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Is Your Company’s Money Where Its Mouth Is?

November 17, 2022

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As corporate human rights commitments have proliferated, companies are increasingly moving beyond their most salient human rights risks—including supply chain labor rights and product misuse—to understand ways in which they may be inadvertently impacting  human rights in other parts of their value chain.

One priority area for consideration is corporate spending. While company values and commitments are often integrated into core parts of business management, downstream spending on areas such as lobbying and marketing may be overlooked. For example, a company that stands for diversity and racial equality may risk compromising its values by funding political action committees (PACs) that support racial gerrymandering and weaken the voting power of minority communities. Similarly, a company investing in climate solutions may risk diluting its actions if it is simultaneously advertising with platforms that spread  distrust for climate science or other forms of misinformation.

Now more than ever, disparities in corporate spending and human rights commitments are subject to external scrutiny and activism. Related news headlines  are influencing corporate ESG benchmarking scores. InfluenceMap (which targets investors), ClimateVoice (which targets employees), and ProgressiveShopper (which targets customers) are also paying attention to the direction and destination of corporate money flow. According to the Harvard Business Review, “corporations need to implement systematic and principled reforms to avoid future gaffes and controversies, reduce their involvement in time-wasting and costly political spending, and better align their lobbying and donations with their stated values.”

Consistency is important for the credibility of human rights commitments, targets and actions, as well as building trust with internal and external stakeholders alike.  To comprehensively integrate respect for human rights across its value chain, it is critical for companies to ask themselves: what is the company’s corporate  spending actually funding?

Based on our work with clients across a range of sectors, here are five steps companies can take to address risks in corporate spending:

1) BREAK UP INTERNAL INFORMATION SILOS

One key challenge when it comes to assessing human rights impacts associated with corporate spending is that human rights teams and advertising or government affairs teams may not regularly engage and/or coordinate their activities. The first step in addressing potential inconsistencies is breaking down internal information silos and ensuring that all key business units are aware of the company’s human rights commitments, particularly within units responsible for the downstream value chain, such as external affairs, political affairs, marketing, philanthropy, and advertising.

This may seem like a daunting task, but not an insurmountable one. Thanks to important collaboration between advertising and human rights teams, for example, Google is working to demonetize searches of tragic events showcasing human rights violations and content that subverts human rights goals through its Dangerous or Derogatory Content Policy. In addition, Google has banned ads on climate misinformation as it conflicts with its sustainability commitments.

Google’s leadership in this area highlights the importance of starting conversations across business units that will lead to an iterative, solution-oriented process to address potential inconsistencies between human rights and corporate action.

2) MAP YOUR SPENDING FOOTPRINT

In advance of any targeted human rights due diligence, companies can start by comprehensively mapping their corporate spending footprint. Companies should identify where downstream activities may not match with their human rights and climate commitments at a high level.

To do so, companies should work cross-functionally and with local market teams to compile a detailed list of the recipients of corporate spending globally, such as political campaigns, lobbyists, lobbying organizations, and advertisers. The lack of visibility and complexity of an organization’s corporate spending and political activity can be one of the key barriers to effectively managing human rights and reputational risks, particularly for multinational corporations where spending may be driven locally.  The mapping should surface potential red flags or inconsistencies at a high level, based on factors such as location and focus or issue area.

Article One has worked with multiple clients to map their downstream spending footprint. In doing so, many clients recognize inconsistencies that may not have been top of mind.

3) CONDUCT DOWNSTREAM DUE DILIGENCE

Once companies understand what spending is taking place, the next step is to assess actual and potential human rights risks associated with the spending. Based on the findings of the mapping exercise, companies can carry out deeper due diligence on recipients of corporate spending with the objective of understanding if those recipients have human rights and climate records that align with the company’s commitments and values. Due diligence on third-party organizations should also assess the governance policies and processes in place to control their activities, or lack thereof.  In addition to human rights more broadly, the due diligence process can consider how corporate spending may affect the rights of specific vulnerable groups, such as women’s rights, LGBTQ+ rights and democratic values or the right to a clean, healthy and sustainable environment, for example.

Companies can embed a preventative approach to human rights due diligence in corporate spending decision processes going forward. Teams can create simple tools such as a human rights due diligence checklist or a short questionnaire to review potential funding opportunities in advance of decisions.

Intel, for example, has taken a leadership approach by publicly committing to identify instances of misalignment between its core values and its political donations and “take action to realign future funding decisions.

4) ENSURE CONSISTENT INTEGRATION OF HUMAN RIGHTS COMMITMENTS

In the aftermath of the January 6 insurrection in the US, some companies temporarily paused political giving to candidates’ campaigns who voted to overturn the 2020 presidential election results. However, many companies have gone back to “business as usual.” There is little transparency about why these decisions were reversed, but we have seen a few market leaders recognize the importance of having long-term policies that ensure human rights compliance with political giving. IBM, Hewlett Packard, and Charles Schwab have all adopted an integrated approach to ensuring that their external political spending does not negatively impact democratic processes.

Companies should commit at a senior level to only funding individuals, organizations, or platforms that align with the company’s human rights commitments. Indeed, the 2021 Corporate Political Accountability-Zicklin Index found that there is a pronounced trend towards more board oversight over political spending, noting that this should “shape a foundation for boards to expand their oversight to address the broader impact of company spending.” Beyond board oversight, there is a need to ensure  that committees are established to evaluate and approve donations and profit-oriented transactions through a decision-making framework or set of broad principles that integrate a human rights lens. This approach could also reference industry standards such as the Model Code of Conduct for Political Spending.

Target, for example, established a board-level committee to oversee political donations for candidates that ensure their “respect for democratic election process” and uphold Target’s stated values of “anti-racism, diversity and inclusion.”

5) INSPIRE OTHERS TO FOLLOW IN YOUR FOOTSTEPS

Companies that take a proactive approach to ensuring their corporate spending doesn’t undermine their public commitments are also in position to influence others to do the same.  For example, as members of trade associations, companies can ensure that political candidates who are anti-LGBTQ+ or working against climate goals do not receive the association’s support.

Due to increasing shareholder concern over the reputational risks of corporate political spending, many companies are voluntarily disclosing more information about where their money is going. However, there are opportunities to scale up transparency and increase trust with investors, civil society, employees and the general public.  The OECD recently published guidelines pushing for investors to improve disclosure requirements for political spending, meaning that standards are being pushed in this direction and it is always better to get ahead of the curve.

To learn more about integrating human rights in your company’s corporate spending, contact the Article One team: hello@articleoneadvisors.com.