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A Quick Q and A with Galit A. Sarfaty

A Quick Q and A with Galit A. Sarfaty

Professor Galit A. Sarfaty, who is an expert in human rights and public and private international law, joined UBC Law last July. We sat down a few weeks ago for a short Q and A about her research.

In the Spring of 2014, Professor Sarfaty will be leading a new workshop on Global Governance. This course, which has been funded by the Franklin Lew Innovation Fund, will feature about six international scholars as guest lecturers who will present their latest cutting-edge research. There will hopefully be opportunities for students to interact with these scholars outside of the classroom at dinner.

This Q and A gives a sense of the topics explored in a seminar that she taught this past fall (Law 324D – Topics in International Law and Transactions: Human Rights in International Business). This particular seminar will also be offered next year and having taken it, I would highly recommend it to anyone interested in human rights or corporate social responsibility (CSR).

EF: Many companies voluntarily publish reports on their human rights and environmental performance. Your research has explored the use of quantitative indicators to measure human rights performance. Can you explain what indicators are exactly?

GS: Indicators are second-order abstractions of statistical information, which are used to evaluate performance.  I recently wrote a paper that looked at the role of indicators in decision making. I focused on the Global Reporting Initiative (GRI) , which is a private transnational body that has produced the leading standard for corporate sustainability reporting.  The GRI guidelines are used by more than three-quarters of the Global Fortune 250 companies to report on their social, environmental and economic performance. The guidelines currently contain 79 indicators, which are mostly quantitative. To give an example, one of the GRI’s indicators measures the total hours of employee training on policies and procedures concerning human rights.  Of course, indicators are becoming increasingly important to decision making in many other contexts. Law school rankings also rely on indicators, for example.

EF:  What are the advantages and disadvantages of using indicators to measure human rights?

The usefulness of indicators lies in their simplicity. They are easy to understand. Indicators help assess compliance with standards and progress toward meeting objectives. It is also easier to compare actors when they are assigned straightforward numbers or grades.

Unfortunately, with these benefits come costs.

For one thing, indicators can promote superficial compliance. In the context of the GRI, companies are currently assigned a grade of A, B or C based simply on the number of indicators that they have disclosed on but not on their actual performance. Companies might focus on achieving the best grade, without addressing their underlying practices.

Secondly, values such as human rights may be distorted when converted into numbers.  To truly measure human rights, you need to supplement quantitative data with nuanced and qualitative information. You would want to have people on the ground – field experts who know the country, anthropologists, or lawyers – to really determine if a company’s project is violating human rights.

Having said that, I don’t think that reporting information through indicators is a bad thing. It’s simply insufficient. To get a full picture, I think you need to have a combination of quantitative and qualitative reporting.

EF: One of your current projects examines the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), which brought about significant changes to securities regulation in the United States. A provision of this Act requires companies that file with the SEC to make annual disclosures if their products use certain conflict minerals.

GS: Right … so what’s unique about this particular Dodd Frank provision (section 1502) is that it is the first mandatory regulation dealing with human rights issues for companies in the US. In fact, the provision that you mentioned (there is another relating to revenue transparency among extractive companies) applies to all publicly-traded US companies that may be manufacturing products involving conflict minerals. In contrast, GRI reporting is voluntary in most countries… certainly this is the case in Canada and the US.

EF: Apart from being mandatory, how does this Dodd-Frank requirement compare to the kinds of reports that large Multi-National Companies already publish? Is this Dodd-Frank requirement more onerous?

GS: This particular Dodd-Frank provision requires companies to conduct human rights due diligence if there is a chance that their products use certain minerals that are supporting the conflict in the Congo. They must disclose the information in their securities filings.

It’s one thing to require a company to file a GRI report (some are long, some are short and they are often not verified)…but it’s quite another thing to require a company to perform due diligence, which is much more intensive. In addition, third party auditing is required under section 1502. Finally, there is liability attached to non-compliance. That’s really a first, and it forces companies to be transparent with regard to their supply chain and ensure that their practices are not supporting the conflict in the Congo.

EF:  What is the likely effect on companies’ behaviour?

I think that there’s great potential for the law to lead to positive changes in corporate practices and corporate culture. Securities law is the point of entry into a firm’s operations and part of the culture of a company is complying with these laws.  Not only do firms have an institutional structure for securities compliance, but they also use enterprise risk management technology systems that can easily accommodate the inclusion of additional risks, such as human rights.

EF: Are Canada and other countries likely to adopt similar legislation mandating disclosure on human rights performance?

GS: In 2010, Bill C-571, which was similar to the Dodd Frank conflict minerals provision, was tabled in Parliament. There is movement in the EU to pass a similar provision, but understandably, people are waiting to see what happens in the US with the Dodd Frank rules.

Having said that, there is another Dodd-Frank rule—1504—that requires natural resource companies to disclose their payments to foreign governments.  There is much more movement on this standard in Canada. There is currently a working group of industry and NGO representatives that is meeting regularly to develop a strategy for a similar policy in Canada.

But think about the timeline of these developments. The Dodd-Frank Act was passed in 2010 and the UN Guiding Principles on Business and Human Rights, the global standard on corporate accountability, only came out in 2011.  So these are just the first steps in a larger movement, and I anticipate that there will be many developments in coming years. Everyone is holding their breath to see what happens next.

 – by Emmanuel Fung and Galit A. Sarfaty