’ supply

chain management. This will be illustrated by an

overview of the companies and sectors that are

best dealing with the human rights due diligence

in their supply chain. We will consider, whether

we can suppose that companies with a good

global human rights performance also efficiently

manage human rights issues in their supply

chain.

An increasing number of companies are willing to demonstrate their respect for human rights by

working to show they embed international human rights standards within their core business

practices. Governments have the duty to respect, protect and fulfill human rights, including pro-

tecting individuals and communities from human rights violations by third parties. In June 2008

the United Nations Human Rights Council emphasized that corporations have their own respon-

sibility to respect human rights. The Council recorded the increasing public expectation for com-

panies to prevent human rights violations and to strengthen their positive contribution in this

field.


Key findings Our findings reveal new practices and certain room for improvement

The regional factor is differential

• European companies show clear leadership across all issues under this review.

Companies from Sweden, France and Norway are most advanced in Europe

• North American companies are left behind. Japanese companies are the laggards in inte-grating human rights issues in their manage-ment processes and reporting.

• However, NAM region does have the most heterogeneous performance across the three drivers: A 10 point difference in average perfor-mance between best and worst performance.

North American companies’ best perfor-mance is in the sustainability driver ‘Non-Discrimination’ and worst performance in the driver ‘Respect for freedom of associa-tion and the right to collective bargaining’.

• Asia Pacific average company performance is the lowest across all three drivers:

The main weakness is companies’ perfor-mance in the sustainability driver “Non-Discrimination”.

• European companies at the top

24 of the 30 most advanced companies have Europe as their home region country, while four are based in the Asia Pacific region and only two in North America. Four companies in the ‘top 5 performers’ belong to the European Technology Hardware sector.

Only European companies innovate on the field of freedom of association and right to collective bargaining by signing international framework agreements with European or inter-national professional federations. It clearly appears that companies’ risks man-agement linked to the respect of labour rights is determined by the regional context rather than by issues specific to the sector. This is also confirmed when looking at the ten most advanced companies, 9 having their headquar-ters in Europe and none in North America.

• However, the information rate on companies global human rights performance remains modest

It only covers 49% of the useful information for our analysis. European companies’ report-ing on human rights is most advanced, with an information rate of 55%, followed by North American companies (44%). Asia Pacific com-panies lag behind with a disclosure rate of on-ly 36%.

• Labour rights appear to be the most neglected human rights (with weaknesses in all three regions, but especially in North America). In comparison, thanks to legislation, government and NGO’s action, non-discrimination appears to be far more integrated into companies re-porting.

• Across all sectors and all regions, a high level of involvement of companies in general hu-man rights controversies is observed:

21.5% of the companies (142 companies of 660 companies assessed on this driver), faced at least one human rights allegation.

• Compared to other ESG issues, the interest paid to human rights comes after corporate governance (shareholders interest) and busi-ness ethics (towards clients and suppliers), but before the environment.


• The Forest Products & Paper, Energy and Mining & Metals sectors all score above the panel average in each region.

These three sectors are particularly vulnera-ble to human rights violations through the nature of their activities. In addition, stake-holder pressure and the occurrence of con-troversies that have affected companies’ rep-utation appear to have shifted their manage-ment practices towards the integration of human rights.

• Regarding the prevention of discrimination and the promotion of equality, the Chemi-cals and Heavy Construction sectors rank above the panel’s average in the three zones, while Aerospace and Specialised Re-tail achieve a low performance in all regions.

The controversies:

• Despite the fact that the great majority of the banks in all three regions endorse the Equator Principles, the banking sector is the most exposed to such controversies, whatev-er the region.

In total nearly 50 banks have faced criticism from stakeholders regarding the adverse impacts of their activities on human rights and their involvement in controversial pro-jects. Overall, few banks (9%) involved in hu-man rights allegations report that they have taken corrective measures.

• The sectors most exposed to criticism from stakeholders on the issues of ‘Respect for freedom of association and the right to col-lective bargaining’ are the European Mining & Metals and Heavy Construction sectors.

• North American sectors such as: Specialised Retail, Transportation & Logistics, Health Care Equipment & Services and Technology-Hardware have faced controversies regarding discrimination.

Sectorial affiliation, an influential but not distinguishing factor

‘Prevention of social dumping’ is correlated to the acknowledgment of human

rights in the company

• European companies receive the best aver-age scores (42/100), and North American average performance is in the middle (33/100). Companies headquartered in Asia Pacific average the laggard performance (27/100).

This conclusion echoes Vigeo’s findings on the regional performance of companies across the three human rights drivers.

• Low average scores are obtained in Imple-mentation by companies in the three regions for the integration of human rights factors in their supply chain, showing a rather moder-ated interest regarding this issue and a de-fault of due diligence.

• To deal with controversies and have a good quality of due diligence, correctives measures are taken:

Only 12% of companies analysed report on the share of corrective measures taken after problems were uncovered. The Technology-Hardware sector, in Europe, North America

and Asia Pacific is the most concerned re-garding this issue.

• The degree of exposition to risks of Human Rights violations in the supply chain and the vigilance of stakeholders towards these is-sues are catalysts to raise companies’ aware-ness and mobilization.

Sectors such as Forest Products & Paper, Specialised Retail, Tobacco and Technology-Hardware illustrate this in the three zones. On the other hand, Oil Equipment & Services, Transport & Logistics and Financial Services- Real Estate rank among the worst five per-formers for the three regions.

• Specialised Retail in Europe and North Amer-ica is the best performer in Leadership and Due Dilligence but still encounters contro-versies in the supply chain.


The 30 most advanced managerial performances in terms of Human Rights

Company name Sector Region

1. BT Group PLC Telecommunications EUR-UK

2. Nokia OYJ Technology-Hardware EUR-Finland

3. Philips Electronics Technology-Hardware EUR-The Netherlands

4. Electrolux Technology-Hardware EUR-Sweden

5. Ericsson Technology-Hardware EUR-Sweden

6. Storebrand Insurance EUR-Norway

7.Norske Skogindustrier A Forest Products & Paper EUR-Norway

8. Telefonica Telecommunications EUR-Spain

9. Vallourec Mining & Metals EUR-France

10. Danone Food EUR-France

11. STMicroelectronics Technology-Hardware EUR-The Netherlands

12. Danske Bank Banks EUR-Denmark

13. Aviva Insurance EUR - UK

14. ING Group Insurance EUR – The Netherlands

15. Banco de Sabadell S.A. Banks EUR - Spain

16. Carrefour Supermarkets EUR - France

17. Omron Corp. Electric Components &

Equipment

Asia Pacific - Japan

18. Statoil ASA Energy EUR - Norway

19. CNP Assurances Insurance EUR - France

20. NGK Insulators Ltd. Electric Components &

Equipment


21. Intel Corp. Technology-Hardware North America - USA

22. TF1 Broadcasting & Advertising EUR - France

23. L'Oreal Luxury Goods & Cosmetics EUR - France

24. Anglo American Mining & Metals EUR - UK

25. Sumitomo Electric Industries

Ltd.

Electric Components &

Equipment


26. Sims Metal Management Ltd Business Support Services Asia Pacific - Australia

27. Munich Re Insurance EUR - Germany

28. BNP Paribas Banks EUR - France

29. Old Mutual Insurance EUR - UK

30. Kinross Gold Corp Mining & Metals North America - Canada

Score

80/100

77/100

74/100

73/100

73/100

72/100

72/100

71/100

71/100

70/100

69/100

68/100

68/100

68/100

67/100

67/100

67/100

66/100

65/100

65/100

65/100

64/100

64/100

64/100

64/100

63/100

62/100

62/100

62/100

61/100

The table below gives an overview of the 30 most advanced companies in terms of human rights

(average scores of the three main human rights drivers).

The table shows the leadership of European companies (24 out of 30 companies), with a high presence of Scandinavian companies in the top 10. Only two compa-

nies from the North America region show a top performance. Among the top 30 there are four Asia-Pacific companies (Omron Corp, NGK Insulators, Sumitomo

Electric Industries and Sims Metal Management), even though, generally the registered enterprises in Asia-Pacific have the lowest scores in terms of respect for

human rights. One conclusion to draw is that, from a high(er) level of capitalization or internationalization of their production or their distribution networks,

companies can adopt a much more advanced social responsibility profile than the average profile observed in their region of origin.


Introduction

Respect for all human rights standards, constitute legitimate and fundamental expectations for

all companies’ stakeholders (employees, shareholders, suppliers, civil society organisations and local

communities). The instruments of the international human rights framework define the social respon-

sibility of companies to uphold human rights throughout their operations (including the supply chain),

to guarantee the full exercise of these rights, to promote them, and prevent complicity in human

rights violations. This international framework includes the Universal Declaration of Human Rights

(UDHR), the International Covenant on Economic, Social and Cultural Rights (ICESCR), and the In-

ternational Covenant on Civil and Political Rights (ICCPR) and its two Optional Protocols, the ILO

conventions and recommendations and OECD principles for multinationals.

In this study, companies’ approach towards human rights is assessed through the performance on

three human rights sustainability drivers (Respect for human rights standards and prevention of viola-

tions; Respect for freedom of association and the right to collective bargaining; Non-discrimination

and promotion of equality) and one sustainability driver related to human rights in the supply chain

(‘Prevention of social dumping’).

Rational for the respect of Human Rights

Respect for Human Rights standards and prevention of violations

Vigeo assesses the companies’ willingness and their acts to appropriately ensure the following

‘principles of action’: respect the right to privacy; respect the right to personal security; respect prop-

erty rights; prevent cruel, inhuman or degrading treatment and prevent complicity in human rights

There can be legal, financial and reputational

consequences for enterprises failing to meet the

responsibility to respect human rights. Such fail-

ure may also hamper an enterprise’s ability to

recruit and retain staff, to gain permits, invest-

ment, new project opportunities or similar bene-

fits essential to successful, sustainable business.

As a result, where a business poses a risk to hu-

man rights, it increasingly also raises a risk to its

own long-term interests. The respect of funda-

mental human rights standards in the society is

crucial to companies’ reputation.

Stakeholders are more and more

sensitive to and aware of the

choices and results of companies in

terms of human rights


1. Freedom of association, in practice: Lessons learned, REPORT OF THE DIRECTOR-GENERAL Global Report under the follow-up to the ILO Declaration on Fundamental Principles and Rights at

Work, Executive Summary X, 2008.

Respect for freedom of association and the right to collective bargaining

They may sanction or reward companies in this

respect through campaigns, press articles and

so on. Increasingly, activist groups, NGOs and

tort lawyers are using the law to sue companies

for complicity in human rights abuses. In addi-

tion to the cost of management time and legal

representation, there is a genuine possibility of

an adverse judgment with serious repercussions

in determining a company’s liability and impac-

ting its legal security.

Inadequate attention to the human rights im-

pacts of land acquisition and resettlement can

cause enduring hardship, resentment and oppo-

sition towards a project and its operators. It can

also lead disaffected communities and civil so-

ciety groups to lobby governments and stymie

approvals for operations.

Practices or allegations of "sexual, moral or pro-

fessional harassment", “cruel behavior",

“inhuman or degrading treatment", or violations

of privacy or personal data of employees or cus-

tomers can alter the levels of insurance on the

operational efficiency of a company or organiza-

tion. These elements can, in certain cases lead

to criminal liability of officers (CEO) resulting in

legal proceedings that could destabilize the ope-

rations of the company.

Freedom of association and the right to collec-

tive bargaining are generally seen as a pre-

condition for improvement in labour standards.

The standards that companies should be ex-

pected to uphold are enshrined in the various

conventions of the International Labour Organi-

zation (ILO), which establish the right to free

association and collective bargaining.

Employees are protected by three crucial In-

ternational Labour Organisation human

rights conventions:

Vigeo expects companies to include the necessa-

ry tools in their management process to appro-

priately deal with the following ‘principles of ac-

tion’: define and explain employees' right to

unionize; ensure that freedom of association is

not restricted and promote collective bargaining.

The ILO advocates that "successful collective bar-

gaining and other methods of dialogue between

workers and employers can prevent conflicts." In

addition, many commentators argue that if the

companies respect the right to freedom of asso-

ciation and subsequent right to collective bargai-

ning this can lead to the improvement of a num-

ber of other fundamental rights.

It is worth noting, that considering the impor-

tance of the contextualized implementation of

rights, the ILO does also emphasize the need for

unions to find “new and innovative approaches

to ensure the coverage of the workers concer-

ned” in order to adjust to the reality of

“precariousness resulting from atypical employ-

ment relationships” that are being reaffirmed in

the current global economic climate(1).

Union busting practices, anti-union discrimina-

tion and interference from employers (including

dismissals, demotions, transfers and refusals to

hire etc.) constitute violations of freedom of as-

sociation and the right to collective bargaining

and could lead to legal actions.

- ILO Convention 87

- Freedom of Association and

Protection of the Right to Organise

(1948)

- ILO Convention 98

- Right to Organise and Collective

Bargaining (1949)

- ILO Convention 135

- Workers Representatives Convention

(1971)


The prevention of discrimination is embedded in

the Universal Declaration of Human Rights

and several UN texts and fundamental ILO

declarations: ILO Discrimination (Employment

and Occupation) Convention, 1958 states ‘any

distinction, exclusion or preference made on the

basis of race, colour, sex, religion, political opin-

ion, national extraction or social origin, which

has the effect of nullifying or impairing equality

of opportunity or treatment in employment or

occupation’.

Vigeo assesses companies’ capacities to include

the necessary tools in their management process

to appropriately deal with the following

‘principles of action’: clearly define what consti-

tutes discrimination; identify the instances in

which discrimination might occur; create a sys-

tem to collect and address complaints of dis-

crimination; set targets to pro-actively increase

diversity.

Discrimination, whether caused by actual deeds

or perceived as giving rise to a “climate of dis-

crimination”, is likely to influence the company’s

overall performance. It can affect the legal cer-

tainty of the organisation by exposing it to alle-

gations that could lead to legal proceedings and

convictions, cause stress among its workforce

and undermine team spirit, affect its brand im-

age, its appeal and, generally, its reputation and

that of its management teams.

Non-discrimination is also an important factor

for internal cohesion and efficiency, as a diverse

workforce (people with different cultural back-

ground, skills and gender) can have a positive

influence on the company's functioning and

management. A comprehensive diversity strate-

gy is also a way to maintain a stable workforce

(turnover rate) and to create a motivating work-

ing environment.

Non-discrimination

2. DISCRIMINATION IN THE WORKPLACE: http://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/documents/publication/wcms_099570.pdf

Violations of freedom of association and the

right to collective bargaining can have conse-

quences on the company's image, as well as its

market acceptability. In addition, legal sen-

tences, social conflicts and strikes can affect

companies’ reputation and operational efficien-

cy.

The non-recognition of employees'

fundamental labour rights can affect

the company's human capital with em-

ployees losing confidence in the com-

pany's values and management

On the contrary, active and transparent support

or, at least, neutral respect of freedom of asso-

ciation for all employees, without discrimina-

tions, can induce a motivating working environ-

ment as well as company cohesion.

The ILO says :

« Discrimination at work is a violation

of human rights that entails a waste of

human talents, with detrimental ef-

fects on productivity and economic

growth. Discrimination generates socio

-economic inequalities that undermine

social cohesion and solidarity and

slows poverty reduction(2)»


Enterprises are thus encouraged to "engage in or

support, where appropriate, private or multi-

stakeholder initiatives and social dialogue on

responsible supply chain management while en-

suring that these initiatives take due account of

their social and economic effects on developing

countries and of existing internationally reco-

gnised standards".

In the context of its supply chain, if

the enterprise identifies a risk of cau-

sing an adverse impact, then it should

take the necessary steps to cease or

prevent that impact

The Guidelines specify that "enterprises can in-

fluence suppliers through contractual arrange-

ments such as management contracts, pre-

qualification requirements for potential sup-

pliers, voting trusts, and license or franchise

agreements."

Vigeo expects companies to include the necessa-

ry tools in their management process to appro-

priately deal with the following ‘principles of ac-

tion’: monitor the social performance of sup-

pliers and contractors, focusing on freedom of

association and right to collective bargaining;

abolition of child labour; abolition of forced la-

bour; non-discrimination; health and safety;

decent wages; working hours; other rights (e.g.

prevention of cruel, degrading and inhu-

man behaviour, etc.)

As highlighted by major controversies that had

affected retailers' image and reputation, consu-

mers and the general public become sensitive to

social issues. Retailers should, therefore, ensure

that human and social rights are respected

beyond their direct operations.

In addition, companies facing related controver-

sies may experience supply disruptions that

could affect daily operations and require the al-

location of additional resources.

A company may also face legal proceedings if it

is seen to be responsible for human and social

rights violations in the supply chain.

In the framework of this study the issue of chil-

dren’s rights is not specifically assessed. Vigeo

will publish a separate study on children’s rights

soon. However, the issue of child labour is ass-

sed in this study in the chapter on ‘Integration of

human rights in the supply chain’.

Recent Key Developments & Concepts

The UN Guiding Principles on Business and Hu-

man Rights and the updated OECD Guidelines

for Multinational Corporations: Enhanced link

between Human Rights and Businesses

The UN Guiding Principles have been developed

out of the considerable backlash that arose to-

wards the ‘Norms on the Responsibilities of Trans-

national Corporations and Other Business Enter-

prises with Regard to Human Rights’. This frame-

work has led to a clearer consensus that business-

es have a responsibility to respect human rights.

The updated OECD Guidelines for Multinational

Corporations now also have a section on Human

Rights, developed with the help of UN Rapporteur

and in light of his ‘Principles’.

Integration of Human Rights in the supply chain

According to the OECD Guidelines for Multinational Enterprises, companies should "in addition to

addressing adverse impacts in relation to matters covered by the Guidelines, encourage, where practi-

cable, business partners, including suppliers and sub-contractors, to apply principles of responsible

business conduct compatible with the Guidelines."


The idea that companies have a responsibility to

manage the human rights impacts beyond their

own direct operations has also been clearly so-

lidified with the UN Guiding Principles and the

OECD update.

The new OECD Guidelines paragraph 12 states

that businesses should “Seek to prevent or miti-

gate an adverse impact where they have not

contributed to that impact, when the impact is

nevertheless directly linked to their operations,

products or services by a business relationship”

“Where enterprises have large numbers of sup-

pliers, they are encouraged to identify general

areas where the risk of adverse impacts is most

significant and, based on this risk assessment,

prioritize suppliers for due diligence. In the con-

text of its supply chain, if the enterprise iden-

tifies a risk of causing an adverse impact,

then it should take the necessary steps to

cease or prevent that impact…” (OECD Guide-

lines, p22).

Paragraph 13 of the OECD Guidelines states that:

“In addition to addressing adverse impacts in

relation to matters covered by the Guidelines,

encourage, where practicable, business part-

ners, including suppliers and sub-contractors, to

apply principles of responsible business conduct

compatible with the Guidelines.”

Supply Chain Responsibilities

Concept of ‘Due Diligence’

The UN Guiding Principles emphasize the concept of ‘due diligence’ and in Paragraph 16 describe what

companies should do (e.g. access their actual and potential impact, track responses, communicate).

The 2011 update of the OECD Guidelines for MNCs also includes paragraphs on ‘due diligence’ in its

‘General Principles’.

Due Diligence definition of OECD Guidelines:

“For the purposes of the Guidelines, due diligence is understood as the process through which

enterprises can identify, prevent, mitigate and account for how they address their actual and

potential adverse impacts as an integral part of business decision-making and risk manage-

ment systems. Due diligence can be included within broader enterprise risk management sys-

tems, provided that it goes beyond simply identifying and managing material risks to the en-

terprise itself, to include the risks of adverse impacts related to matters covered by the

Guidelines. Potential impacts are to be addressed through prevention or mitigation,

while actual impacts are to be addressed through remediation.” (P21).

The UN Guiding principles say,

(Paragraph 13):

“Business enterprises may be involved with

adverse human rights impacts either

through their own activities or as a result

of their business relationships with other

parties. Guiding Principle 19 elaborates

further on the implications for how busi-

ness enterprises should address these situ-

ations. For the purpose of these Guiding

Principles a business enterprise’s

“activities” are understood to include both

actions and omissions; and its “business

relationships” are understood to include

relationships with business partners, enti-

ties in its value chain, and any other non

-State or State entity directly linked to

its business operations, products or ser-

vices”


Vigeo Methodology

Vigeo’s assessment of CSR performances

Vigeo defines corporate social responsibility as a commitment to integrate the rights, interests and

expectations of stakeholders in the strategy and operations of the firm. A company should take these

rights, interests and expectations fully into account, with a view on continuous improvement of perfor-

mance and risk management. We posit that the principles and objectives that define corporate so-

cial responsibility constitute strategic drivers for a corporation’s sustainability, thus affecting

the company’s reputation, human capital, operational efficiency and legal security. We consider

that the tighter a corporation integrates corporate social responsibility principles in its managerial be-

haviour, the better a corporation is able to control its risks and to turn them into catalysts towards a

sustainable business performance.

Internationally recognized standards are the foundations of Vigeo’s reference model

We analyse management systems according to three views, which are composed of questions:

• Relevance of their Policies (P)

• Coherence and efficiency of Implementation (I)

• Effectiveness of Results (R)

The relevance of a company’s policies is measured by the visibility of the objectives, the completeness

of their content, and the managerial support for these objectives. The efficiency of implementation is

measured by the tangibility, adequacy, controls and reporting about the means allocated within the

global perimeter of operations. The effectiveness of the results is analysed by evaluating stakeholder’s

appreciation of the company’s managerial commitments, the occurrence of controversies and allega-

tions, the reactiveness of the companies and by the evolution of key performance indicators over time.

How to read Vigeo’s evaluation of CSR performance?

The score for each sustainability driver (0 to 100), is established by consolidating the individual scores

assigned to the relevance of policies, coherence of implementation and results. This approach allows

us to appreciate an individual company’s performance as well as compare this performance to the per-

formance of other companies in order to create benchmarks by country, by sector, by views – Policies,

Implementation, and Results – or by question. On each of these variables, the evaluation reveals inno-

vative practices, controversies and more generally, the terms and the level of interest displayed by the

company under review towards the CSR objectives for which companies should be accountable.


Universe of the study

The evaluated sample comprises of 1479 companies, whose headquarters were located in European

countries, in the United States, Canada and the Asia Pacific Region (including Japan and Australia).

They were assessed by Vigeo between March 2009 and February 2012.

The analysed corporations are divided into 29 different sectors of varying size. The largest sector com-

prises of 58 corporations (Banks – Europe).

This disparity in distribution, by sector and by country, has to be taken into consideration in the fol-

lowing classifications.

For the different sustainability drivers analysed, the respective universes are:

• 660 companies from the three regions (Europe, North America and Asia Pacific) have been ana-

lysed for ‘Respect for human rights standards and prevention of violations’


lysed for ‘Respect for freedom of association and the right to collective bargaining’


lysed for ‘Non-discrimination’

• 868 companies from the three regions (Europe, North America and Asia Pacific), have been ana-

lysed for ‘ Integration of social factors in the supply chain’

Vigeo analyses the companies listed on the Stoxx Global 1800 Index.


GLOBAL HUMAN RIGHTS PERFORMANCE

*The sum of companies & sector performances on the three human rights sustainability drivers

In this section we will assess how far human rights considerations are integrated in company’s mana-

gement, in terms of leadership and implementation (including due diligence). Based on the occurrence

of controversies and allegations and Vigeo’s Alerts system, this section will also show which human

rights issues are most “sensitive” to stakeholder feedback. Finally, a comparison between the global

HRT score and other ESG sores (Environment, Community Involvement, Corporate Governance, Busi-

ness Behaviour and Human Resources) will be made, in order to put the managerial awareness for hu-

man rights issues in a broader ESG perspective.

Human Rights global score for the different regions & sectors

The average HRT global score for European com-

panies is 40/100.

The best performing European sec-

tors are Forest Products & Paper and

Technology Hardware

Four out of the top five companies with the most

advanced managerial performances in terms of

Human Rights belong to the Technology Hardware

sector.

Compared to the two other regions (North Ameri-

ca and Asia Pacific), European companies show

evidence of a higher level of integration of human

rights considerations in their management frame-

work. In section II we will discuss and analyze

more in-depth these regional differences.

The worst performing sector is Oil

Equipment & Services

Human Rights Global Score* for European sectors


The average HRT global score for North American companies is 36/100.

The best performing North American sectors are Luxury Goods & Cosmetics, Forest Products &

Paper and Food. The worst performing sector is Tobacco.

The average HRT global score for Asia Pacific companies is 32/100.

The best performing Asia Pacific sectors are Electric Components & Equipment and Business

Support Services. The worst performing sector is Software & IT Services .

Human Rights Global Score* for North America Sectors

Human Rights Global Score* for Asia Pacific sectors




Human rights performance compared to other ESG issues: human rights considera-

tions come after corporate governance and business ethics, but before environment

The interest paid to human rights comes after corporate governance (shareholders interest) and busi-

ness ethics (towards clients and suppliers), but before the environment, for the same panel of compa-

nies. This figure might be interpreted as encouraging in the sense that it means that human rights

issues are more and more taken seriously and integrated in companies CSR strategies and re-

porting. The issuing of the UN Guiding Principles on Business and Human Rights and the renewed

OECD Guidelines for Multinational Enterprises will undoubtedly push companies further in this direc-

tion. However, the global score (37/100) shows that companies still have to go a long way towards a

deeper and more widespread integration of human rights considerations in their corporate social re-

sponsibility strategies.

3. “CSR – what do companies report on?” - Vigeo, January 2010

Global Human Rights performance by country

The leadership of European companies is con-

firmed by the graph below.

Companies from Sweden, France

and Norway are most advanced

while Canadian and US companies lag clearly

behind. Japanese companies are the laggards in

integrating human rights issues in their manage-

ment processes and reporting.

Scores between countries are very hetero-

geneous, ranging from 47/100 for Sweden to

32/100 for Japan. However, not even the most

advanced countries achieve a score higher than

50/100. This means that even in countries

where they seem the most advanced on the sub-

ject, companies only partially integrate human

rights in their strategies and managerial opera-

tions.

These results are also in line with other studies

on CSR reporting. Vigeo’s 2010 study on CSR(3)

reporting ranked the most reported themes by

country revealing clearly diverse national prac-

tices. Companies listed in the United Kingdom

present the most substantial information on go-

vernance, environmental protection and commu-

nity involvement. On the other hand, they com-

municate much less on their human resources

management principles and practices or on the

recognition of human rights. Companies listed in

France present the most complete information

on their human resources management and are

among the front runners on the subjects of hu-

man-rights recognition and environmental pro-

tection.

Global ESG Score for the three regions*

*: CGV = Corporate Governance ; C&S = Business Behaviour ; HRT = Human rights ; CIN = Community Involvement ; ENV = Environment ; HRS = Human resources


4. ‘The state of play in sustainability reporting in the European Union’. European Commission, January 2011

Companies listed in Norway offer the highest

levels of transparency on human-rights recogni-

tion and environmental protection.

Companies registered in Austria,

Ireland, Greece or Denmark display the

lowest quantities of information

Companies listed in the Netherlands or France

post some of the highest reporting rates for so-

cial responsibility indicators. This leadership is

clearly linked to the reporting obligations im-

posed by legislation in these two countries. The

recent change in legislation in Sweden, towards

mandatory reporting for all state-owned compa-

nies including assurance, might also have con-

tributed to advance sustainability reporting with-

in stock-listed companies(4).

In terms of human rights reporting, European

companies are most advanced, with an informa-

tion rate of 55%, followed by North American

companies (44%) and Asia Pacific companies lag-

ging behind with a disclosure rate of only 36%.

Managerial analysis: leadership & implementation

The results of this analysis can be seen in the

graph below:

In terms of leadership (policies), European com-

panies are most advanced, followed by North

American companies and Asia Pacific companies.

This can be partially explained by the more ad-

vanced mandatory reporting frameworks in Eu-

rope, and the pressure of stakeholders and in-

vestors in the European SRI market. In terms of

implementation (measures in place), differences

are however less pronounced and we see clearly

a low level of implementation for all the three

regions under review. In section II, we will dis-

cuss and analyze more in-depth these regional

differences.

Human Rights Global Score per country (with more than 15 companies)

Leadership & Implementation Scores


Level of implementation of measures (due diligence)

Due diligence is understood as the process

through which enterprises can identify, prevent,

mitigate and account for how they address their

actual and potential adverse impacts as an inte-

gral part of business decision-making and risk

management systems.

Vigeo uses the following rating scale to measure

the companies level of implementation of (due

diligence) measures:

0-29: Questionable

30-49: Partially efficient

50-64: Efficient

65-100: Highly efficient

The majority, 66% of the compa-

nies under review, have put in place on-

ly very limited means to deal with gene-

ral human rights issues

while 20% have put in place efficient (10%) or

highly efficient (10%) means.

The efficiency of implementation is measured by

the tangibility, adequacy, controls and reporting

about the means allocated within the global peri-

meter of operations. An example of a company

with a highly efficient level of implementation of

measures is BHP Billiton: As part of BHP's

'Human Rights Due Diligence Process', BHP re-

quires all operations to identify and document

key human rights risks by completing a HRIA

(Human Rights Impact Assessment). The HRIA's

include assessments of the articles of the UDHR,

the UN Global Compact Principles and the host

country's legislation on Human Rights.

These must be validated by a qualified specialist

every three years. Material risks that are identi-

fied as a result of the HRIA's are then managed

via action plans that require both employees and

contractors to undertake Human Rights training.

Resolution of complaints is facilitated using

complaint and grievance mechanisms related to

the country risk rating. Finally, the overall per-

formance of the company's HSEC risk manage-

ment (Inclusive of Human Rights Risk Manage-

ment) is audited internally on a regular basis.

57% of all companies under re-

view totally failed to show any evidence

of due diligence in terms of human

rights

Given the high involvement in controversies or

allegations (23% of the companies), this general

lack of human rights due diligence is a serious

weakness and questions the relevance of compa-

nies public human rights commitments.

For the big majority of companies under review

(88%), means to deal with labour rights issues

are not visible or are questionable, while only 5%

of the companies have in place efficient (2%) or

highly efficient (3%) means.

79% of all companies under review

even received a 0 score, failing to show

any evidence of due diligence in terms

of labour rights

Level of Implementation


Respect for Human Rights

Respect for Labour Rights


Level of involvement in controversies and allegations

21.5% of the companies faced allegations or are

involved in controversies related to their behav-

iour in terms of human right respect.

The banking sector is exposed to a

high level of controversies

with a number of 48 banks criticised by stake-

holders for their impact on human rights (related

to project finance). One of the emblematic cas-

es in which several banks are involved is project

finance of the Baku-Tbilisi-Ceyhan oil pipeline

project.

For the other two human rights drivers under

review, the level of involvement in allegations or

controversies is lower, at respectively 5.5% for

labour rights issues and 9% for non-

discrimination issues.

However, Vigeo’s Alerts system to investors

and asset managers, reveals that 50% of the

Human Rights Alerts that were sent during the

last two years were related to non-discrimination

issues; 31% were related to labour rights issues

and 19% were related to fundamental human

rights (harassment, replacement of populations,

respect of privacy, physical integrity). (see graph

below).

Overall, 54 alerts related to hu-

man rights issues were sent to clients

between 01/2010 and 02/2012

Compared to the total number of Alerts sent

(covering Vigeo’s 6 ESG domains) to Vigeo cli-

ents during this period, Human Rights alerts ac-

counted for 9.3% (see graph below) of the alerts

sent. Almost 50% of Vigeo’s alerts were related

to Business Behaviour issues (which include also

human rights in the supply chain). 12% of the

alerts were related to a combination of ESG is-

sues.

41% of the companies show very limited means to

deal with non-discrimination issues, while 26%

disclose highly efficient means. 26% of all com-

panies under review received a 0 score, failing to

bring evidence of due diligence to prevent dis-

criminations.

Overall, these graphs show that for individual hu-

man rights and labour rights there is a lack of em-

bedded approach. Due diligence seems to be

more used for non-discrimination issues.

Alerts published per Vigeo Domain

Human Rights Alerts 01/2010 - 02/2012


Non-Discrimination


REGIONAL HUMAN RIGHTS PERFORMANCE

This section presents Vigeo’s findings regarding the managerial approach per region for the three

main human rights drivers under Vigeo’s framework: Respect for human rights standards and preven-

tion of violations; Respect for freedom of association and the right to collective bargaining; Non-

discrimination.

Although companies rated by Vigeo operate globally and may have varying practices within their ope-

rations around the world, one can highlight the regional context of the company’s headquarters and

how these contexts play a role in shaping ‘Corporate Culture’.

General Regional Performance

Average performance across the three Regions in Vigeo’s three main Human Rights Sustainability Drivers

All three regions achieve limited average company scores in all three sustainability drivers.

The European companies average the best scores, but their performance is

still limited in all three human rights drivers

North American (NAM) average performance is in the middle for two out of the three drivers. However,

it is worth highlighting that this region does have the most heterogeneous performance (10 percen-

tage points difference in average performance between best and worst driver). North American compa-

nies best performance is in the sustainability driver titled ‘Non-Discrimination’ (40/100) and worst per-

formance in the driver ‘Respect for freedom of association and the right to collective bargai-

ning’ (30/100).

Companies from the Asia Pacific (AP) region average the laggard performance in two of the dri-

vers.


European companies are the leaders both for

companies’ average Leadership (36/100) and

Implementation (27/100) score in terms of

‘Respect for human rights standards and preven-

tion of violations’.

This region is characterised by his-

toric interstate legal frameworks based

on the concept of Human Rights

which can be seen as a factor that may shape

the higher average awareness of European-based

companies. The more active role of unions in the

European region can also be highlighted. This is

because unions can sometimes play a role in not

only safeguarding the rights of employees within

a company’s workforce, but also identifying hu-

man rights concerns related to other impacts of

a company’s operations.

The Asia Pacific region demonstrates a weak

average performance for Leadership and Imple-

mentation, however out of the three regions,

North American companies achieve the lowest

average performance for both Leadership and

Implementation in this driver. These findings can

be considered within the historical context of

the latter region, which unlike in Europe, is not

one of so governed by territorial dominance (i.e.

not a history of controlling and intermingling

with vast overseas colonies), but of recent eco-

nomic hegemony. This type of power is raising

questions and fuelling debate over the bounda-

ries of corporate responsibility, particularly in

the context of extra- territorial jurisdiction (for

example in the context of the awaited Supreme

Court’s ruling on Kiobel v Royal Dutch Petrole-

um, expected mid-end 2012, which is consider-

ing companies’ potential liability under the Alien

Tort Act, a 1789 law giving non-citizens a right

to sue in U.S. courts).

As shown in the graph, Vigeo has found that in

absolute terms the average company perfor-

mance even for European companies is limited

(36/100) in Leadership and substandard for Im-

plementation (27/100) in this driver.

Although in comparison to other

regions Europe is more advanced, in

reality companies’ reporting of their

approach (particularly steps taken be-

yond a policy) within the three regions

is still very much under development

With this in mind, the UN Guiding Principles and

the new OECD guidelines, that mandate a due

diligence approach, clearly sends a signal to

companies and their stakeholders of the rising

consensus that expects businesses, at the very

least, to identify and manage their responsibili-

ties in order to respect human rights standards

and prevent violations.

European companies’ average performance in

terms of Leadership (28/100) and Implementa-

tion 13/100) in the driver ‘Respect for freedom

of association and the right to collective bargai-

ning’, is also above the other two regions, howe-

ver all three regions demonstrate low absolute

performances for both angles.

Leadership & implementation Regional Analysis

Average performance for Leadership and Implementation per region

Average performance for Leadership and Implementation per region

Human Rights

Labour Rights


Continental European countries

have had government intervention

that push companies to allocate clear

means to trade unions and inform em-

ployees about their rights

This drive can help to explain the comparative

strength of European companies, particularly

in terms of formalisation of their principles and

goals, where companies respond to such regula-

tion by disclosing their commitment to the res-

pect of collective bargaining rights.

Vigeo’s findings, as shown in the

graph, clearly support the much dis-

cussed weakness regarding the respect

for these fundamental labour rights in

the North American region

US and Canadian-based companies are amongst

the bottom three countries in terms of overall

average performance in this sustainability driver.

Union membership has declined consistently

since the 1960’s and the US did not ratify the

ILO convention on Freedom of Association (C87)

and ILO convention on the right to Collective

bargaining (C98)

Vigeo has found that companies in the Asia Pa-

cific region also achieve particularly low aver-

age scores for Leadership (13/100) and Imple-

mentation (4/100). In terms of support for im-

portant international frameworks, Japan and

Australia have ratified both the ILO convention

on Freedom of Association (C87) and the ILO

convention on the right to Collective bargaining

(C98).

New Zealand and Singapore have ratified the

convention on the Right to Collective bargaining

(C98), but not the Convention on Freedom of

Association (C87). Whilst, China has not ratified

either of these two conventions.

Hong Kong based companies are the

worst in terms of overall average per-

formance in this sustainability driver

with an average score of 28/100. These findings

therefore support the International Trade Union

Confederation opinion expressed in its 2011

Annual Survey of Violations of Trade Union

rights that in Hong Kong “Collective bargaining

is neither promoted nor encouraged by the au-

thorities, and employers generally refuse to rec-

ognize unions”(6).

This is the best addressed human rights sustain-

ability driver for all three regions.

A review of North American companies’ average

reveals that out of Vigeo’s three Human Rights

drivers, this is the region’s best addressed issue

(see first graph in this Section). Plus, as the

graph here shows, in comparison to the other

two regions

North America leads the average

performance for Leadership (56/100)

and Implementation 37/100)

Average performance for Leadership and Implementation per region-

5. World Report 2012 events of 2011, HRW, 2012 p658. 6. Hong Kong SAR (China) 2011 Annual Survey of Violations of Trade Union Rights: http://survey.ituc-csi.org/Hong-Kong-SAR-China.html?lang=en#tabs-4

Human Rights Watch states in its

World Report 2012 that today in

the US “workers continue to face

severe obstacles in forming and

joining trade unions(5)”

Non-Discrimination


The American affinity for its Constitution as a

roadmap for setting out ‘Freedoms’ is often

pointed to as the ideological basis for non-

discrimination in the workplace(7) .The 1950-60’s

civil rights movement in the USA can also be

seen as key driver shaping the business sector’s

approach to non-discrimination and in particular

affirmative action programmes. In addition,

the climate of legal pursuits related to non-

discrimination can be regarded as a significant

factor that can motivate US based companies to

have clearly defined policies and take steps

(such as monitoring and training) to show that

discrimination is not accepted within their corpo-

rate culture.

Vigeo has also found a good average score for

Leadership (52/100) and a limited score in Im-

plementation (36/100) in Europe. National le-

gislations on non-discrimination within the Euro-

pean Union are based on a common framework

(EU Directive 2000/43/EC implements the prin-

ciple of equal treatment between persons irres-

pective of racial or ethnic origin and Directive

2000/78/EC establishes a general framework for

equal treatment in employment and occupation).

Both of these aim to unify different EU countries

legislations on the treatment for workers.

In addition, specific developments can also be

cited as reasons for the strong performances in

certain countries. For example,

the effects of the French New Eco-

nomic Regulations may partly ex-

plain why French companies lead the

panel

(out of countries with more than 15 companies),

with a good average score of 53/100 in this sus-

tainability driver.

French companies listed on the Paris stock ex-

change must annually disclose information on

social and environmental issues, a legislative

initiative which makes the market more transpa-

rent and accountable, which can led to an impro-

vement of companies’ overall social perfor-

mance. Sweden is second (amongst countries

with more than 15 companies), with an average

score of 46/100 in this sustainability driver.

Sweden recently developed its re-

lated legal framework, including a

number of explicit prohibitions on dis-

crimination

As the graph also shows, Vigeo has found that

compared to the other regions the average per-

formance among Asia Pacific companies is

limited. In addition, this is the less addressed

human rights driver for the Asia Pacific region

(see first graph in this Section).

The ILO does draw attention to some relevant

national developments, such as a joint initiative

launched in New Zealand by leading private and

public sector employers to promote awareness

of the business benefits of equal opportunities

at the workplace (Equal Employment Opportuni-

ties Trust) and the ‘Tripartite Declaration on

Equal Remuneration for Men and Women Perfor-

ming Work of Equal Value’ which was issued in

Singapore following the country’s ratification of

ILO Convention 100 on Equal Remuneration in

2002(9).

It is worth noting however that despite the latter,

in terms of companies’ overall performance in

the ‘Non-Discrimination’ driver, Vigeo found that

Singapore was the worst perfor-

ming country in all three regions

(out of those countries with more than 15 com-

panies ).

7. This is despite the fact that it originally considered 5 slaves to be the equivalent of 3 ‘Free’ persons . This was not changed until the 13th amendment was inserted in 1865 which banned slavery. 8. Discrimination at Work in Asia, ILO: http://www.ilo.org/wcmsp5/groups/public/@ed_norm/@declaration/documents/publication/wcms_decl_fs_89_en.pdf 9. Equal Remuneration: http://www.iac.gov.sg/Home/Pages/equal.aspx

A report by the ILO highlights that :

“the Asia and Pacific region continues to

experience traditional forms of discrimi-

nation, such as those based on gender

and ethnic origin and is increasingly con-

fronted with new forms of discrimination

brought about by structural economic re-

forms, economic openness and greater

movement of people”(8)


ARE SPECIFIC SECTOR ISSUES A DISTINGUISHING FACTOR FOR COMPANIES’ PERFORMANCE IN THE

HUMAN RIGHTS SUSTAINABILITY DRIVERS?

This section will consider Vigeo’s findings regarding companies’ managerial approach per sector for

the three main human rights drivers under Vigeo’s framework: Respect for human rights standards

and prevention of violations, Respect for freedom of association and the right to collective bargaining,

and Non-discrimination .

Respect for human rights standards and prevention of violations

General performance by sector

Asia Pacific sectors performance - Respect for Human Rights standards and prevention of violations


North America sectors performance - Respect for Human Rights standards and prevention of violations

Europe sectors performance - Respect for Human Rights standards and prevention of violations


The three graphs above confirm the conclusions

of the regional analysis conducted in Section II

of this study: European companies average the

best scores in the sustainability driver ‘Respect

for human rights and prevention of violations’.

The average scores for all sectors in Europe

range from limited (31/100) to good (58/100),

while in North America and Asia Pacific, sectors

average scores go from substandard (22/100 for

Asia Pacific and 14/100 for North America) to

good (56/100 for Asia Pacific and 51/100 for

North America).

The more homogeneous perfor-

mance observed across the European

sectors might be an indication that hu-

man rights issues are more integrated

overall in the European companies stra-

tegies and operations

However, important differences in performances

still stand out between the sectors in each re-

gion. This shows that sector issues remain an

important determinant of company’s behavior

and performance on human rights.

In Europe, the best sector perfor-

mers are Technology Hardware and Fo-

rest Products & Paper

A partial explanation for the good performance

of the Technology Hardware sector might be

that many technology hardware companies have

joined the ‘Electronic industry Citizenship

Coalition’ (EICC) which promotes a common

approach to CSR practices and close collabora-

tion with stakeholders. EICC-membership can

improve companies’ awareness of human rights

related risks for their operations and activities.

In Europe, the Food and Health

Care Equipment & Services sectors are

the laggards of the panel

Some similarities are observed across the three

zones among the best performers and the lag-

gards.

The Forest Products & Paper, Ener-

gy and Mining & Metals sectors all

score above the panel average in each

region

These three sectors are particularly vulnerable to

human rights violations through the nature of

their activities. For instance, in September 2011,

the United Nations Special Rapporteur on the

rights of indigenous peoples, James Anaya, war-

ned that indigenous communities’ right to self

determination in the political, social and econo-

mic spheres is being threatened by the current

model for natural resource extraction(10).

For example, in the Mining & Metals sector,

companies like BHP Billiton, Xstrata and Anglo

American face major and recurrent allegations of

human rights abuses. One case is the in-

volvement of the three companies in the joint-

venture for the exploitation of the Cerrejon coal

mine in Columbia, which is under constant criti-

cism from stakeholders. Surrounding local com-

munities complain about alleged relocation and

displacement of indigenous populations. These

issues date as far back as the 1970’s.

In addition, the mine has been plagued with alle-

gations of Human Rights abuses by armed sol-

diers and security personnel. Over the years, the

involved companies have been progressively in-

cluding Human Rights issues in their manage-

ment practices.

10. “Human Rights Council discusses promoting the human rights and fundamental freedoms of Indigenous Peoples”, Human Rights Council, Press release, 20 September 2011:

http://www.ohchr.org/en/NewsEvents/Pages/DisplayNews.aspx?NewsID=11402&LangID=E

Stakeholder pressure and the occur-

rence of human rights controversies

that have affected companies’ reputa-

tion appear to have shifted their man-

agement practices towards the inte-

gration of human rights issues.


The companies have strengthened their commit-

ment to respect human rights through their

subscription to the UK Voluntary Principles on

Security and Human Rights. Besides, these

commitments are now supported by extensive

concrete measures, such as Human Rights Im-

pact Assessments, training for private security

service providers and training for communities

and employees on the Voluntary Principles. At

the Cerrejon mine, a formal grievance procedure

was established for potential security and hu-

man rights breaches, in the framework of a pilot

project led by John Ruggie.

On the other hand,

the Aerospace sector achieves the

lowest scores in the three regions

This highlights some lack of concern for the ac-

tual and potential human rights impacts of aero-

space companies’ activities.

This is despite the fact that many of them are

still involved in the production of controversial

weapons or export some of their products to

controversial regimes, which exposes these com-

panies to major risks of complicity in human

rights violations. Companies such as Thales,

Rolls Royce and Safran are, for example, in-

volved in the production of controversial weap-

ons (mainly nuclear weapons) but their commit-

ments are general and mostly limited to the re-

spect of export controls. Besides, apart from

Rolls Royce which does not provide information

on measures implemented, it does not seem to

be always clear whether the permanent systems

companies have in place to prevent complicity in

human rights violations are implemented in all

parts of their operations, in particular in high-

risk areas in terms of conflicts.

Involvement in controversies

21.5% of companies analysed for

the ‘Respect for human rights stand-

ards and prevention of violations’

across the three regions have faced

controversies

Strikingly, the banking sector, whatever the re-

gion in which companies are headquartered, is

the most exposed to such controversies. In total,

48 banks have faced criticism from stakeholders

regarding the adverse impacts of their activities

on human rights. According to Vigeo’s latest

update of the European Banking sector (May

2011), although the great majority of European

banks endorse the Equator Principles,

72% of the banks face criticism

from stakeholders for their controver-

sial projects

The Mining & Metals Europe and Aerospace

Europe and North America sectors also face a

relatively high number of controversies. Both

sectors are exposed to serious human rights

violations in their activities. However, it is note-

worthy that

Mining & Metals companies and Aer-

ospace companies did not adopt the

same managerial approach with re-

gards to human rights related risks

following the occurrence of these controversies.

As observed through the analysis of Vigeo’s da-

ta, the Mining & Metals sector ranks among the

best performers across the three regions, while

Aerospace companies are the laggards in the

three zones (see the above sub-section on

‘General performance per sector’).

Overall, very few companies (only 9%) involved in

human rights allegations report to have taken

corrective measures. 30% of corrective

measures are put in place by the banking sector,

which is directly linked to the fact that human

rights controversies are most prevalent in this

sector. Corrective measures generally consist of

the withdrawal or suspension of loans and fund-

ing in controversial projects.


The 30 most advanced managerial performances


1. Ericsson Technology-Hardware Europe - Sweden

2. Intel Corp. Technology-Hardware North America - USA

3. Novartis Pharmaceuticals & Biotech-

nology

Europe - Switzerland

4. Nokia OYJ Technology-Hardware Europe - Finland

5. BHP Billiton PLC Mining & Metals Europe - UK

6. Anglo American Mining & Metals Europe - UK

7. Teck Mining & Metals North America - Canada

8. Ibiden Co. Ltd. Electric Components &

Equipment


9. NGK Insulators Ltd. Electric Components &

Equipment


10. STMicroelectronics Technology-Hardware Europe – The Netherlands

11. ING Group Insurance Europe – The Netherlands

12. Electrolux B Technology-Hardware Europe - Sweden

13. Xstrata PLC Mining & Metals Europe – UK

14. Kinross Gold Corp. Mining & Metals North America - Canada

15. Casino Guichard Supermarkets Europe - France

16. GlaxoSmithkline Pharmaceuticals & Bio-

technology

Europe - UK

17. BT Group PLC Telecommunications Europe - UK

18. Telenor Telecommunications Europe – Norway

19. Statoil ASA Energy Europe - Norway

20. Nexen Inc. Energy North America - Canada

21. Petro-Canada Energy North America - Canada

22. Swiss Re Insurance Europe - Switzerland

23. Telefonica Telecommunications Europe - Spain

24. Rio Tinto Mining & Metals Europe - UK

25. WPP Broadcasting & Advertising Europe - UK

26. Baxter International Inc. Health Care & services North America - USA

27. Microsoft Corp. Software & IT Services North America - USA

28. Norsk Hydro Mining & Metals Europe - Norway

29. L’Oreal Luxury Goods & Cosmetics Europe – France

30. Publicis group Broadcasting & Advertising Europe - France

Score

84/100

81/100

80/100

79/100

78/100

78/100

77/100

77/100

77/100

77/100

77/100

77/100

75/100

74/100

74/100

74/100

74/100

74/100

74/100

72/100

72/100

72/100

72/100

72/100

72/100

72/100

72/100

71/100

70/100

70/100

Out of the 660 companies analysed regarding their respect for human rights standards and prevention

of violations across the three regions, the 30 companies in the table below rank far ahead of their

peers with advanced performances.


Glaxo Smith Kline

GSK has issued several dedicated policies for

human rights issues relevant to the Pharmaceuti-

cal sector, including "Position on cloning techno-

logies and stem-cell research", the "Informed

consent procedure", “Position on the convention

on biological diversity", and "Position on clinical

trials in the developing world". In addition, GSK

refers to internationally recognized standards

including the WHO Guidelines for Good Clinical

Practice for Trials on Pharmaceutical Products

and the UN Convention on Biological Diversity.

The commitments apply throughout the com-

pany, supported by the Chief Medical Officer and

the Medical Governance Executive Committee,

who establish medical governance policies, en-

sure that medical governance systems are stan-

dardized and identify new risks. Protocols deve-

loped for clinical trials are reviewed by indepen-

dent ethical review committees made up of lay

people, medical professionals and scientists,

these committees have the power to reject or

stop a clinical trial. GSK also has a joint steering

committee made up of Harvard Stem Cell Insti-

tute and GSK scientists plus GSK managers

Anglo American

Anglo American has allocated extensive mea-

sures to ensure the respect and promotion of

human rights in society. For country-entry, mer-

gers and acquisitions activity and for new pro-

jects human rights impact assessments are un-

dertaken. Every employee is briefed on the hu-

man rights business principles during the induc-

tion process. Plus, in 2010 1,141 employees par-

ticipated in training on the Voluntary Principles

on Security and Human Rights and a further

1,267 underwent general human rights trai-

nings. In 2010, the company introduced a Group

-wide standardized complaints and grievance

procedure. The procedure operates via a web-

based system and is designed to ensure transpa-

rency in the company's handling of stakeholder

complaints. In addition, the company has the

‘SEAT’ process, which includes specific guidance

on engagement with indigenous groups as well

as formal consultation platforms.

Best practices

21 out of the 30 most advanced companies have Europe as their home region, seven are based in

North America and the other two are headquartered in Asia Pacific.

As observed under the analysis of the Human Rights global score of companies, five out of 30 compa-

nies of the top performer companies belong to the ‘Technology-Hardware’ sector, four in Europe and

one in North America. The five companies rank among the 15 top performers. Companies from the

extractives industries (seven from the Mining & Metals sector and three from the Energy sector) also

rank among the top 30 performers.

Ericsson clearly leads the panel. The company achieves an advanced performance on account of a re-

levant commitment supported by extensive measures to ensure the respect and promotion of human

rights throughout its operations. Such measures include for example socio-economic human rights

impact assessments conducted in countries considered at risk for human rights (e.g. Sudan), and inde-

pendent assessments of the implementation of the Code of Conduct in the company premises by an

external auditor.


Respect for freedom of association and the right to collective bargaining

General performance per sector

Controversies

11. “Esther Kiobel, Individually and on Behalf of Her Late Husband, Dr. Barinem Kiobel, et al., Petitioners v. Royal Dutch Petroleum Co., et al.:

http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/10-1491.htm

12. Shell accused of fuelling violence in Nigeria by paying rival militant gangs, The Guardian, 03/10/11: http://www.guardian.co.uk/theguardian

13. THE TRUE ‘TRAGEDY’ Delays and Failures in tackling oil spills in the Niger Delta, Amnesty International and the Centre for Environment, Human Rights and Development, 2011.

Royal Dutch Shell

Royal Dutch Shell is involved in recurrent allegations of human rights violations as a result of its opera-

tion in Nigeria. In October 2011, the US Supreme Court agreed to hear Kiobel v. Royal Dutch Petroleum

under the Alien Tort Statute. The plaintiffs are Nigerian residents and the defendants are Dutch, Bri-

tish, and Nigerian corporations involved in oil exploration and production. The plaintiffs argue that the

defendants were complicit in human rights violations committed by Nigerian government personnel(11).

Also in October 2011, a report compiled by Platform, a coalition of nongovernmental organisations,

and published in the UK Guardian newspaper claimed that Shell fuelled human rights abuses in Nigeria

by paying huge contracts to armed militants. The report explicitly states that Shell's close relationship

with the Nigerian military exposes the company to charges of complicity in the systematic killing and

torture of local residents, and it alleges that the company has transferred over USD 159,000 to a

group credibly linked to militia violence(12).

In November 2011, Amnesty International and the Centre for Environment, Human Rights and Develop-

ment then released a new report (‘The true tragedy - delays and failures in tackling oil spills in Nige-

ria’) that presents the consequences of oil pollution on human rights (including access to food) in the

Niger delta. The two organisations have recommended that Shell must pay at least USD 1 billion to

begin the clean-up of pollution caused by oil spills in the Niger Delta(13). The company is transparent on

these allegations.

Asia Pacific sectors performance - Respect for freedom of association and the right to collective bargaining


North America sectors performance - Respect for freedom of association and the right to collective bargaining

Europe sectors performance - Respect for freedom of association and the right to collective bargaining


5.5% of companies analysed in this

sustainability driver have been involved

in labour rights related allegations

The most exposed to criticism from stakehold-

ers on these issues are the Mining & Metals Eu-

rope and Heavy Construction Europe sectors,

followed by Mining & Metals North America and

Automobile Europe. In the Mining & Metals sec-

tors, all companies facing allegations are mining

companies.

All regions taken into account, 12 mining com-

panies have been accused by stakeholders of

union busting practices at mines, moves to re-

strain or restrict collective bargaining, intimida-

tion of union members, or have been involved in

disputes with unions. Most of these practices

were recorded in developing countries. In the

Automobile sector as well, union busting practic-

es mainly occurred in developing countries. Con-

troversies revealed in France in the Automobile

sector were linked to cases of discrimination

against unionists. Only 9% of companies in-

volved in controversies adopted corrective

measures, mainly through the resumption of

negotiations following disputes with unions.


In total, 98 sectors over the three zones are ana-

lysed with regards to their performance in dea-

ling with the Respect for freedom of association

and the right to collective bargaining. These sec-

tors are considered as the most exposed to po-

tential risks of adverse human rights impacts

directly linked to fundamental labour rights. 32

sectors have been analysed in the Asia Pacific

zone, as well as 32 in North America and 34 in

Europe.

The three graphs above also re-

veal the overall weakness regarding the

respect of fundamental labour rights

by North American companies

Compared to European and Asia Pacific sectors.

Indeed, while in the latter two regions top per-

formers obtain good scores (above 50/100), in

North America, the best sectors only achieve

limited performances. These findings are further

analysed in Section II of this study.

In Europe, the sector best perform-

ers are Forest Products & Paper and

Chemicals

The Forest Products & Paper sector is a small

sector composed of five companies only, four of

which being headquartered in Scandinavian

countries that have a higher level of awareness

and legislation on labour rights. Part of the ex-

planation for the good performance of the Forest

Products & Paper, as well as for the Chemicals

sector, might be found in the influence of the

ICEM (International Federation of Chemical,

Energy, Mine and General Workers’ Unions).

The industry-based world labour federation plays

a strong role in educating industry players on

fundamental labour rights while the forest and

chemicals industries progressively expand in

emerging countries. In that sense, these sectors

remain vulnerable to labour rights risks. One

company in the Forest Products & Paper sector

(Svenska Cellulosa) and two in the Chemicals

sector (Rhodia and Umicore) have signed an In-

ternational Framework Agreement (IFA) with

the ICEM to deal with this issue and integrate it

into their risk approach. The signature of an IFA

is considered by Vigeo as a best practice.

In the other two regions, no such best practices

are in place as no International Framework

Agreements have been signed. Although the For-

est Product & Paper sector ranks among the best

performers in the three zones, no similarities

stand out between sectors across the three re-

gions, so that no real comparison can be made.

Thus, it appears from the analysis of Vigeo’s

data on companies’ performance in the ‘Respect

for freedom of association and the right to col-

lective bargaining’, that their

management of related risks is ra-

ther determined by the regional context

(see section II) rather than conditioned

by specific sector issues


The most advanced performances


1. Rhodia* Chemicals Europe - France

2. BASF SE Chemicals Europe – Germany

3. Norske Skogindustrier A Forest Products & Paper Europe – Norway

4. Umicore SA Chemicals Europe – Belgium

5. Danone Food Europe – France

6. Norsk Hydro Mining & Metals Europe – Norway

7. Wienerberger Bausto findustrie AG Building Materials Europe – Austria

8. Vallourec Mining & Metals Europe – France

9. Arriva Travel & Tourism Europe – UK

10. Sekisui Chemical Co. Ltd. Home Construction Asia Pacific - Japan

11. BT Group PLC Telecommunications Europe – UK

12. Danske Bank Bank Europe – Denmark

13. Air France - KLM Travel & Tourism Europe - France

14. Mitsubishi Logistics Corp. Transport & Logistics Asia Pacific - Japan

15. Philips Electronics Technology - Hardware Europe - Finland

16. SKF Mechanical Components & Equipment Europe - Sweden

17. Belgacom Telecommunications Europe - Belgium

18. Electrolux B Technology-Hardware Europe - Sweden

19. Incitec Pivot Ltd. Chemicals Asia Pacific - Australia

20. Bayer Chemicals Europe - Germany

21. Telefonica Telecommunications Europe - Spain

22. Nokia OYJ Technology - Hardware Europe - Finland

23. CNP Assurances Insurance Europe - France

24. SNS Reaal N.V. Financial Services - General Europe – The Netherlands

25. Unipol Gruppo Finanziario Pref Insurance Europe - Italy

26. Omron Corp. Electric Components & Equipment Asia Pacific - Japan

27. Inditex Specialised Retail Europe - Spain

28. PSA Peugeot Citroën Automobiles Europe - France

29. Ericsson Technology-Hardware Europe - Sweden

30. Lafarge Building Materials Europe - France

Score

97/100

90/100

90/100

88/100

85/100

85/100

81/100

81/100

81/100

81/100

79/100

78/100

77/100

76/100

76/100

76/100

74/100

73/100

72/100

72/100

72/100

72/100

72/100

72/100

71/100

71/100

70/100

70/100

70/100

69/100

Over the 1359 companies analysed for ‘Respect for freedom of association and the right to collective

bargaining’, the 30 companies in the table below rank far ahead of their peers with advanced perfor-

mances

*Taken over end 2011 by Solvay


Danone

Danone demonstrates leadership with regards to

the respect for freedom of association and the

right to collective bargaining. The company has

issued a formalised and relevant commitment

and has a global agreement with the Internatio-

nal Union for Food, Farm, and Hotel Workers

(IUF) on exercising trade-unions' rights. One per-

manent representative of the IUF works at Da-

none and the company has implemented perma-

nent measures (including monitoring and regular

internal audits) to ensure the respect of freedom

of association within its operations. In addition,

IUF representatives and a representative of Da-

none visit 5 to 6 Group countries every year to

verify the local application of the agreement.

Norsk Hydro

Norsk Hydro has issued a detailed and relevant

commitment to respecting freedom of associa-

tion and the right to collective bargaining. In

March 2011, Hydro signed a global framework

agreement with four unions, aiming to secure

the development of good working relations in its

worldwide operations. In addition to risk map-

ping, internal audits and monitoring, the com-

pany and the trade unions meet annually to re-

view the principles, practices, effectiveness and

impact of the agreement. In order to monitor the

agreement local management, workers, their

representatives, health and safety representa-

tives and local trade unions are involved.

Nestlé

In October 2011, the International union for

Food, Farm, and Hotel Workers (IUF) launched

another major campaign calling on Nestlé to re-

spect workers' rights. Since then the IUF have

emphasised allegations related to the Panjang

factory in Indonesia and Kabirwala, Pakistan. The

IUF continues to allege that the company is vio-

lating workers’ right to freedom of association

and collective bargaining in a number of other

countries(14). Nestlé is only transparent on some

of these allegations. In addition, in March 2012,

the Colombian trade union SINALTRAINAL and

the European Centre for Constitutional and Hu-

man Rights filed criminal charges in Zug, Swit-

zerland against Nestlé and members of its senior

management. The defendants are accused of

being responsible, by failing to take precaution-

ary measures despite allegedly knowing about

the on-going intimidation of the trade unionist.

Nestlé has been publically transparent about the

existence of these allegations but denies liabil-

ity. Over the last few years the company has tak-

en steps to address the problem in Columbia

and has had positive feedback from stakehold-

ers (Alliance Sud)(15).

Best practices

The most striking observation is

that 26 out of the 30 most advanced

companies have Europe as their home

region

The other four being based in Asia Pacific. None of

the companies have their headquarter in North

America. This corroborates Vigeo’s findings that

the managerial performance of companies with

regard to the respect of fundamental labour rights

is strongly linked to the regional context rather

than to sectorial determinants.

Nearly half of the most advanced companies (14

out of the 30) have signed an International Frame-

work Agreement or a groupwide agreement with a

Global Union Federation on labour rights.

Seven of them rank in the top 10 and only one

(Incitec Pivot Ltd.) is based outside Europe

(Australia)

Three out of the four best perform-

ers are Chemicals companies

Part of the explanation for this good performance

might be the role played by the ICEM

(International Federation of Chemical, Energy,

Mine and General Workers’ Unions) and the specif-

ic relations built between the industry-based world

labour federation and Chemicals companies.

Controversies

14. Stop Nespressure! Tell Nestlé to respect trade union rights!http://www.iuf.org/cgi-bin/campaigns/show_campaign.cgi?c=602. Nespressure returns with mass dismissal of union members in

Indonesia/provocation and attacks on union leader in Pakistan: http://cms.iuf.org/?q=node/1144

15. Letter to Colombian trade union, Nestlé Chairman Peter Brabeck-Letmathe, 16/03/12. Nestle Chairman Hits Back At Negligence Allegations, Dow Jones Newswires, 16/03/2012. Nestlé Test

Case: Charges filed on murder of Colombian Trade Unionist, ECCHR, 06/03/12. Nestlé Colombia under scrutiny, Alliance Sud, 15/ 07/ 2011


Non-discrimination

General performance per sector

Performance for Asia Pacific sectors - Non-discrimination

Performance for North America sectors - Non-discrimination


Performance for Europe sectors - Non-discrimination

In total, 100 sectors over the three zones have

been analysed with regards to their performance

in dealing with non-discrimination. 29 sectors

have been analysed in the Asia Pacific zone, as

well as 35 in North America and 36 in Europe

It is noteworthy that the average score is limited,

with no region disclosing a score above 50/100.

This shows that the prevention of discrimina-

tions still receives marginal attention from com-

panies listed in the global stock market. Besides,

an analysis of the three graphs above corrobo-

rates Vigeo’s hypothesis on the regional deter-

minants of companies’ performance in respect

to non-discrimination issues (see Section II):

Asia Pacific companies achieve a

lower performance compared to North

America and Europe

(average score of 30/100 in the Asia Pacific

zone, compared to 40/100 and 41/100 in North

America and Europe respectively). Performances

are also more heterogeneous in Asia Pacific than

in the other two zones .

Some similarities are observed across the three

zones among the best performers and the lag-

gards.

The Chemicals sector is the best

performer in Europe, and ranks above

the panel average in Asia Pacific and

North America

Although the chemicals workforce is increasingly

white-collar (marketing, sales and technical ser-

vices personnel) and university-trained, the sec-

tor’s 24-hour production schedules and night

work mean that relatively few women hold posi-

tions as technicians, so the ratio of women (also

in management positions) remains low in the

sector. Many companies in the sector thus ap-

pear to have adopted some relevant measures to

prevent discrimination and promote diversity,

such as awareness raising, diversity training,

monitoring systems and reporting systems.


Heavy Construction companies face

great challenges in terms of discrimina-

tion, populations at risk being mainly

women and disabled workers

The sector has indeed been historically heavily

male dominated. In addition, discrimination

against employees with disabilities is another

issue as frequent accidents occur in the sector

due to the significant associated risks, some-

times leading to long-term disabilities. Compa-

nies have responsibilities to ensure the continui-

ty of employment of these workers. Heavy con-

struction companies lead the panel in the North

America region and also rank above average in

Asia Pacific and Europe. This might indicate that

companies in the sector become increasingly

aware of their sector’s specific risks of discrimi-

nation. For example, a large majority of Europe-

an construction companies have set up signifi-

cant measures to prevent discrimination, and

half of them conduct affirmative action pro-

grammes.

Aerospace and Specialised Retail

sectors achieve low performances in all

regions

This might indicate a lack of concern for the pre-

vention of discrimination practices and the pro-

motion of diversity, despite the fact that women

are generally under-represented in management

positions in both sectors (although the Special-

ised Retail sector registers the highest propor-

tion of female employment).

9% of companies analysed for

‘Non-discrimination’ have been involved

in related controversies

Vigeo has found that on this topic, companies

headquartered in the North America region re-

ceive the most attention from stakeholders.

Specialised Retail, Transport &

Logistics, the Health Care Equipment &

Services and Technology Hardware sec-

tors appear to be the most exposed to

criticism from stakeholders on discrimi-

nation issues

In the Specialised Retail North America sector,

eight companies out of 30 have faced such con-

troversies, most of them being involved in law-

suits filed over gender and disability discrimina-

tion. 13,5% of all companies facing discrimina-

tion allegations have put in place corrective

measures, for example through the specific

training of managers and supervisors on how to

engage and assist disabled employees (Gap, Spe-

cialised Retail North America) or through the

recruitment of an expert psychologist and a la-

bour economist to review employment practices

and recommend pay adjustments for female em-

ployees (Dell Inc., Technology Hardware North

America).

24 out of the 30 most advanced companies have

Europe as their home region, four are based in

North America and two are headquartered in

Asia Pacific. 11 of the most advanced companies

are French.

Linde leads the panel. Since Vigeo’s latest sector

review (October 2010), the company has signed

the German diversity charter in 2011, a corpo-

rate initiative that supports diversity in compa-

nies. In addition, a Group Works Agreement gov-

erning the reintegration of employees who were

not able to work for extended periods back into

working life has been in place since 1995. A new

Group Works Agreement on reintegration man-

agement was under discussion in 2011. The aim

is to find tailored solutions that enable individu-

als to return to work. Linde also offers people

with disabilities appropriate work opportunities

and has programmes to favour disabled employ-

ment (workshops, pre-vocational training pro-

gram) and to foster its attractiveness for women

applicants (mechanisms to facilitate a good

work/life balance



The 30 most advanced managerial performances


1. Linde AG Chemicals Europe - Germany

2. Aviva Insurance Europe - UK

3. BT Group PLC Telecommunications Europe - UK

4. Storebrand Insurance Europe – Norway

5. Air Liquide Chemicals Europe – France

6. Mitsubishi Corp. Industrial Goods & Ser-vices Asia Pacific - Japan

7. Rhodia* Chemicals Europe – France

8. E.ON AG Electric & Gas Utilities Europe – Germany

9. Carrefour Supermarkets Europe – France

10. PSA Peugeot Citroën Automobiles Europe – France

11. Merck & Co. Inc. Pharmaceuticals & Bio-technology North America – USA

12. Nokia OYJ Technology-Hardware Europe – Finland

13. BNP Paribas Banks Europe – France

14. Irish Life & Permanent Insurance Europe - Ireland

15. Consolidated Edison Inc. Electric & Gas Utilities North America - USA

16. RWE AG Electric & Gas Utilities Europe – Germany

17. TF1 Broadcasting & Advertising Europe – France

18. Sodexo SA Hotel, Leisure Goods & Services Europe – France

19. Kao Corp. Luxury Goods & Cosmetics Asia Pacific – Japan

20. Abbott Laboratories Pharmaceuticals & Bio-technology North America – USA

21. Umicore SA Chemicals Europe – Belgium

22. LVMH Moet Hennessy Luxury Goods & Cosmetics Europe – France

23. Christian Dior Luxury Goods & Cosmetics Europe – France

24. Philips Electronics Technology-Hardware Europe – The Nether-lands

25. Svenska Handelsbanken A Banks Europe - Sweden

26. Bakinter SA Banks Europe - Spain

27. Michelin Automobiles Europe - France

28. France Telecom Telecommunications Europe – France

29. Serco GRP Business Support Services Europe – UK

30. Wells Fargo & Co. Banks North America – USA

Score

90/100

86/100

86/100

84/100

83/100

83/100

82/100

81/100

81/100

80/100

80/100

79/100

78/100

78/100

77/100

76/100

76/100

76/100

76/100

76/100

75/100

75/100

75/100

75/100

74/100

73/100

73/100

73/100

73/100

73/100

Over the 1479 companies analysed for non-discrimination, the 30 companies in the table below rank

far ahead of their peers with advanced performances.


Controversies

16. 'Breathtaking' Novartis award a wake-up call, Business Insurance, 23/05/10. Plaintiffs and Novartis Pharmaceuticals Corporation, a US subsidiary of Novartis AG, agree to resolve all gender discrimination claims associated with class action, Novartis Press Release, 14/07/10

PSA Peugeot Citroën

PSA Peugeot Citroën has issued a formalised and

highly relevant commitment to non-discrimination.

In 2010, the company updated its Global Frame-

work Agreement, which includes a commitment to

non-discrimination. In addition, specific diversity

agreements have been signed in several countries

with trade unions or public authorities.

For example, in January 2010, the group signed

an agreement with five French trade unions on

retaining and motivating “seniors”, defined as em-

ployees with at least 30 years of professional ex-

perience. The agreement is designed to ensure

that employees and job seekers at both ends of

the age spectrum are included in the workplace.

Equal opportunities targets are set by the Group

and these include hiring at least the same share of

women as men applicants to new positions .

Aviva

Aviva has implemented significant measures to

prevent discrimination. This includes the online,

interactive tool to raise awareness about diversity

among its employees (available in all Aviva Eu-

rope’s market languages). This tool presents eve-

ryday work scenarios to help people better under-

stand the importance of diversity for business and

for individuals.

Training on equal opportunities is also reported to

take place for managers. The company has affirm-

ative action programmes, including the Aviva

Women’s Network and Aviva Pride (which is a UK

employee network for lesbian, gay, bisexual and

transgender employees), African American Net-

work, the Aviva Pride Network, an Inclusion Infu-

sion Network, a Women’s Network and a Young

Professional’s Network (all in the US). In addition,

an agreement was signed in France with the aim

of facilitating employment for people with disabili-

ties (with the goal of reaching 3% disabled workers

in the French workforce) and in 2010, Aviva

France achieved its disability recruitment targets.

Novartis

In May 2010, a US jury concluded that Novartis

should pay USD 250m in punitive damages for

discriminating against thousands of female sales

representatives over pay, promotion and pregnan-

cy between 2002 and 2007.

The class action covered approximately 5,600 em-

ployees. In July 2010, the company and the attor-

ney announced an amicable end to their litigation,

and this settlement was approved in November

2010. Novartis reported transparently on the exis-

tence of this case and took significant corrective

actions to address it. These measures included

back pay and compensatory damages (amounting

to USD 152.5m over 3 years), hiring an external

specialist to help identify and remedy unjustified

gender disparities, revising its sexual harassment

policy and training programme, revising its perfor-

mance management process to ensure fairness

and further strengthening its complaints process(16).

Best practices


PREVENTION OF SOCIAL DUMPING

This section will consider Vigeo’s findings regarding the way enterprises manage human rights issues

along their supply chain. Vigeo considers that the active recognition of the respect of human rights for

the selection of suppliers and the purchasing policy is decisive leverage for companies to demonstrate

their contribution to the prevention of social dumping.

868 companies, from the three regions (Europe, North America and Asia Pacific), have been analysed

for the Integration of social factors in the supply chain.

Human Rights in the Supply Chain score for the different regions

General regional performance

Europe and North America achieve limited (over

30/100, under 49/100) average company

scores, while the Asia Pacific zone discloses a

substandard average performance (under

30/100).

European companies have the best average

scores (42/100), and North American average

performance is in the middle (33/100). Compa-

nies headquartered in Asia Pacific average the

most limited performance (27/100).

Average score per zone—Human Rights in the supply chain

Managerial analysis: leadership & implementation

This sub-section will analyse Vigeo’s findings

regarding the managerial approach per region:

Europe, North America and Asia Pacific .

European companies’ are the clear

leaders for both companies’ average

Leadership (44/100) and Implementa-

tion (29/100) scores

This conclusion echoes Vigeo’s findings for the

three human rights drivers ‘Respect for human

rights standards and prevention of violations’,

‘Respect for freedom of association and the right

to collective bargaining’ and ‘Non-

discrimination’, for which European companies

are also the best performers.


Vigeo’s methodology assesses the level of com-

panies’ supply chain responsible management

through the analysis of measures implemented

to include social factors in their supply chain

and by identifying whether companies conduct

tangible, independent and thorough social au-

dits of their suppliers as well as the coverage of

these audits.

Vigeo uses the following rating scale to measure

companies’ level of implementation of measures

to improve their supply chain management:

0-29: Questionable

30-49: Partially efficient

50-64: Efficient

65-100: Highly efficient

The majority - 63% of the compa-

nies under review - have put in place

very limited means to include social fac-

tors in their supply chain

Level of supply chain due diligence (implementation of measures)

For all three regions, average scores obtained in

terms of Leadership (policies) are higher than

those disclosed on the aspect of measures in

place (Implementation). Asia Pacific companies

obtained low scores in both angles. On the other

hand, companies in the European and North

American regions achieve limited performances

in Leadership (with respective scores 44/100

and 35/100), but scores obtained in Implemen-

tation are substandard (29/100 and 18/100).

However, some top performers achieve very

good scores on account of visible, complete and

formalised commitments, supported by senior

management and backed by extensive mea-

sures. This is the case for example of Philips

Electronics (Technology-Hardware Europe)

and Puma (Specialised Retail Europe).

The recently updated OECD Guidelines for Multi-

national Enterprises make recommendations on

due diligence and responsible supply chain ma-

nagement. The United Nations Guiding Principles

also provide for enterprises to conduct due dili-

gence across their value chains by “identifying

general areas where the risk of adverse human

rights impacts is more significant”, [including

when] due to certain suppliers’ operating con-

text”(17). The very low average scores obtained in

Implementation by companies in the three re-

gions highlights that, although companies begin

to include these recommendations in their poli-

cies, these are not yet translated into sufficiently

concrete measures.

17. “Report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises, John Ruggie – Guiding Principles on Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework”, March 2011, p.16

Average performance for Leadership and Implementation per

region—Human Rights in the supply chain

Level of Implementation—Human Rights in the supply chain


Vigeo also looks at the results of a company’s

policy and the corrective measures it reports to

be in place. Under the sustainability driver Inte-

gration of social factors in the supply chain, re-

sults are analysed through two angles: the share

of corrective measures taken by a company

when problems are uncovered and the in-

volvement of suppliers in controversies. The lat-

ter will be assessed in the following sub-section.

The share of corrective measures taken by a

company after problems were uncovered within

the supply chain is linked to the company’s level

of due diligence and in particular the conduct of

social audits.

When looking at the 868 companies under re-

view, it appears that only:

12% report on the share of correc-

tive measures taken after problems

were uncovered

Thus, the great majority (88%) do not provide

any information on such measures or simply

state they do not monitor this type of data. 5%

report that only a minor share of social problems

uncovered were addressed by corrective mea-

sures, 4,5% that a significant share were addres-

sed by corrective measures and only 2,5% of the

companies under review have taken corrective

measures to address all the major social pro-

blems uncovered in their supply chain. Inte-

restingly, 40% of these companies operate in the

Technology-Hardware sector, either in the Eu-

rope, North America or Asia Pacific region

Problems uncovered in the supply chain and corrective measures

In comparison, only 20% of the companies did

put in place efficient (8%) or very efficient means

(12%). Very efficient means include suppliers’

questionnaires, specific support offered to sup-

pliers, the insertion of social issues into contrac-

tual clauses and the training of employees in

charge of purchasing, on top of conducting so-

cial audits of a large number of (key) suppliers.

Half of the companies under review (exactly 49%)

obtained a score of 0, which means that they

completely failed to show evidence of due dili-

gence across their supply chain to identify risks

of adverse human rights impacts.

Performance by sector

In total, 67 sectors over the three zones are analy-

zed with regard to their performance in integra-

ting social factors in their supply chain. These sec-

tors are considered as the most exposed to poten-

tial risks of adverse human rights impacts in their

supply chain. For the Asia Pacific zone, 18 sectors

have been analyzed, 24 for the North America re-

gion and 25 in Europe.

The three graphs above confirm the conclusions

of the regional analysis conducted in the first sec-

tion: Asia Pacific companies’ overall performance

is lower than those of European and North Ameri-

can companies, European companies achieve the

best scores. Average performances in the Asia Pa-

cific zone range from substandard to limited (from

14/100 to 43/100), while North American and Eu-

ropean sectors disclose average scores ranging

from substandard to good (from 11/100 to

51/100 for North America and from 28/100 to

59/100 for Europe).

Across the three zones, some similarities are iden-

tified among the 10 top sector performers as well

as among the 10 sector laggards.


North America sectors performance—Integration of Human Rights in the supply chain

Asia Pacific sectors performance—Integration of Human Rights in the supply chain


18. FSC (Forest Stewardship Council) Principles and Criteria: h�p://www.fsc.org/pc.html

Europe sectors performance—Integration of Human Rights in the supply chain

The Forest Products & Paper sec-

tor ranks for example among the top

five sectors across the three zones

Pulp and paper companies source an important

part of their raw material from wood suppliers

who are mainly local forest owners. Since the

beginning of the 90’s the sector has developed

certification schemes and Chain of Custody certi-

fication, which are aimed at the sustainable man-

agement of forests. These schemes include so-

cial standards and principles, in particular the

“Recognition and respect of indigenous peoples'

rights, and the Maintenance or enhancement of

long-term social and economic well-being of for-

est workers and local communities and respect

of worker’s rights in compliance with Interna-

tional Labour Organisation (ILO) conventions”(18) .

The Specialised Retail sector also

achieve good scores across the three

regions

It is the top sector performer in Europe and the

third one in North America. In Asia Pacific, Spe-

cialised Retail is the seventh best performer.

Specialised Retail companies face

great challenges in terms of integration

of social factors in their supply chain,

as retail chains demand increasingly

quicker and cheaper goods that drive

down suppliers’ working conditions

These pressures often involve trade-offs between

social and economic aspects. The growth of

quality control schemes, in particular accounting

for social performance, is becoming a driving

force in the interaction with suppliers for the

sector.


Finally, the above average performance of the

Tobacco sector can be partially explained by

the fact that for a long time relevant stakehold-

ers such as the World Health Organisation have

emphasized the sector’s exposure to child la-

bour and forced labour in tobacco fields. These

critics have put pressure on big tobacco compa-

nies to integrate social factors in the manage-

ment of their supply chain. This resulted for ex-

ample in multi-stakeholder initiatives such as the

‘Eliminating Child Labour in Tobacco-growing

(ECLT) Foundation’.

The Technology-Hardware sector

also ranks among the sector best per-

formers in the three zones, although it

is particularly at risk regarding social

issues in the supply chain.

Recent cases of human rights violations in the

supply chain were reported in the media. These

pressures, added to the involvement of most

Technology-Hardware companies in the

‘Electronic Industry Citizenship Coalition’ (EICC),

might have prompted companies to better ad-

dress human rights in their supply chain.

With regards to the sector laggards identified

across the three zones,

Oil Equipment & Services achieves

one of the lowest scores in Europe and

North America

(it is not under review in Asia Pacific). Transport

& Logistics and Financial Services Real Estate

also rank among the worst five performers for

the three regions. The low performance of the

Oil Equipment & Services highlights a complete

lack of concern for the social practices of com-

panies’ suppliers, while human rights violations

are still observed in the oil & gas exploration

and production industry, especially in deve-

loping countries. For the Transport & Logistics

and Financial Services Real Estate sectors, the

low performances suggests that both sectors

have not yet identified social factors in their

supply chain as a key issue, despite the increa-

sing use of suppliers in both sectors. Indeed, the

Real Estate sector is more and more exposed to

risks posed by unsafe and unsustainable

working conditions among contractors involved

in the construction and restoration of buildings.

The current trend in the Transport & Logistics

sector, increasingly outsourcing its services, re-

sults in improvement of cost efficiency but also

gives rise to new social issues.

Involvement of suppliers in allegations and controversies

In total, 7% of the companies under

review have suppliers which faced allega-

tions with regard to their human rights

performance.

We can assume that the occurrence of such con-

troversies and their denunciation by stakeholders

more and more prompts managers to declare their

intention to strengthen their commitments, in par-

ticular in sectors that are more exposed to allega-

tions.

Sectors encountering the most con-

troversies in its supply chain are Euro-

pean and North American Specialised Re-

tail sectors

which are also among the best performers in the

two zones. This confirms that these sectors re-

ceive greater attention from stakeholders on

supply chain topics but also that they are most at

risk, despite having robust policies and measures

in place.

In Europe, six companies were involved in related

controversies, and six also in North America.

Most controversies related to non-compliance with

international labour standards uncovered at sup-

pliers’ factories in Cambodia, China and Bangla-

desh.


The other two sectors most involved in allegations

are Beverage Europe and Mining & Metals Eu-

rope, with respectively five and four companies

facing such allegations.

Overall, the Mining & Metals European sector

achieves one of the lowest performances of the

region, while Beverage EUR ranks in the middle.

For the Mining & Metals European sector, three

out of the four companies were actually involved

in the same controversy regarding their part-

nership in the Cerrejon joint venture where the

ICEM mining affiliate, Sintracarbón, reported viola-

tions of labour rights of contractors at the mine.

As for the Beverage European sector, controver-

sies concern the four companies composing the

Beer sub-sector, Heineken, AB InBev, SABMiller and

Carlsberg that are facing strong criticism from

NGOs regarding 'Beer Girls' in Cambodia, where

young women are employed to sell beer in pubs

and restaurants and are allegedly having to put up

with violence, sexual harassment, forced drinking,

and even rape on the job.

According to Vigeo’s latest Beverage European

sector update (February 2011), NGOs are still cal-

ling on the brewers to more actively tackle this

problem and recent reports state that companies

"have again not succeeded this past year in impro-

ving the dangerous, unhealthy and potentially

mortal workplace conditions for women beer sel-

lers," reporting that urgent action was still requi-

red.


The 30 most advanced performances


1. Philips Electronics Technology-Hardware Europe – The Netherlands

2. Puma Specialised Retail Europe – Germany

3. Deutsche Telekom AG Telecommunications Europe – Germany

4. Alcatel Lucent Technology-Hardware Europe – France

5. Intel Corp. Technology-Hardware North America – USA

6. Cisco Systems Inc. Technology-Hardware North America – USA

7. BASF SE Chemicals Europe – Germany

8. William Demant Health Care Equipment & Services Europe – Denmark

9. L’Oreal Luxury Goods & Cosmetics Europe – France

10. Vodafone Group Telecommunications Europe – UK

11. Telecom Italia Telecommunications Europe – Italy

12. Svenska Cellulosa B Forest Products & Paper Europe – Sweden

13. 3M Co. Chemicals North America – USA

14. Accor Hotel, Leisure Goods & Services Europe – France

15. Starbucks Corp. Hotel, Leisure Goods & Services North America – USA

16. STMicroelectronics Technology-Hardware Europe – The Netherlands

17. Swisscom R Telecommunications Europe – Switzerland

18. Danone Food Europe – France

19. BIC Specialised Retail Europe – France

20. Akso Nobel Chemicals Europe – The Netherlands

21. Mitsubishi Corp. Industrial Goods & Services Asia Pacific – Japan

22. Seb Technology-Hardware Europe – France

23. Ets Colruyt Supermarket Europe – Belgium

24. Siemens AG Electric Components & Equipment Europe – Germany

25. LVMH Moet Hennessy Luxury Goods & Cosmetics Europe – France

26. Christian Dior Luxury Goods & Cosmetics Europe – France

27. Praxair Inc. Chemicals North America – USA

28. Toshiba Corp. Technology-Hardware Asia Pacific – Japan

29. Stora Enso Oyj Forest Products & Paper Europe – Finland

30. France Telecom Telecommunications Europe – France

Score

89/100

88/100

87/100

87/100

87/100

85/100

84/100

84/100

84/100

83/100

83/100

83/100

83/100

82/100

82/100

81/100

79/100

79/100

78/100

78/100

76/100

76/100

75/100

75/100

75/100

75/100

75/100

75/100

74/100

74/100

The table below gives an overview of the 30 most advanced companies in terms of responsible man-

agement of their supply chain .


An analysis of companies’ level of due diligence

for Human Rights issues – aiming to identify,

prevent, mitigate and account for how they ad-

dress their actual and potential adverse human

rights impacts – revealed that the majority of

companies under review put in place only limited

means to address general human rights, labour

rights and non-discrimination issues within their

own operational sphere.

This low performance at the level of imple-

mentation measures is also observed in the

way companies address the same issues

along their supply chain

This shows that the management of human

rights risks by business enterprises, be it

through their own activities or as a result of their

business relationships with other parties, still

requires further improvement regarding the ac-

tions implemented to concretely initiate and con-

duct human rights due diligence.

Sectors that achieve the best global

Human Rights performances in Europe

and North America are also those that

better address the integration of social

factors in their supply chain

In Europe, the Forest Products & Paper and the

Technology Hardware sectors are those that ap-

pear to be more aware of their responsibility to

respect human rights, both through their own

activities and in their spheres of influence. In

North America, the Luxury Goods & Cosmetics

sectors leads the panel at both levels of human

rights due diligence. Forest Products & Paper

companies in the North American zone are also

among the sectors’ top performers. However,

this link is not revealed for the Asia Pacific sec-

tors, where Transport & Logistics appear to pro-

perly address human rights issues in their own

activities whilst their performance regarding so-

cial issues in their supply chain is one of the lo-

west for the zone.

The link between companies’ Human Rights global performance and supply chain due diligence

23 out of the 30 most advanced companies have

Europe as their home region, five are based in

North America and two companies are headquar-

tered in Asia Pacific.

Seven of the top performer com-

panies belong to the ‘Technology-

Hardware’ sector

(four in Europe, two in North America and one in

Asia Pacific), which confirms the average good

ranking of this sector across the three zones.

Conversely, while the Specialised Retail sector

achieves the average best scores across the

three zones on these issues, only two compa-

nies of this sector rank among the top 30 global

performers. Lastly, the Telecommunications

sector is also well represented in the top 30 per-

formers, with five companies.

The world top 30 performers have in common a

formalised and comprehensive commitment,

even strengthened by the setting of specific tar-

gets for some companies (for example, Stora

Enso). Besides, extensive measures are in place

to train employees in charge of purchasing and

to encourage suppliers to further take into ac-

count human rights and social issues in their

management practices. These can, for example,

take the form of supplier support, inclusion of

specific clauses in contracts, and the assessment

of social risks associated with suppliers (through

self-assessment or audits).

All top performers also engage 3rd parties to

undertake social audits of their main suppli-

ers.

Finally, all companies in the top world ranking

also state that they take swift corrective

measures in cases where non-conformities are

uncovered.

Philips Electronics clearly leads the panel. The

company achieves an advanced performance on

account of a relevant commitment supported by

extensive measures to include social factors in

its supply chain. Philips Electronics also reported

that it conducts social compliance audits via in-

house auditors or an external auditing body cer-

tified by the Electronic Industry Citizenship Coa-

lition (EICC).


Puma

As a Fair Labour Association-affiliated company,

PUMA has agreed to adopt the Fair Labour Asso-

ciation Workplace Code of Conduct during the

manufacture of their products. All of the com-

pany’s suppliers must commit to comply with

PUMA’s standards in a Declaration of Principles

each year. In addition, PUMA provides support

and capacity building to suppliers, for example

by developing Human Resources management

systems (Multibrand Human Resouce Mange-

ment Systems project), or providing training on

equal opportunity (carried out in Turkey). Ano-

ther step is that PUMA and World Cat staff in

charge of purchasing are trained on PUMA.Safe

(Social Accountability and Fundamental Environ-

mental Standards). A particularly good practice

is the confidential communication channel,

which allows indirect workers to raise com-

plaints anonymously (PUMA Safe hotline). This

procedure is applied to all suppliers

L’Oreal

L’Oreal demonstrates best practice for its trans-

parency on non-conformities identified during

suppliers audits conducted in 2010. The com-

pany states that non-conformities included the

following issues: hours of work (28%), compen-

sation and benefits (26%), health and safety

(21%), child labour (9%) and other issues(16%).

4% of the audits resulted in a “denied access”

while 2% of suppliers were evaluated as “zero-

tolerance”, which means the trading relationship

is terminated. 47% were satisfactory (or needed

continuous improvement) and the remaining

47% needed immediate remedial action. In the

latter cases, corrective action plans are carried

out under supplier responsibility with L’Oreal’s

support. A following audit is conducted and if

satisfactory, commercial relations resume.

Philip Morris International

In 2010, Human Rights Watch published a report

documenting cases of child labour and forced

labour on certain farms in Kazakhstan, where

PMI is the sole purchaser of tobacco. The com-

pany responded by pledging a series of steps,

including third-party monitoring, improved trai-

ning and internal controls and a requirement

that farmers had written contracts with all of

their workers. In May 2011, Human Rights Watch

cautiously commended PMI for taking the first

steps towards addressing the problems

highlighted in the reports, but did emphasize

the need for further measures(19).

Best practices Controversies

19. “Hellish Work” Exploitation of Migrant Tobacco Workers in Kazakhstan, HRW, 2010; ‘Report Says PMI Tobacco Suppliers Used Child Laborers’ WALL STREET JOURNAL, 14/07/10; ‘Child labor on farms linked to Philip Morris; Practice is widespread in Kazakh tobacco fields, human rights group says’, International Herald Tribune, 15/07/ 2010; Kazakhstan: Philip Morris International Over-hauls Labor Protections, HRW, 09/05/11


Conclusion

Taking into account the increasing number of

international initiatives and voluntary codes, im-

proved reporting standards, enduring stakehold-

er pressure, and an increased awareness of the

business case that human rights related risks

pose a significant threat to the market value of

firms, we could expect a real transformation in

the way companies’ approach human rights is-

sues.

Vigeo has found that the conception that enter-

prises have of their social responsibility has de-

veloped in favour of human rights, as the sub-

ject becomes almost as well addressed as the

environment.

Notwithstanding these encouraging results,

companies still have a long way to go. In terms

of formalisation of objectives, concrete targets,

clear responsibilities and due diligence

(implementation of concrete measures), for in-

stance, performances remain substandard. One

of the main challenges will be to implement a

real enterprise risk management system with the

necessary tools to make these policies ‘alive’ for

the main stakeholders concerned.

In general, practices remain limited (only 2 sec-

tors above 50) and heterogeneous (some enter-

prises are well advanced, while others lag far

behind in the same sector). Human rights prac-

tices are also linked to different conceptions of

what human rights responsibilities are. For ins-

tance, there appears to be more interest for non-

discrimination than for freedom of association

and the right to collective bargaining and a weak

interest everywhere in the world for the preven-

tion of bullying and sexual harassment, for the

protection of privacy and personal data, and for

the rights of peoples to protect their cultural

heritage and their know-how.

This study demonstrates clear fin-

dings for investors who are considering

how companies are managing the risks

and opportunities associated with hu-

man rights and business operations

Vigeo has found that overall there is a weak-

ness in terms of the level of implementation

(reporting on actual steps taken) for all human

rights issues, including in the supply chain.

However, Vigeo’s findings also reveal distinc-

tions between sectors, regions and different hu-

man rights challenges. Investors should take

these differences into account when assessing

the different risks and opportunities for inves-

ting in company x or y.

For example, some industry-wide initiatives

(such as the ‘Electronic Industry Citizenship Coa-

lition – EICC – for the Technology-Hardware sec-

tor, or the Forest certification and Chain of Cus-

tody standards for the Forest Products & Paper

sector) certainly contribute to raise awareness

among companies within the sectors and pro-

gressively help them better consider and ad-

dress the potential and actual human rights im-

pacts of their activities in their risk management

systems. Investors might consider this type of

initiative not only as such but also, through the

evolution of their content and requirements, as

relevant tools guiding their investment deci-

sions.

Similarly, the degree of company collaboration

with relevant stakeholders might be another re-

levant point to take into consideration (beyond


This study was written by Under the supervision of

Fouad Benseddik

Director of Methodology

and Institutional Relationships

[email protected]

T +33 (0)1 55 82 32 73

the fact that they are involved in controversies).

Indeed, some sectors are more vulnerable to hu-

man rights violations but in the mean time have

developed or are developing a response to their

stakeholders’ scrutiny.

For example, it appears from Vigeo’s analysis

that some sectors are more prone to develop

close relations with industry-based global labour

federations. This is the case for the Forest Pro-

ducts & Paper and Chemicals sectors which, for

some companies, have developed initiatives and

best practices with the ICEM (International Fede-

ration of Chemical, Energy, Mine and General

Workers’ Unions).

In general, investors see reputation as a major

source of risk which impairs the future profitabi-

lity of the firm.

There is therefore a business case

that human rights related risks pose a

significant threat to the market value

of firms, providing a rationale for firms

to manage these kinds of risks

Accordingly, investors should price the different

risk categories that are linked to human rights

events into their views on the future profitability

of a firm, supporting the contention that

the management of CSR risks –

including human rights risks - should

be the core component of any risk ma-

nagement framework

Jordi Lesaffer

Research Manager

[email protected]

Hélène Soyer Nogueira

Analyst

[email protected]

Nikki Gwilliam

Analyst

[email protected]


Vigeo rating: the leading European expert in responsible performance

European environmental, social and governance ("ESG") leading rating agency, Vigeo measures the performance and risks of companies on six areas of social responsibility: protection of the envi-ronment, respect of human rights, valorization of human capital, community involvement, business behavior and corporate governance.

Vigeo rating offers a wide range of products and services for investors and asset managers aspiring to sustainable and responsible investments.

Our research and services, used by 150 clients and partners worldwide, facilitate:

• the integration of risk and performance factors in ESG investment process

• the creation and management of either "best in class", ethical or thematic socially responsible investment funds

• the opening of a dialogue with companies on ESG risks and shareholders’ exercise of rights


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