Introduction

Corporate boards hold ultimate responsibility for a company’s actions and are increasingly required to consider affected stakeholders. “Affected stakeholders” are those significantly impacted by a company’s operations, including vulnerable workers and communities. International frameworks like the UN Guiding Principles on Business and Human Rights (UNGPs) underline the importance of prioritising these groups. Boards must exercise oversight to ensure policies and mechanisms effectively address stakeholders’ needs and mitigate human rights risks.

Board composition, competencies and practices

Boards require diverse skills and expertise to address human rights and environmental challenges. Incorporating perspectives of affected stakeholders enhances decision-making and risk management. Diversity in thought, expertise, and experience ensures boards are prepared for emerging issues in global operations and supply chains. For instance, the European Commission’s Corporate Sustainability Due Diligence Directive underscores the necessity of board-level engagement with these issues.

Structures vary, with some boards forming dedicated ESG committees, while others embed these responsibilities across existing committees. Mechanisms such as advisory boards and expert briefings can augment a board’s capacity to address human rights concerns. Regular site visits to affected areas also help board members understand local contexts and stakeholder concerns firsthand.

Why affected stakeholders are material to any board

Stakeholder capitalism prioritises affected stakeholders who are significantly impacted by business activities, including the most vulnerable. The UNGPs and OECD guidelines provide frameworks for companies to focus on these groups. Examples include forced labour mitigation in supply chains and fair treatment of outsourced workers. Human rights defenders (HRDs) play a crucial role in stakeholder consultation, providing expertise and advocacy.

Regulatory pressures are rising globally. Legislation such as the UK Modern Slavery Act and the EU Non-Financial Reporting Directive mandates transparency in addressing human rights and environmental risks. Boards must align their strategies to meet these requirements while ensuring stakeholder voices are considered in decision-making.

Research findings

Interviews with corporate leaders revealed that while boards are becoming more engaged with human rights, significant gaps in knowledge and practices remain. Effective tools include grievance mechanisms, whistle-blower protections, and stakeholder councils, which ensure stakeholder concerns are heard. Boards should evaluate these mechanisms for accessibility and effectiveness regularly.

Some boards are already taking proactive steps. For instance, Adidas established a stakeholder relations guideline, and Total implemented a Human Rights Coordination Committee. Such practices ensure transparency and enhance stakeholder trust. Site visits and peer learning opportunities further equip boards to understand operational risks and stakeholder perspectives.

The report emphasises five key questions boards should ask themselves, such as:

• Does the company know who its affected stakeholders are?
• Are there mechanisms to address potential adverse human rights impacts?
• Does the board have the right skills, diversity, and monitoring mechanisms?

Additionally, the report recommends five steps, including identifying stakeholders, ensuring mechanisms for engagement, and monitoring progress.

Reporting and transparency

Boards are increasingly accountable for ESG performance. Frameworks like the EU Corporate Sustainability Due Diligence Directive require mandatory reporting on human rights due diligence, and public disclosure enhances investor confidence. Companies such as Ford and Unilever have adopted robust sustainability committees and reporting systems, integrating human rights into broader ESG strategies.

Key examples of reporting requirements include:

• UK Modern Slavery Act: Annual board-approved statements on forced labour risks.
• EU Non-Financial Reporting Directive: Double materiality reporting on business risks and societal impacts.
• Proactive compliance not only mitigates regulatory risks but also strengthens reputational value in a competitive market.

Conclusion

Boards must prioritise non-financial considerations, including human rights and environmental responsibilities. This involves integrating stakeholder perspectives into corporate strategies, improving diversity, and proactively preparing for emerging regulations. Mechanisms like human rights due diligence reports, whistle-blower protections, and stakeholder councils play a vital role.

To lead effectively, boards should:

• Understand affected stakeholders.
• Implement engagement mechanisms.
• Regularly monitor and disclose progress.
• Build board competencies to manage ESG challenges.

By focusing on these priorities, boards can maintain their social licence to operate, align with international standards, and foster long-term value creation.