The New Investor Toolkit on Human Rights from IAHR and ICCR

Amid COVID-19, the Investor Alliance’s latest guidance helps investors get the ‘people part’ of ESG right.

The Investor Alliance for Human Rights has recently published a new Investor Toolkit on Human Rights for asset owners and managers to address risks to people posed by their investments. This comes in the midst of the current international COVID-19 crisis, where systemic economic and social inequalities across societies have been laid bare and exacerbated, and the precarious foundation that financial markets rely upon is evident now more than ever.

In this context, institutional investors of all sizes have a responsibility as well as an opportunity to support recovery and positively contribute to new systems grounded in respect for human rights – what every individual is entitled to in order to live a life of fundamental welfare, dignity, and equality.

While a growing number of mainstream investors are integrating environmental, social, and governance (ESG) criteria into their investment activities, many are not. Even when ESG factors are considered, addressing risks to people as part of these efforts remains widely neglected.

“In this global crisis, we see why investment-as-usual must change. An essential step in this process is recognizing that institutional investors, even minority shareholders, have a responsibility to address the risks to people present in their investment value chains. To do this, investors should know the human rights risks connected to their investment portfolios and show how they are taking action to manage those risks in line with globally agreed upon standards,” said Paloma Muñoz Quick, former Director of the Investor Alliance for Human Rights.

The expectation that investors, like all business actors, respect human rights is outlined by the UN Guiding Principles on Business in Human Rights, unanimously endorsed by governments in the UN Human Rights Council in 2011.

This expectation is also increasingly embedded into legal requirements impacting financial markets across the world. In particular, the European Union (EU) redefined the roles and responsibilities of institutional investors as financial actors by recently adopting a new set of rules requiring European investors to disclose the steps they have taken to address the adverse impact of their investment decisions on people and the planet.

“For European investors, integrating human rights considerations into our investment activities is no longer a ‘nice-to-have’ proposition. The Investor Toolkit provides timely and much-needed practical guidance for helping investors apply the UN Guiding Principles and meet emerging EU requirements calling on investors to disclose due diligence efforts to manage risks to people throughout the investment lifecycle,” said Carola van Lamoen, Head of Active Ownership and Executive Director at Robeco.

The integration of the UN Guiding Principles into other leading responsible business standards such as the OECD Guidelines for Multinational Enterprises has helped raise awareness and understanding of responsible human rights risk management, providing an approach to pragmatic and meaningful governance processes that support all ESG-related activities.

“Today more than ever we are seeing that resiliency and sustainability in business practices and economic models are crucial to responding to and mitigating global challenges. Investors can play an important role in driving responsible business practices that create long term value and avoid causing harm to society and the environment. To support investors in this endeavor, in 2017 the OECD introduced due diligence guidance on Responsible Business Conduct for Institutional Investors, which has been formally endorsed by 49 governments and created in close consultation with leading investment practitioners and experts. We welcome the Investor Alliance for Human Rights’ Investor Toolkit on Human Rights as another tool for investors to enhance their investment practices and drive positive social and environmental impacts,” said Barbara Bijelic, Legal Expert and Project Lead, Responsible Business Conduct in the Financial Sector at the Organisation for Economic Co-operation and Development (OECD).

While business models and corporate cultures have in many ways contributed to the vulnerability of societies in responding to unprecedented situations such as the current pandemic, responsible companies are experiencing the positive effects of putting people first. In fact, an increasingly wide range of research shows the correlation between corporate attention to human rights risks and corporate financial performance.

“Addressing human rights risks is an important component of financially responsible and sustainable investment strategies. By assessing human rights risks during investment-decision making and engaging portfolio companies to promote the adoption of human rights policies and due diligence, we are better able to avoid the financial and reputational risks associated with unmanaged human rights harms in investment portfolios,” said Lauren Compere, Managing Director and Director of Shareowner Engagement at Boston Common Asset Management.

The Investor Alliance for Human Rights is a collective action platform for responsible investment that is grounded in respect for people’s fundamental rights. Its members represent over US$4 trillion in assets under management and 18 countries. Members include asset management firms, public pension funds, trade union funds, faith-based institutions, family funds, and endowments. The Investor Alliance is an initiative of the Interfaith Center on Corporate Responsibility (ICCR).