Banks and funds develop KPIs on human rights

A partnership of the world’s largest banks, asset managers and pension funds has been formed to establish new key performance indicators (KPIs) to assess reputational risk surrounding corporate human rights practices.

These KPIs have been developed by the Investor Responsibility Research Centre (IRRC), the Fair Labor Association (FLA) and Harvard Law School, together with private sector signatories including Calvert, Citi, Dexia and Goldman Sachs.

They have had their final draft ratified and will now be tested by nine FLA members, including Adidas, Barnes & Noble and Nike, which between them employ 1.8 million workers in 62 countries.

Projections of key future KPIs have been proposed in recent years, but this is the first attempt to create a standardised metric for labour and human rights risks.

The indicators’ coverage will be wide – 100 organisations worth more than $8tn (£5tn, €6tn) from Asia, Africa, North America and Europe have been consulted.

The KPIs are organised around policy, standards, monitoring, remediation and partnerships. They are precise, including such measurements as the percentage of suppliers where workers received training on confidential non-compliance reporting mechanisms.

They also cover the percentage of company staff that have received workplace standards compliance training, and the percentage of applicable businesses subject to an annual compliance performance review of suppliers.

Other metrics include commitment to a code of conduct, the level of independent verification of suppliers and successful remediation figures.

The FLA executive director Jorge Perez-Lopez said: “Through the FLA, affiliated companies that have participated in the KPI initiative have already committed to upholding a strict workplace code of conduct throughout their supply chains.

“The KPIs are designed to standardise assessments of company efforts to improve labour standards in their global supply chains. We look forward to working with the IRRC institute and the Harvard Project to analyse the results and finalise the KPIs.”

Aaron Bernstein, who helped to develop the project at Harvard, believed the testing was a ‘critical milestone’. He said: “The testing demonstrates commitment by major companies to measure and make any needed improvements related to their labour and human rights supply chain practices.

“When the final KPIs emerge, companies, investors and others will have a much-needed common yardstick to monitor key performance areas, from labour and human rights standards, to grievance and confidential reporting procedures, to development of remediation plans.

“This is an important next step towards providing consumers with an added level of confidence that their purchases are manufactured in facilities using improved labour and human rights metrics.”