14 indicators of certifications' strengths and weaknesses

Tailor-made for investors and developed with investor input, Certifications Red Flags provides warning signs that a social certification may not be a reliable indicator of corporate performance. It includes a practical checklist to help investors assess whether a certification is effectively designed to reduce supply chain risks. It is designed to support investor engagement with portfolio companies. ​

CLICK HERE FOR THE RED FLAGS

CLICK HERE FOR THE CHECKLIST

The 14 Red Flags are organized by topic and each answers three questions: 

What
​this means

Why investors should care

What to
​look for 

This section explains the significance of the Red Flag and provides context on how it relates to the certification’s effectiveness in protecting rights holders.

Using a financial materiality lens, this section explains how the Red Flag involves potential risks to companies and provides examples of the consequences that occurred, including lawsuits filed for unfair and deceptive trade practices, when a certification scheme had the Red Flag. ​

This section points investors to what they can look for to ensure that a given scheme does not have a specific Red Flag. It also highlights examples that illustrate a novel feature of a scheme that can provide better assurance of good practice. Many of these features are emergent and not yet widespread among certification schemes.

How to Use this Tool 

Certifications Red Flags is a guide for how companies and investors can spot potential risks in certification schemes they rely upon. It is intended to facilitate more informed investor engagement with portfolio companies around the role of social certifications in their due diligence.  

Collectively the 14 Red Flags serve as a guide for how companies and investors can spot potential risks in certification schemes, they rely upon. Each Red Flag is independently significant, and the sequence does not imply prioritization. The presence of one red flag in a certification does not necessarily mean the scheme should be avoided, just as a scheme that avoids most red flags but has one or two is not necessarily a scheme that is reliable. A certification’s weakness, such as an audit’s insufficient coverage of operations, is not necessarily a reason to avoid the scheme; often if a company stops participating in the certification, the alternative provides little or no auditing assurance or standards for improvement. Investors can use this guide to inform better assessments of the quality of that certification and its capacity to provide assurance of effective due diligence. 

These suggestions are informed by four beta testing sessions we held between October 2023 and January 2024 where participating investors provided insights into how they expected they would use Certifications Red Flags.

Investors can use the tool: 

as a starting point for engagement

as an educational resource
​

to facilitate internal discussions 

to assess the maturity of certifications

to guide conversations with certifiers

As a starting point for engagement: The tool can serve to set investors' expectations with companies, offering guidance for both investors and companies alike. Investors can point portfolio companies to the tool prior to an engagement.

As an educational resource: For investors new to human rights due diligence, the tool can clarify why the absence or presence of certain features within initiatives can be financially material.  
​
To facilitate internal discussions: Asset owners and asset managers can clarifying expectations on the role of certifications in assessing a company’s human rights due diligence.

To assess the maturity of certifications: Investment analysts can use the tool as a guide for mapping certifications and assessing their maturity, enhancing understanding of the appropriateness of certifications for different scenarios and their alignment with investment strategies.

To guide conversations certifiers: Investors can encourage portfolio companies that are members of certification schemes to use the tool to advocate for specific improvements with the scheme. In addition, some investors may wish to engage directly with the certification body on scheme improvements.

It is important to emphasize that certifications are just one aspect of human rights due diligence. Even as investors learn how to better assess the strengths and weaknesses of certifications, it is critical that they encourage portfolio companies to invest in establishing systems for their own effective due diligence, beyond certifications.

Want to understand our approach to this work? Click here to find out.

Certifications need to be screened for all Red Flags for effective HREDD. 

Go to 14 the Red Flags

Go to the checklist