This post was contributed by Kathy Mulvey, Executive Director of EIRIS Conflict Risk Network

Amid growing awareness of business and human rights issues, attention on the materiality of conflict-related risks is also rising. EIRIS Conflict Risk Network’s recent focus on new investments in Burma/Myanmar and our deep experience researching corporate operations in Sudan offer two distinct perspectives on corporate management of the risks associated with conflict.

Investments and operations in areas affected by conflict are inherently higher risk due to unpredictable political conditions, weak state capacity and pervasive violence. In conflict-affected areas it is more important for investors and the companies they invest in to demonstrate having robust environmental, social and governance policies and risk management systems that draw upon recognized standards and practices.

Areas affected by conflict differ significantly from stable business environments. For human rights, such areas fundamentally challenge the efforts of investors and companies to avoid contributing to or being complicit, either directly or indirectly, in violations against rights-holders. It is much more difficult to do no harm in such settings, and the failure to adhere to sound corporate responsibility practices carries the potential for heightened adverse impacts on local and wider communities as well as on investors and companies themselves.

Burma/Myanmar’s recent political reforms and economic opening postdate the 2011 adoption of the UN Guiding Principles on Business and Human Rights. The country has therefore been cast as a laboratory for implementation of the Guiding Principles. The opportunity is noteworthy, but the stakes of this experiment are high.

If corporations and investors can fulfill the responsibility to respect human rights in a country where reform is fragile and conflict is ongoing, then they can do so anywhere – and the “Respect” pillar of the “Protect, Respect, Remedy” framework is solid. On the other hand, a failure by business to uphold its responsibility in this frontier market could undermine the viability of the framework as a tool to improve corporate human rights performance.

Through desk and field research, EIRIS Conflict Risk Network has been investigating and analyzing new and prospective investment in Burma since early 2012. Two weeks ago, we launched Investment Watch: Burma/Myanmar, a new service designed to help investors make sound judgments about how companies are managing the risks related to doing business in the conflict-affected country.

Under the Responsible Investment Reporting Requirements that went into effect in May 2013, US companies making new investments of $500,000 or more in Burma/Myanmar are obligated to report on corporate actions and policies related to human rights, worker rights, the environment, anti-corruption, land use, revenue transparency and military communications.

EIRIS Conflict Risk Network has assessed the reports submitted to date. While the first year of implementation of the Reporting Requirements offers important lessons, there are significant limitations in their impact thus far. Here are some initial observations drawn from our Investment Watch: Burma/Myanmar Briefing Paper:

• Some companies may be taking an overly narrow view of the investments that are subject to reporting.
• Several of the early reports fail to provide essential information – in direct contradiction to guidance issued by the US government.
• There are gaps in the Reporting Requirements themselves, including several highlighted by EIRIS Conflict Risk Network and dozens of institutional investors and asset managers during the public comment process. (For details, see joint investor submissions coordinated by EIRIS Conflict Risk Network in October 2012 and March 2013).

Despite these limitations, the Reporting Requirements provide an innovative and valuable framework for corporate disclosures on human rights and other issues. Investors are using them as a baseline for engagement with all companies investing or considering investing in Burma/Myanmar, regardless of whether they are legally mandated to report.

Strengthening disclosure and improving corporate reporting are necessary but not sufficient means to implement the UN Guiding Principles. Investors and other stakeholders must also evaluate corporate human rights policies, ensure that they are integrated into operating procedures and assess their impact. Companies carrying out comprehensive and effective due diligence should be able to avoid complicity in human rights abuses.

EIRIS Conflict Risk Network grew out of the investor movement to avoid complicity in the genocide in Darfur. More than 20 U.S. states have enacted targeted Sudan divestment legislation and more than 60 endowments incorporate Sudan-related investment criteria.

As the crisis in Sudan continues, many investors depend on EIRIS Conflict Risk Network’s quarterly Sudan Company Report to help them comply with laws or policies requiring divestment from Sudan. Others use the report as a resource for individual or collaborative engagements with companies, or for tailored individual analysis on their portfolio’s exposure to conflict risk in Sudan.

EIRIS Conflict Risk Network has persuaded numerous corporations to undertake significant humanitarian initiatives that benefit marginalized populations in Sudan and/or to engage with the Government of Sudan on humanitarian issues, thereby avoiding divestment measures under US legislation. Here are a couple of examples:

• In December 2010, one company confirmed it was implementing a multi-year humanitarian program consisting of projects in the educational sector. The purpose of the project was to improve local schools and to increase equal access to primary education for children in the Mundi West County area of South Sudan. In August 2013, the company and its partners opened a primary school. The school is fully in use, and the company’s local partners report that it has been unaffected by the recent outbreak of violence in the Republic of South Sudan. The new school was reportedly designed to meet the standards set by the Ministry of Education of South Sudan, which has taken responsibility for it.

• Another company recently reported to EIRIS Conflict Risk Network on its participation in Water for All, which funds humanitarian projects targeting marginalized populations. One project focuses on digging wells and tapping water springs in order to provide local populations with access to fresh drinking water. In Sudan, Water for All is working to provide 12,500 residents in the Red Sea state with access to clean drinking water. Another project initiated by international and domestic partners is designed to provide greater access to clean water in South Sudan’s Jonglei state.

Such initiatives alone cannot solve the problems associated with longstanding conflict in places like Sudan and Burma/Myanmar. But investor engagement with corporations over how they can not only avoid complicity in mass atrocities but also contribute to peace and stability is a critical step toward fulfilling the responsibility to respect human rights in conflict settings.

Kathy Mulvey

Kathy Mulvey is Executive Director of EIRIS Conflict Risk Network, which unites institutional investors and related stakeholders encouraging corporations to respect human rights and to take steps that support peace and stability in areas affected by genocide and mass atrocities. The network provides timely, reliable and focused information on corporations doing business in Sudan and Burma/Myanmar to a subscribing membership including pension funds, some of the world’s largest asset management firms, government entities, university endowments, foundations, financial service providers and socially responsible investment firms.