Investing with respect: institutional investors must act on human rights

In 2020 we find our­selves fac­ing a cul­mi­na­tion of glob­al crises: the cli­mate emer­gency, grow­ing eco­nom­ic inequal­i­ty and the coro­n­avirus pan­dem­ic. As we work to build back bet­ter, a grow­ing cho­rus of voic­es is now call­ing not sim­ply for a regen­er­a­tion of the sta­tus quo, but for a new more peo­ple-cen­tric eco­nom­ic and soci­etal mod­el, fit for the 21st cen­tu­ry.

Key to this is respect for human rights, the pro­mo­tion and pro­tec­tion of which is already enshrined in inter­na­tion­al law.

Just as for all busi­ness­es, insti­tu­tion­al investors have a respon­si­bil­i­ty to respect human rights. Yet, despite this expec­ta­tion being for­malised by the Unit­ed Nations (UN) and the Organ­i­sa­tion for Eco­nom­ic Co-oper­a­tion and Devel­op­ment (OECD) near­ly ten years ago, there is still a sig­nif­i­cant imple­men­ta­tion gap.

At the Prin­ci­ples for Respon­si­ble Invest­ment, a UN-sup­port­ed ini­tia­tive with more than 3,000 glob­al investors rep­re­sent­ing over $100 tril­lion in assets, we believe the time has come for insti­tu­tion­al investors to raise the bar on respect for human rights.

COVID-19 put social issues on the agenda

In the past, social issues have often been treat­ed by investors, cor­po­rates and gov­ern­ments alike as the black sheep of the envi­ron­men­tal, social and gov­er­nance (ESG) fam­i­ly, con­sis­tent­ly passed over in favour of envi­ron­men­tal and gov­er­nance themes, which can often be more tan­gi­ble and eas­i­er to mea­sure.

How­ev­er, the pan­dem­ic has brought social issues to the fore, high­light­ing and in many cas­es exac­er­bat­ing them. Issues such as work­ers’ rights, health and safe­ty, forced labour and employ­ee rela­tions, to name a few, are now firm­ly on the radar of glob­al investors. These are all, at their heart, human rights issues.

Inter­est in social issues, or human rights issues, was already begin­ning to grow in the past few years and the pan­dem­ic has only served to accel­er­ate and increase the urgency of this trend.

Responsible investment continues to evolve

In fact, this growth in recog­ni­tion of social issues par­al­lels a wider accel­er­a­tion in ESG invest­ing and both a main­stream­ing and matur­ing of respon­si­ble invest­ment philoso­phies and prac­tices. While there is much more to be done on this agen­da, for the first time investors are begin­ning to widen their focus and think­ing on sus­tain­abil­i­ty.

We’re now see­ing a shift from investors think­ing pure­ly from a risk-and-return stand­point to also con­sid­er­ing their role in dri­ving real-world out­comes and ulti­mate­ly the impact of their port­fo­lios on the wider world; the world in which we all live and the world in which the mem­bers of their pen­sion funds will retire. This, crit­i­cal­ly, includes con­sid­er­a­tion for human rights in line with the UN Guid­ing Prin­ci­ples (UNG­Ps) on Busi­ness and Human Rights and to help achieve the UN Sus­tain­able Devel­op­ment Goals.

Human rights are material

Even for those investors not yet mak­ing the leap to shap­ing out­comes, the mate­ri­al­i­ty of many human rights con­cerns, even by the nar­row­est def­i­n­i­tion, is unde­ni­able. The price is high for the many com­pa­nies which have mis­cal­cu­lat­ed human rights risks on lack of mate­ri­al­i­ty grounds.

In addi­tion, there is increas­ing momen­tum in gov­ern­ments cham­pi­oning human rights and embed­ding their expec­ta­tions of investors in hard law and reg­u­la­tion. With fur­ther reg­u­la­tion on human rights due dili­gence in the pipeline, and pol­i­cy-mak­ing con­verg­ing around the UNG­Ps and OECD stan­dards, investors must future-proof their approach to ESG issues now by imple­ment­ing these frame­works.

The cli­mate emer­gency, decades of widen­ing eco­nom­ic inequal­i­ty and the COVID-19 cri­sis are all draw­ing focus on investors’ behav­iour. As a result, expec­ta­tions from employ­ees, ben­e­fi­cia­ries, clients, gov­ern­ments and wider soci­ety are con­tin­u­ing to grow. It’s becom­ing increas­ing­ly clear that respect for human rights is not only a “nice to have” or the “right thing to do”, but is a mate­r­i­al con­sid­er­a­tion, crit­i­cal to investors to more effec­tive­ly and proac­tive­ly man­age a range of com­plex ESG issues.