John G. Ruggie: There is no longer a choice for businesses to act responsibly

This backlash is driven by people who feel they have been left behind or were never touched by the benefits of globalization, and who believe they carry a disproportionate burden of the disruptive social change and inequalities it has wrought. Just within Europe we see voters making their discontent clear at the polls, from France to the Czech Republic, to Germany to the United Kingdom. And this is a global phenomenon with implications far beyond Europe as well.

This backlash, and the turbulence it creates, are hardly good for business. And yet if I may be blunt: business has been part of the problem. For several decades many voices for business - and many governments as well - have focused their energies on reducing barriers to international trade and investment, enabling the development of highly complex global supply chains, yet with little to no attempt to moderate the negative impacts on people (and planet) of these dynamics. As a result, in many countries - developing and developed - we have seen falling real wages, weakening social safety nets, heightened job insecurity with often increased constraints on the ability of trade unions to defend workers' rights and interests, as well as diminishing tax revenues that pay for critical social services like education, hospitals and roads.

It is of little surprise, then, that discontent with this unbalanced system has reached a rupture point. As far back as January 1999, then UN Secretary-General Kofi Annan - my former boss - warned, in a World Economic Forum address, that unless globalization has strong social pillars it will be fragile: "vulnerable to backlash from all the 'isms' of our post-cold war world: protectionism; populism; nationalism; ethnic chauvinism; fanaticism; and terrorism." He added that if we cannot make globalization work for all, in the end it will work for none.

Today we neither need, nor should we want, any additional evidence of Annan's prophetic insight. We see it all around us. Today's business and government leaders have a critical choice before them. One choice is to continue with the practices that bear significant responsibility for the widespread upheaval we see today. The other choice is to seize upon the opportunity to reorient business practices toward creating long-term value both for the business and for society - business as part of society, rather than apart from it. In other words, a way of doing business that supports socially sustainable markets.

For anybody who believes in an open, market-based economic system, the only viable choice is the latter.

A Roadmap to Change: the UN Guiding Principles on Business and Human Rights

So where do we go from here? What opportunities exist to generate positive change? One promising scenario is sketched out in the report of the Business and Sustainable Development Commission, launched at the World Economic Forum in January 2017. The Commission includes CEOs of leading companies headquartered in China, India, Saudi Arabia, South Africa and Turkey, as well as the US and Europe.

The Commission's research suggests that achieving the UN Sustainable Development Goals (SDGs) could add $12 trillion a year to business savings and revenue in just four economic areas alone: food and agriculture, energy and materials, health and wellbeing, and sustainable cities. The Commission estimates that the economic prize from fully implementing the SDGs could be two to three times bigger, if the benefits are captured across the whole economy and are accompanied by higher labor and resource productivity. I'm not a mathematician, but those seem like big numbers.

The Commission lays out six action paths, one of which is to "Rebuild the Social Contract." Where does this rebuilding begin? Here is what the Commission says:

Treating workers with respect and paying them a decent wage would go a long way to building a more inclusive society and expanding consumer markets. Investing in their training, enabling men and women to fulfill their potential, would deliver further returns through higher labor productivity. And ensuring that the social contract extends from the formal to the informal sector, through full implementation of the UN Guiding Principles on Business and Human Rights, should be non-negotiable.

So what are these Guiding Principles, and where did they come from? I had the honor to develop them over a six year mandate as the UN Secretary-General's Special Representative for Business and Human Rights.

The Guiding Principles comprise three sets of mutually reinforcing principles: the state duty to protect against human rights abuses by third parties, including business; businesses' responsibility to respect human rights; and the need for greater access to effective remedy by people who have been adversely affected by business conduct.

First, the Guiding Principles highlight the many ways in which governments can incentivize responsible business conduct and protect people from human rights abuse by business. This requires a smart mix of policy and regulation, as well as governments making respect for human rights a key factor in deciding who they do business with, such as through procurement and export credit provision.

Second, the Guiding Principles set out a management system for companies in regards to their human rights risks, to be implemented across their operations and value chains. None of this is a niche activity for a CSR department, or an issue that can be resolved through philanthropy -- it engages all parts of the company in how business gets done.

Third, the Guiding Principles identify means through which business and governments need to ensure access to effective grievance procedures and remedy for the inevitable scenarios where people are harmed by business practices.

The UN Human Rights Council unanimously endorsed the Guiding Principles in June 2011. Described by the UN High Commissioner for Human Rights, Zeid Ra'ad Al Hussein, as "the global authoritative standard, providing a blueprint for the steps all states and businesses should take to uphold human rights," they have been widely drawn upon in standard setting by other international organizations, governments, businesses, law societies including the International Bar Association, and even FIFA, the global governing body of football. France has adopted a human rights and environmental due diligence law for its largest companies, drawing on the Guiding Principles; the UK's Modern Slavery Act tracks closely to the risk management process they set out; the Netherlands is considering similar legislation on child labor. China has advised the overseas operations of its mining industry to follow the Guiding Principles throughout the lifecycle of projects. Nearly forty governments around the world - 18 of them in them in the EU -- are developing or have already issued national action plans for implementing the Guiding Principles, including Poland, which issued its plan in May of this year.

The movement for companies to be more transparent and accountable regarding their management of human rights risks is particularly strong. Large European companies are now required to publicly disclose information about how they assess and manage environmental and social risks, including human rights risks, under the EU non-financial reporting Directive. Investors are increasingly expecting companies to provide clear information about how they are implementing the Guiding Principles. An investor coalition representing $5.3 trillion assets under management has backed the excellent UN Guiding Principles Reporting Framework. I am delighted that this framework, which is available in a Polish translation supported by Polish Institute for Human Rights and Business and Polish companies, has been recommended by the Polish Ministry of Economic Development.

Investors have good reason to be asking companies for better information about how they manage human rights risks: research shows the clear link between good human rights risk management and a company's ability to create and protect long-term value. During my mandate, the CEO of one extractive company looked into what it cost them to get things wrong with the communities that live around their mine sites. They found that they lost around $6.5 billion over two years due to these conflicts - amounting to a third of their total profit. Burgeoning research examining the impact of good treatment of supply chain workers is demonstrating clear savings to the companies where they work - in recruitment, retention, productivity and quality. And growing regulatory and reputational risks reinforce the straight-up business case for getting serious about how human rights risks are managed.

When I wrote my report to the UN Human Rights Council in 2008, half way through the six years of my mandate, I recognized that business is the major source of investment and job creation, and markets can be highly efficient means for allocating scarce resources. Businesses constitute powerful forces capable of generating economic growth, reducing poverty, and increasing demand for the rule of law, thereby contributing to the realization of a broad spectrum of human rights. Yet I underlined that markets work optimally only if they are embedded within rules, customs and institutions. Markets themselves require these to survive and thrive, while society needs them to manage the adverse effects of market dynamics and produce the public goods that markets undersupply. As I wrote then - nearly 10 years ago: "history teaches us that markets pose the greatest risks -- to society and business itself -- when their scope and power far exceed the reach of the institutional underpinnings that allow them to function smoothly and ensure their political sustainability. This is such a time and escalating charges of corporate-related human rights abuses are the canary in the coal mine, signaling that all is not well."