25/01/2024
Let's talk about due diligence.
When you go to a restaurant for the first time, check the washroom. If they can't be bothered cleaning the toilet, they probably won't keep the kitchen clean either.
Likewise, when a company doesn't do HRDD (human rights due diligence), it may mean that they're not only unconcerned with human rights but also not thorough about due diligence at all. As jurisdictions across the world pass laws like the Modern Slavery Act, a legal and compliance department that's not committed to HRDD may indicate due diligence processes that aren't up to date with global trends. Furthermore, poor HRDD disclosures signal to investors that a company's directors aren't invested in environmental, social, and governance investing.
In 2023, Reuters discovered that a project backed by government agency Sport Singapore was diverting shoes, meant to be recycled, to flea markets in Indonesia. The same year, the government-backed Temasek Holdings invested in Sam Bankman-Fried's FTX, which was engaged in widespread fraud. This year, the Singtel-backed Vizzio admitted that its CEO had forged a document stating that he had a PhD from Cambridge University.
What do these three investors have in common? They're all weak in their HRDD disclosures.
A comprehensive due-diligence check should go way beyond a verification of credentials. It should account for the sources of a company's labour, the nature of its supply chains, and the potential risks that a transaction may entail. Doing HRDD well means covering all the bases when it comes to doing due diligence, and it means going beyond to manage investment risk.
If you're an investor worried about a company's risk, HRDD can be a tell-tale sign of careful compliance. And if you're a company that wants to tell its shareholders that you're committed to both risk management and human rights, it's time to commit to HRDD.
(Comment)
For public companies and large private companies, I happen to consult on HRDD. Check out my profile for my seminal human rights work in Asia.