The added value key performance indicators (KPIs) can bring to human rights due diligence processes

New and emerging due diligence laws such as the EU’s proposed Corporate Sustainability Due Diligence Directive (CSDDD) are increasingly making it mandatory for companies to evaluate their impacts on human rights and the environment. For major multinational companies – in other words, the exact businesses that these laws apply to – this means sifting through a vast amount of data across a complex global value chain. Such laws are increasingly taking a value chain approach, which encompasses a wider range of business activities and relationships than the more traditional supply chain approach.[1]

In principle, it’s easy to measure environmental impacts like emissions, energy consumption, and water waste (although the task becomes much more difficult at scale and as impacts become more complicated). But it’s harder to measure enjoyment of human rights, impacts on local communities, and empowerment of otherwise marginalized groups.

To fully meet due diligence requirements, companies should conduct human rights impact assessment – a comprehensive process for identifying, understanding, assessing, and addressing the impacts that business activities have on the human rights of workers, local community members, and other groups. Impact assessments may be directed by the company or may be conducted by rightsholders themselves (e.g. via community-led impact assessments). Human rights impact assessments can capture issues that are missed by social audits; for example, an impact assessment may identify forced labour among informal workers and subcontractors, which audits may miss since these workers fall outside of formal definitions of employment. Additionally, audits are typically weak in identifying impacts on local communities, whereas this is a main focus of impact assessment – and the CSDDD.

The problem is that impact assessments are generally limited to particular operations, suppliers, or components in the value chain. While thorough, they are typically lengthy exercises. It’s impossible for companies to immediately conduct full assessments in every production site, for every supplier, for every piece of every product, throughout the entire value chain.

With laws like the CSDDD calling for a global due diligence approach, companies will need to implement a comprehensive due diligence system, with impact assessments triggered in particular circumstances. Less stringent measures can complement impact assessments in less risky environments.

So how can companies decide where to conduct more robust due diligence efforts, in line with legal requirements and overall responsible business conduct?

One possible approach is to develop key performance indicators (KPIs). KPIs provide the basis for a data-driven approach to human rights and due diligence requirements. And in fact, most companies already use KPIs in other areas such as sales and overall strategy. Human rights KPIs supplement more “traditional” KPIs by providing a set of rightsholder-centric metrics that have consistently been absent from corporate strategy and decision-making.

When building KPIs, companies can draw from a wide array of data sources, including:

• Workforce surveys (e.g. an app that allows workers to continually provide feedback)

• Findings from human rights impact assessments (both company and community led)

• Data points from audits

• Analysis from risk assessments

• Information from grievance/complaints mechanisms

• Concerns raised through workers’ representatives (e.g. trade unions, workers’ committees)

• Third-party sources such as Corporate Human Rights Benchmark and the Business & Human Rights Resource Centre’s trackers

For example, to evaluate the right to safe and healthy working conditions, KPIs could include:

• Number of workplace injuries, fatalities, and illnesses (e.g. those found via audits, workers’ comp claims, complaints mechanisms, etc.)

• Data breakdown on the cause of injury/illness/fatality (e.g. heavy equipment, fire, hazardous chemicals/materials)

• The number and rate of overall illnesses (e.g. respiratory disease, cancer); data to be compared to the local average to determine potential work-related causes

• Number and percentage of employees and value chain workers who report that they feel they are at real risk of workplace injury within the next two years

• Data on measures taken to prevent, address, and remedy issues in this area (e.g. preventative measures, percentage of workers trained on health and safety, frequency and duration of training)

Similar data points can be created for various human rights issues. For example:

• To evaluate fair renumeration, employers and/or their partners assess whether the average salary for different types of workers meets the living wage in their location

• As part of a consideration of broader conflict-related impacts, companies may gather quantitative data on workers who were killed or injured as a result of violence inside or outside of the workplace; sudden spikes in figures can indicate the emergence of a crisis in a particular context

• To assess gendered impacts, companies should monitor the rate of sexual harassment reported through complaints mechanisms, workforce surveys, workers’ representatives, etc.

When companies disaggregate data by geographic location, type of operation/supplier (e.g. sourcing of a particular mineral), demographics of the affected group, and other data points, patterns begin to emerge. For example, data may point to broad, cross-cutting labour rights violations in a particular operation. In such cases, the company may trigger a full human rights impact assessment, in line with its obligations under the CSDDD and other laws.

Each KPI should come with a corresponding goal. For instance, a company may set the goal to eliminate excessive working hours (an ILO indicator of forced labour), which the company defines as 55 hours per week. KPI targets may include: reduce the average number of hours worked to 40 hours per week and reduce the rate of workers who report excessive overtime to 10%. This approach is in line with the CSDDD, which requires companies to take action based on their due diligence findings.

In reality, companies may need to prioritize which human rights impacts to prioritise. The UN Guiding Principles on Business and Human Rights (which the CSDDD and similar laws are based on) call on companies to prioritise based on severity (the level of harm caused by the impact and the number of people affected) and irremediability. Through developing and measuring KPIs, companies can take a data-driven approach to such decisions. Additionally, companies can also improve remedy mechanisms by analysing data such as satisfaction with outcomes, rate of reprisals, and comfort using the mechanism.  

Lastly, KPI data can feed into the sustainability and human rights reports required by laws such as the EU Non-Financial Reporting Directive, as well as those of voluntary schemes such as the Global Reporting Initiative.

While the new laws and expectations placed on companies can seem daunting, a data-driven approach makes it easier for companies to identify problems and address them early on. Rightsholder-centric KPIs bring the needs of workers, community members, and other stakeholders to the table during company strategy-setting and decision-making. Consequently, KPIs should be a key part of any company’s toolbox.

[1] “A business enterprise’s value chain encompasses the activities that convert input into output by adding value. It includes entities with which it has a direct or indirect business relationship and which either (a) supply products or services that contribute to the enterprise’s own products or services, or (b) receive products or services from the enterprise.” See UN Office of the High Commissioner for Human Rights, “Frequently Asked Questions about the UNGPs.”