Flagging human rights risk with RepRisk’s Due Diligence Scores

# July 2024

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Stakeholders navigating the complex landscape of business conduct risk require more nuanced data and metrics to evaluate corporate behavior, such as poor employment conditions, land grabbing, and human trafficking. Enter RepRisk’s Due Diligence Scores—the industry’s first thematic scores covering 200+ individual risk factors. These scores disaggregate ESG risk into specific and comparable metrics, measured on a scale of 0 (low risk) to 100 (extreme risk), providing decision-makers with robust signals that flag high-risk companies. The scores can also support compliance with regulations, including the Modern Slavery Acts in the UK, US, and Australia.

# Disaggregated ESG risk: a deeper dive

Traditional ESG scores aggregate risk across various factors, potentially masking risks that regulators are now demanding greater awareness of across both operations and supply chains. RepRisk’s Due Diligence Scores enable stakeholders to pinpoint precise areas of risk. Within the S&P 500®, for example, companies exhibit varying degrees of risk across the E, S, and G pillars, as we revealed in an earlier report. This variability underscores the importance of examining individual pillar scores and delving deeper to identify where a company faces greater or lesser risk.

# Case study: human rights risk in a selection of companies

To illustrate the efficacy of a more granular approach, consider the human rights Due Diligence Scores of several anonymized companies within the S&P 500®, as captured in RepRisk’s database. RepRisk’s human rights package includes 29 individual risk factors, selected for their alignment with leading frameworks and key international standards. This selection was refined through consultation with RepRisk’s global research team and a detailed analysis of nearly two decades worth of best-in-class ESG risk data, identifying factors that frequently co-occur in relation to human rights issues.

# The power of granular data

RepRisk’s Due Diligence Scores provide an unprecedented level of precision in measuring risk levels across factors in the human rights package, making it easier for stakeholders to focus on the most relevant ones. By dissecting risk into specific components, companies and investors can make more informed decisions, which is particularly valuable when individual risk factors such as child labor, forced labor, and discrimination in employment can significantly impact a company's bottom line.

# Measuring human rights risk across 29 Due Diligence Scores

How to read the chart: This chart shows the varying levels of risk exposure for a selection of S&P 500® companies across 29 individual risk scores in the Due Diligence Scores human rights package. Each vertical of dots represents a single company. By hovering over a dot in the chart, you can see the individual Due Diligence Scores for a company. Howevering over a factor in the legend highlights that specific factor's scores across all the companies in the chart.

Companies in the chart above demonstrate varying levels of risk across the 29 factors. For example, a large multi-national company in the financial services sector has high-risk exposure to issues of racism/racial inequality and social discrimination, but low-risk exposure to issues related to salaries and benefits. Another large company in the aviation industry has extreme-risk exposure associated with products (health and environmental issues), but low-risk exposure to issues related to both privacy and cyberattacks. Understanding the nuances of these different risk levels ensures that stakeholders can measure what matters most to them based on their business goals, internal policies, and corporate values. Increasingly, it also means that decision-makers have the right data to align with incoming regulations to identify risk about the impact companies are having on people and planet.

# Due Diligence Scores for Modern Slavery Acts

Modern Slavery Acts in the UK, US, and Australia require companies to report on the measures they are taking to prevent slavery and human trafficking across their value chains. By utilizing RepRisk’s Modern Slavery Acts Due Diligence Scores package comprised of 10 individual scores, companies can effectively identify suppliers at risk of modern slavery issues, such as forced labor, human trafficking, or child labor. Identifying specific levels of risk exposure across the Modern Slavery Acts package allows companies to:

1. Identify high-risk areas: Due Diligence Scores provide detailed insights into specific risk factors like forced labor and child labor. By identifying high-risk areas, companies and stakeholders can focus their efforts on mitigating these risks in support of compliance with Modern Slavery Acts.

2. Target audits and inspections: With precise risk scores, companies can prioritize audits and inspections of suppliers and operations that exhibit medium to extreme risk levels. This targeted approach ensures more effective use of resources.

3. Develop and implement action plans: Companies can develop tailored action plans to address identified risks. For instance, if a company shows high risk in forced labor, it can implement specific measures such as supplier training programs, stricter contract clauses, and enhanced monitoring mechanisms.

4. Report with transparency: Detailed risk scores provide a robust basis for transparent reporting as required by Modern Slavery Acts. Companies can demonstrate their due diligence processes, show how they are addressing specific risks, and provide evidence of continuous monitoring and improvement.

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The Report is not intended to be relied upon as advice or recommendation for any particular investment strategy. RepRisk expressly disclaims liability for any loss or damages. The methodology used to determine the Due Diligence Scores is proprietary and RepRisk has sole discretion in its application.