On business case for human rights

The business case for human rights is grounded in the rationale that respecting human rights aligns with corporations’ self-interest (Aras et al., 2016). At its core, this argument posits that companies have inherent incentives to integrate human rights considerations into their operations – even in the absence of binding legal obligations – because doing so safeguards their long-term profitability and sustainability. Within this context, human rights compliance emerges not merely as an ethical obligation but as a strategic imperative (Greathead, 2002; Laszlo, 2008; World Resources Institute, 2007).

The claim that human rights compliance aligns with business interests can be validated by extensive empirical research examining the relationship between CSR and corporate financial performance. Unlike human rights studies, which have not strongly focused on their connection to economics, there exists a substantial body of empirical research analysing the relationship between CSR and corporate financial performance. Notably, research in CSR and related disciplines has formed the foundation for the most authoritative evidence-based works analysing the positive business impact of human rights compliance – works that constitute the analytical core of this study’s business case for human rights (Bağlayan et al., 2018; Marslev, 2020).

Although CSR and business and human rights frameworks differ conceptually (Wettstein, 2012a, 2020) – the former emphasising voluntary initiatives and the latter grounded in universal legal standards – both recognise that corporate responsibilities extend beyond shareholder interests. Both CSR initiatives and compliance with the UNGPs respond to societal expectations regarding appropriate corporate conduct. In this sense, their impact on corporate interests is comparable. Therefore, when analysing the business case for human rights respect, we must consider studies examining CSR effectiveness and its correlation with corporate performance. The existing body of CSR research provides valuable insights into how human rights considerations might similarly affect business outcomes, despite the conceptual distinctions between these fields.

Since the early 1970s, hundreds of studies have examined the relationship between corporate social performance and corporate financial performance (Margolis and Walsh, 2001). These studies have subsequently undergone multiple meta-analyses, generally concluding that companies can indeed be socially responsible while remaining profitable (Lu et al., 2014; Orlitzky et al., 2003; Van Beurden and Gössling, 2008; Wang et al., 2016). The analysis of this research body also reveals specific observable mechanisms that underlie this correlation between responsible conduct and financial success. CSR initiatives can potentially enhance corporate financial performance through at least four distinct mechanisms.

First, they mitigate operational risks and reputational damage. While quantifying the precise impact of reputation on profitability remains methodologically challenging (Chun, 2005), reputation undeniably constitutes one of a company’s most valuable assets (Jackson, 2010). Empirical studies confirm that disclosures of corporate irresponsibility generate financial risks (Kölbel et al., 2017), whereas positive CSR performance reduces such exposure (Chollet and Sandwidi, 2018; Sassen et al., 2016). Socially responsible policies essentially function as an insurance policy against reputational risks (Bae et al., 2020; Godfrey et al., 2009; Williams and Barrett, 2000). Although the financial returns on CSR investments may not be substantial in normal circumstances, they prove particularly valuable during crisis situations (Kang et al., 2016).

Second, CSR activities foster consumer trust and loyalty, thereby improving sales performance (Du et al., 2007; Marin et al., 2009). Research demonstrates that consumers not only appreciate socially responsible products but actively prefer them (Brown and Dacin, 1997; Sen et al., 2016), attributing greater financial value to such offerings (Hainmueller et al., 2015) and frequently exhibiting willingness to pay premium prices (Trudel and Cotte, 2009). The significance consumers attach to human rights is further corroborated by content analysis of over 1,400 boycott-related posts on Twitter (now platform X), which revealed that human rights concerns represent the primary motivation for consumer boycotts, appearing in 35% of analysed messages (Makarem and Jae, 2016).

Third, CSR initiatives and adherence to human rights standards facilitate capital acquisition and create expanded opportunities for collaboration with public authorities. Companies engaged in international trade and foreign investments frequently rely on their home governments to access export credits, investment guarantees and other support services (such as trade missions) that assist their global market operations (Bağlayan et al., 2018). Governments increasingly leverage economic influence as a mechanism to promote human rights, along with environmental and labour standards, by conditioning economic support on corporate performance in these areas.

Given the capacity demonstrated by CSR initiatives to mitigate business risks, investments in socially responsible companies are increasingly perceived as lower-risk propositions (Cheng et al., 2014). Consequently, these enterprises enjoy enhanced access to capital through more favourable financing terms and greater investor appeal (La Rosa et al., 2018). Empirical research substantiates that socially responsible investing yields measurable benefits (Friede et al., 2015), with surveys revealing human rights compliance as investors’ primary social consideration (Natixis Investment Managers, 2019).

Fourth, CSR initiatives enhance companies’ ability to attract and retain more talented, motivated and productive employees. Research confirms a positive correlation between CSR performance and multiple workforce benefits, including higher employee job satisfaction, improved work performance and stronger organisational loyalty (Barakat et al., 2016; Caligiuri et al., 2013; Glavas, 2016; Glavas and Kelley, 2014; Rupp et al., 2018). Moreover, CSR implementation directly impacts talent management outcomes by reducing turnover rates while increasing a company’s attractiveness to prospective hires (Greening and Turban, 2000; Jones, 2010).

In conclusion, the business case for human rights demonstrates both positive and negative dimensions. The positive dimension reflects the potential benefits derived from proactive measures that promote human rights while mitigating and preventing associated risks. Conversely, the negative dimension represents the tangible losses incurred by companies that fail to adequately manage human rights risks. This dual nature underscores that human rights compliance functions not merely as an ethical imperative but as a strategic business consideration – where proactive management yields competitive advantages, while negligence results in measurable financial and reputational consequences.

Empirical research reveals that the negative dimension – specifically the potential losses stemming from poor human rights risk management – exerts the most direct influence on corporate performance (Mohr and Webb, 2005; Price and Sun, 2017; Van der Laan et al., 2008). This occurs because the financial benefits of socially responsible policies demonstrate an asymmetric pattern: market penalties for irresponsible corporate behaviour significantly outweigh the rewards for exemplary human rights practices.

The data show a notable paradigm shift in market reactions. As societal expectations for corporate responsibility have intensified, markets have developed disproportionately stronger negative responses to human rights violations compared to the relatively diminishing positive responses to commendable practices. This trend is particularly evident in environmental responsibility, where the same asymmetric pattern emerges (Flammer, 2013).

Consequently, companies face a compelling primary incentive to mitigate negative human rights impacts rather than focusing efforts on generating positive ones. The risk calculus clearly favours harm prevention over benefit creation, as the costs of failure substantially exceed the potential gains from excellence in human rights performance.

The development of the UNGPs likewise emphasised this negative dimension when articulating the business rationale for human rights compliance. As Professor John Ruggie, then UN Special Representative, explained in his 2008 report introducing the ‘Protect, Respect and Remedy’ framework: ‘Companies that fail to meet their responsibility to respect human rights risk being judged by the court of public opinion – including employees, communities, consumers, civil society organisations and investors – while also potentially facing litigation in judicial courts’ (Human Rights Council, 2008).

The negative dimension of the business case for human rights primarily stems from reputational risks that emerge when companies fail to uphold these rights. This risk proves particularly acute for consumer-facing businesses. Moreover, the potential for reputational damage has intensified significantly in the digital age, given the capacity for rapid, widespread dissemination of information about corporate human rights violations. For example, the collapse of the Rana Plaza factory in Bangladesh in 2013, which exposed severe labour rights violations in global supply chains, triggered significant reputational damage for international brands sourcing from the region, leading to consumer backlash, regulatory scrutiny and costly remediation initiatives.

Poorly managed conflicts with local communities and corporate involvement in human rights violations can rapidly escalate into costly international campaigns against companies. Such situations often trigger expensive litigation, damage corporate reputation, impair investor relations and undermine talent acquisition and retention efforts (Lindsay, 2021; Report of the Special Representative, 2008). The business case for human rights compliance becomes particularly evident in this negative dimension, as the growing volume of human rights-related litigation against corporations demonstrates (Bağlayan et al., 2018; Schrempf-Stirling and Wettstein, 2017).

These risks highlight the reasons why robust human rights due diligence is essential. However, effective human rights risk management requires sustained, long-term integration across all corporate operations, rather than one-off initiatives. Empirical evidence suggests that responsible conduct in one area cannot compensate for human rights violations elsewhere – companies must maintain comprehensive standards throughout their activities (Minor and Morgan, 2011; Price and Sun, 2017). Research suggests that companies must sustain consistent positive performance for at least 3–5 years to realise financial benefits from CSR initiatives, while reputationally established firms face particularly severe consequences from even single lapses, as irresponsible decisions can erode years of accumulated goodwill and significantly diminish prior gains (Brower et al., 2017; Wang and Choi, 2013).

Building upon these considerations, a compelling business case for human rights compliance can be constructed by adopting the UNGPs framework, particularly through its foundational concept of human rights due diligence – a systematic process enabling companies to proactively identify, prevent and mitigate human rights risks across all operations. This approach allows corporations to avoid violation-related risks while ensuring operational consistency, thereby aligning UNGP implementation with long-term corporate interests through three key mechanisms: comprehensive risk mapping, preventive mitigation measures and sustained performance monitoring that collectively transform human rights compliance from an ethical obligation into a strategic advantage.

Nevertheless, the business case for human rights can only replace binding regulations if human rights compliance proves universally essential across all sectors and circumstances. If this premise fails in any context – where profits outweigh ethical considerations, or reputational risks are negligible – then voluntary measures cannot fully substitute legal requirements. This inherent limitation demands scrutiny of when and why corporate self-interest alone fails to ensure human rights protections, revealing the role of business case as complementary to, rather than a replacement for, robust regulation.

While evidence supports that socially responsible and human rights-compliant business practices can be profitable, the business case for human rights faces inherent limitations in both its positive and negative dimensions. Professor Surya Deva has identified four interrelated assumptions underlying the business case for human rights compliance:

• (1)

  that corporation X adopts policies and takes actions consistent with human rights norms, whereas its competing corporation Y does not;

• (2)

  that stakeholders, such as consumers, investors, employees, the media and NGOs, are aware of the fact that X is contributing to human rights realisation but not Y;

• (3)

  that stakeholders value human rights and therefore would be willing, as well as able, to punish Y and/or reward X for their respective stands vis-à-vis human rights issues and

• (4)

  that the reward and punishment meted out by stakeholders would result in a positive or adverse effect on market share for and goodwill towards X and Y, respectively, thus giving a competitive advantage to the former (Deva, 2016).

However, these assumptions do not always hold true in practice (Deva, 2006). Consumer awareness of corporate human rights practices remains limited (Servaes and Tamayo, 2013) – many buyers cannot accurately identify which companies violate human rights standards or distinguish between brand-owners and their suppliers. For instance, while global brands such as Apple and Nike face scrutiny, their lesser-known suppliers in developing countries (where most labour rights violations occur) typically escape public attention.

Besides, the inability to implement effective human rights strategies does not affect all companies equally (Muchlinski, 2001). Firms operating outside public scrutiny or in resilient industries often remain insulated from external pressures. For instance, tobacco companies – already maintaining low reputational expectations – demonstrate how profitability can persist independently of ethical performance.

Furthermore, supporting human rights-compliant businesses often entails significant costs, yet current evidence fails to demonstrate that such investments can bridge the well-documented attitude–behaviour gap in ethical consumption (Bray et al., 2011; Kim et al., 1997; Nicholls and Lee, 2006). Even when high-profile brands such as Nike face boycotts, empirical evidence often contradicts executive claims about significant financial impacts (Zadek and Forstater, 1999). Researchers have long observed this paradox: while consumers express concern about human rights and social and environmental issues, these considerations are routinely outweighed by traditional purchasing factors – primarily, price and functionality.

Additionally, there remain doubts about whether companies demonstrating strong human rights performance are genuinely rewarded for their actions. The available research fails to conclusively prove that financial benefits stem primarily from actual CSR implementation rather than corporate reporting about such efforts. Most studies in this field rely on easily accessible data – such as public statements, policies and ratings – rather than verified results and tangible impacts achieved by companies (O’Connor and Labowitz, 2017).

Consequently, most indicators used by investors to assess risks focus on corporate efforts – public commitments and resource allocation to specific issues – rather than measurable outcomes and long-term effects. This raises legitimate concerns about whether investors can adequately evaluate and respond to human rights-related risks (Ruggie and Middleton, 2019). Additionally, this makes it impossible to rule out the possibility that companies may primarily aim to create an impression of social responsibility rather than practice it substantively.

Moreover, the potential financial benefits of CSR initiatives depend heavily on specific business circumstances. Financial gains from human rights compliance differ substantially across industries (Baird et al., 2012; Grewatsch and Kleindienst, 2017; Hull and Rothenberg, 2008) and are significantly influenced by the economic (Wang et al., 2016) and cultural (Shi and Veenstra, 2021) contexts in which companies operate. Considerable variations also exist at the company level, where factors such as firm size, years in operation, corporate structure and brand recognition all play important roles (Grewatsch and Kleindienst, 2017; Javed et al., 2016).

As a result, not all businesses face equal financial incentives to align their operations with human rights standards. Even when companies do benefit from rights-compliant practices, the financial returns from CSR efforts typically remain modest. A more precise assessment would suggest that while human rights compliance is not fundamentally necessary for profitability, it generally does not prevent companies from earning profits either (Margolis et al., 2009).

Research confirms that investments in socially responsible policies yield returns primarily in the long term (Lu et al., 2014). While CSR-focused companies may achieve relatively stronger financial performance over five- to ten-year periods, their short-term results often lag behind profit-driven competitors (Brammer and Millington, 2008; Shank et al., 2005; Wang and Bansal, 2012). Studies further reveal a threshold effect – initial CSR investments typically generate only costs, with positive financial returns materialising only after reaching a certain implementation level (Barnett and Salomon, 2012).

These findings demonstrate that companies cannot always expect clear competitive advantages from human rights compliance. When combined with uncertainty about competitors’ actions, this creates a classic prisoner’s dilemma scenario: the safest (though not optimal) strategy for individual firms is to avoid additional human rights investments, fearing they might lose competitive ground (Deva, 2006).

This analysis reveals a fundamental flaw in relying solely on financial incentives to ensure human rights compliance: in many situations, companies face insufficient motivation to avoid profit-driven actions that may violate human rights, particularly when short-term gains are at stake. As Jim Baker of the Council of Global Unions has argued, the central weakness of the business case is that one could just as easily construct a ‘business case for violating human rights’ and especially so in certain contexts – in industries where competitive pressures overwhelmingly favour cost-cutting over ethical practices ( Baker, n.d.).

Several scholars have critiqued the fundamental premise of justifying human rights compliance through utilitarian business-case arguments, stating that such an approach is neither ethically sound nor operationally effective. True respect for human rights cannot be sustainably promoted through strategic cost-benefit analyses alone – it requires foundational moral commitment (Arnold, 2010; Cragg, 2012).

Professor Florian Wettstein has demonstrated that the negative dimension of the business case for human rights is fundamentally linked to the assumption of a corporation’s moral duty to respect human rights (Wettstein, 2012b). This means that in the context of human rights, it is precisely the moral obligation – not financial considerations – that must take precedence. At the same time, the positive dimension of the business case rests on a flawed and potentially dangerous premise: the suggestion that it would be acceptable for companies to choose not to respect human rights, while expecting to reap some special benefits when they do comply. The very essence of human rights requires that, in cases of conflict, they should take priority over utilitarian calculations. Thus, the foundational logic of the business case for human rights is inherently at odds with the core idea of human rights as inviolable principles. Wettstein’s analysis reveals how framing compliance as a voluntary, profit-driven decision undermines the non-negotiable nature of these rights – particularly in industries such as garment manufacturing, where competitive pressures routinely override ethical obligations despite decades of CSR initiatives.

Human rights advocates understandably seek to demonstrate all potential business benefits of compliance, exemplified by S. Deva’s observation: ‘Supporting and standing up for human rights is much easier when doing so serves business interests’ (Deva, 2020). However, reducing human rights to utilitarian calculations fundamentally misrepresents their nature. Human rights compliance cannot be subordinated to cost-benefit calculations. The true worth of human rights manifests most clearly when their protection demands actions that contradict utilitarian advantages. Therefore, the business case may supplement compliance but can never replace the moral foundation required for meaningful rights protection.

While moral principles should form the ethical foundation for corporate human rights responsibilities, they cannot by themselves ensure consistent compliance across business sectors. The practical challenges are significant – implementing human rights standards often requires substantial investments and may temporarily weaken market competitiveness. Furthermore, interpretations of what constitutes adequate human rights due diligence vary widely between industries and individual corporations.

This complex reality has led human rights experts to emphasise the necessity of a multi-layered governance approach (Baumann-Pauly and Posner, 2016), where states must create enforceable legal frameworks that establish clear expectations and accountability mechanisms, corporations develop meaningful due diligence processes that go beyond superficial compliance and civil society organisations play a crucial monitoring role, providing independent oversight and advocacy.