How Do Companies Monitor Stakeholder Grievances?

While responsible business conduct has long been a focus for activists, special interest groups and the socially responsible investment movement, in recent years, more stakeholders are recognizing the importance of global norms for responsible business conduct to prevent and mitigate adverse impact. Governments around the world are demanding more comprehensive disclosures from companies and their investors, creating a feedback loop that increases the focus on these topics.

Monitoring the implementation of responsible business conduct standards across a company’s own operations and along the value chain can prove difficult. For the past several decades, corporate sustainability has been shaped by a variety of global standard-setting initiatives. Many voluntary frameworks are now being incorporated into regulation at the national or regional level. Legal frameworks largely focus on disclosure, yet a growing number of regulatory initiatives also introduce sustainability due diligence obligations.

The Organization for Economic Cooperation and Development (OECD) published its first Guidelines for Multinational Enterprises (OECD Guidelines) in 1976, outlining expectations for corporate behavior in “all key areas of business responsibility, including, labor rights, environment, bribery and corruption, consumer interests, disclosure, science and technology, competition, and taxation.”[1] To date, more than 50 countries representing a large majority of global trade and investment activity have signed on to this framework.[2] In 2011, the United Nations unanimously endorsed the UN Guiding Principles on Business and Human Rights, formalizing the inclusion of Human Rights due diligence as a critical component of Responsible Business Conduct. Following the adoption of the UN Guiding Principles, a Human Rights chapter was added to the OECD Guidelines. These two frameworks provide the ideological foundation for many recently adopted global regulatory regimes.

Recent legislation in multiple jurisdictions has formally implemented the principles of responsible conduct contained in this lineage of frameworks and strengthened it with the force of law.

Due Diligence Regulations on the Rise

The most comprehensive of these efforts, the Corporate Sustainability Reporting Directive (CSRD) in the EU, explicitly refers to the OECD Guidelines and the UN Global Compact Principles (UNCG) and Guiding Principles on Human Rights (GPHR) frameworks in requiring companies to disclose detailed information about sustainability policies and performance for all material topics. Additionally, the Corporate Sustainability Due Diligence Directive (CSDDD) establishes a legal framework around the core concepts outlined by the UN and OECD, and obliges companies to address adverse impacts related to human rights and environmental issues by providing grievance mechanisms and access to remedies. CSDDD requires companies to develop their due diligence policy “in prior consultation with the company’s employees and their representatives.” The policy should be based on the concept of risk-based due diligence, or the alignment of due diligence measures with the severity and likelihood of adverse impacts caused or contributed to by the company.

ISS ESG, the responsible investment arm of ISS STOXX, has been analyzing companies’ adherence to international norms for more than 20 years, building a comprehensive and ever-evolving database for general, sector-specific, and thematic standards for responsible business conduct, as well as reported controversies. Companies can use these datasets, ESG Newsroom and Norm-Based Research, to help identify impact risks, keep abreast of stakeholder perspectives and reputational risk exposure, as well as gain insights about responsible business conduct expectations from concrete incidents.

ISS ESG tracks and assesses corporate behavior that may fail to respect international norms of business conduct through two separate but related datasets: Norm-Based Research and Newsroom. Norm-Based Research assesses potential violations of international norms, as well as how companies manage these controversies. It covers practices that have adverse impacts on society and the environment in line with established expectations for responsible business conduct. The core frameworks that underpin Norm-Based Research include the Principles of the UNGC, UN GPHR, and OECD Guidelines, although Norm-Based Research also considers additional authoritative frameworks in evaluating reported controversies. For each controversy, ISS ESG assesses the severity of impacts, the degree of verification, and the company’s remediation efforts. Additional structured information allows user to categorize controversies by theme, location, or level of corporate involvement. The graph below shows the severity level of active labor rights controversies by key theme.

Per the methodology, data is collected on corporate involvement with 39 sustainability topics across all geographic locations. Controversies are categorized into four norm areas: Human Rights, Corruption, Environment, and Labour Rights, as well as associated Key Themes. The graph below shows total Norm-Based Research controversies per norm area, including both active controversies and past involvements.

Allegations are monitored through a variety of sources, including media, industry publications, governmental and inter-governmental agencies, NGOs, and trade unions. Supported allegations of companies acting in conflict with responsible business conduct standards trigger in-depth research, involving fact-finding dialogue with the company and stakeholders, if relevant. ISS ESG seeks to validate facts, confirm the applicability of standards, and assess the company’s response to reported grievances.

Prior to the publication of research results for the most significant controversies, the company is provided with the opportunity to review and provide feedback on draft reports.

The methodology process also involves consultations with experts and field specialists (commonly representatives of state institutions, inter-governmental organizations, academia, and NGOs) to cross-check information and deepen the understanding of benchmark corporate practices. As a result of this in-depth research process, each controversy assessed under Norm-Based Research is tagged with a variety of metadata, including the companies involved, the countries in which the controversy occurred, the specific topics the controversy is related to, and a detailed summary that includes any measures the companies involved have taken to address allegations or remediate adverse impacts. Each controversy is also linked to the relevant norms and standards.

The in-depth Norm-Based Research review is triggered by supported allegations of companies acting in conflict with responsible business conduct standards, reported in media or stakeholder publications. This comprehensive monitoring of ESG controversies is carried out through ISS ESG’s ESG Newsroom, an artificial intelligence-supported service.

The full range of news articles from global sources (approximately 700,000 per day) is first processed by machine learning algorithms to identify articles that are potentially relevant to sustainability controversies. This smaller set of articles (approximately 1,300 per day) is then reviewed by ISS ESG analysts, who determine if each article is indeed relevant and then tag each one with metadata such as location, topical themes, and source information. ESG Newsroom is updated daily, and it included more than 129,000 articles published in 2023 across more than 100 themes.

This combination of artificial intelligence and human analyst review converts large volumes of unstructured global news coverage into a validated, indexed, and thereby decision-useful dataset. Norm-Based Research covers 24,000+ companies globally. As of April 8th, 2024, the research identified 7,912 active controversies and 7,604 past involvements.

Endnotes

1https://mneguidelines.oecd.org/mneguidelines/#:~:text=The%20Guidelines%20cover%20all%20key,technology%2C%20competitio n%2C%20and%20taxation.(go back)

2https://mneguidelines.oecd.org/about.htm(go back)