This article summarises the key points from a workshop on 31 January 2023 where private markets industry participants discussed their role in providing access to remedy in the case of adverse human rights impacts related to their portfolio companies and / or value chains.

Organisations attending the workshop:

  • Human Level – Anna Triponel (facilitator)
  • AP6
  • Blue Wolf Capital Partners
  • Helios Investment Partners
  • Institute for Human Rights and Business
  • Infrared Capital Partners
  • Partners Group
  • StepStone Group

This workshop, held under the Chatham House Rule, is the last of a four-part series bringing together private markets investors to discuss how to implement elements of the UN Guiding Principles on Business and Human Rights (UNGPs).

These workshops supported our new guidance on how private market investors can implement the UNGPs.

Participants acknowledged that, according to the UNGPs, investors have a role to play in providing or enabling access to remedy for negative human rights impacts that occur at any point in an investment’s value chain.

However, the role is not always easy to define. For example, indirect investors the distance between them and where negative human rights impacts may occur – at the portfolio company level or further down the value chain. Although control or direct investors are typically closer to the impacts that may occur, participants noted that these impacts cannot always be clearly attributed to the actions of a portfolio company or the value chain, again making their role in remedy less straightforward.

Participants nonetheless agreed on the need to prioritise the most severe impacts, and to seek to understand their connection to those impacts as a means of determining their role in remedy. In this regard, the facilitator highlighted how the UNGPs point to three different types of connection relevant to investors: causation, contribution and direct linkage.1

“Even if you haven’t contributed to an impact, if it’s in your value chain, […] and the impact is particularly severe, you have a responsibility […] to lean in and try and get the responsible players to do something about it.” 

Participants discussed how remedy may vary, depending on the type of impacts, company or the sector. They also said it was important to incentivise portfolio companies or investments to think about remedy from the perspective of the people impacted, rather than applying a one-size-fits-all approach. For example, there is a common misconception that providing financial compensation should be the beginning and end of remedy; in reality, it is just one mechanism through which remedy could be achieved.

The discussion also covered how remedy can be approached on an ongoing basis rather than only in response to a specific human rights incident. One particularly effective method highlighted in the workshop was the role of grievance mechanisms.

Participants agreed that effective grievance mechanisms can raise awareness of human rights risks and impacts, as well as potential forms of remedy. This is because grievance mechanisms are based on ongoing engagement and dialogue with key stakeholders – including impacted people and organisations who may represent them. Therefore, investors should assess how portfolio companies conduct stakeholder engagement to understand whether any grievance mechanisms are fulfilling their objectives.

Participants agreed that grievance mechanisms are not effective simply by nature. For example, establishing a hotline to report grievances could be seen to allow impacted people to raise an issue, but providing that channel will not provide remedy or stop harm in as of itself. UNGP effectiveness criteria advise that non-state-based grievance mechanisms should be: legitimate; accessible; predictable; equitable; transparent; rights-compatible; a source of continuous learning; and based on engagement and dialogue.

Finally, and most importantly, it was highlighted that impacted people must be able to raise issues safely – discretely and with a trusted party. Remedy must be tailored to the needs of the impacted people, including those who may face barriers to access. 

“[The] bottom line is [to] incentivise portfolio companies or investments to think about remedy from the perspective of the people.”

As remedy entails restoring impacted parties’ conditions to before any harm was done, investors will need to look for existing impacts as part of their pre-acquisition due diligence and factor this in.

For one general partner (GP), if negative impacts are identified during due diligence, these are factored into a corrective action plan that is agreed and included in the shareholders agreement with the portfolio company. Post acquisition, the GP monitors how the plan is being adhered to.

Similarly, another GP, typically acting as a minority investor, considers whether it can address the identified issues; and where the GP is concerned about its ability to enable effective remedy, the investment committee would decide whether to move forward with the investment.

Encouragingly, participants stated that they are generally able to effect helpful changes, and key to that is reaching agreement with portfolio company management about the issues, actions, and implementation timeline early on.

Undertaking actions to remedy issues in the supply chain is more challenging than addressing issues in the portfolio company’s direct operations. Still, GPs can influence positive changes by asking a company to consider changing a supplier or to adopt various supply chain processes, including:

  • providing supplier codes of conduct;
  • conducting audits; and
  • including certain criteria in contracts.

“It’s not always in the direct control of [the investor], but […] if we put in good governance and monitoring processes, that can go a long way to start to address some of these issues.”

For indirect investors, due diligence is the point where they will be most effective at addressing human rights impacts. One limited partner (LP) shared that they look to understand whether GPs require portfolio companies to consider when remedy is expected of them, and if the GP engages in dialogue with companies about impacts and areas for improvement. The LP sees this as the start of meaningful conversations about how the GP understands the most severe and likely human rights risks, how they can ensure that the concerns raised by impacted people will be responded to, and what effective remedy looks like.

Using and building leverage

Participants agreed that, as investors, they are likely to be directly linked, rather than causing or contributing , to impacts through their business relationships (i.e., through financial flows to portfolio companies or investees). In most cases, this direct link will require investors to enable, rather than directly provide, remedy.

Participants discussed the example of an apparel company’s supply chain factory workers who were not provided with severance pay following sudden lay-offs. Although the company did not cause or contribute to the impact, the factory’s production of the company’s goods was a direct link to the impact. The apparel company convened a session with the local government, the supplier and the laid-off workers to determine a way forward, and ultimately facilitated for the workers to be paid their severance from the liquidation of the factory assets. Investors can apply a similar convening power to enable remedy when they are directly linked to an impact.

“Remedy stays alive for as long as the impact has not been remediated.” 

Participants noted that GPs are under pressure from LPs to think about their role in supporting operating environments for their portfolio companies that foster greater respect for human rights in general.

For example, one GP shared their experience upholding their client’s requirements globally, highlighting this can require challenging discussions with companies, asking them to go beyond what is locally acceptable. The GP also stated that companies may attempt to push the burden of costs and monitoring to the investor, and noted that one effective way of overcoming this can be to frame international human rights standards as relevant to companies’ ability to help them participate in international value chains.

The facilitator explained that even when investors have little leverage over a particular operating context in which they participate, they can support and benefit from creating a better environment for achieving remedy. Aligning with other stakeholders (investors, NGOs, or consumers) can enable a more robust remedy ecosystem. Investors could:

1. spotlight a sector and its need to address ongoing issues and impacts;

2. contribute to the conversation to learn what role your organisation could play;

3. be proactive and prioritise remedy in high-risk operating contexts;

4. ensure channels are open for other stakeholders to communicate concerns to your organisation; and

5. incentivise investees to think about remedy from the perspective of impacted people.

Participants discussed the 2013 Bangladesh Rana Plaza disaster, after which NGOs convened relevant local trade unions and retailers and a compensation fund was established to deliver remedy to the impacted families. It was funded by various international clothing brands, investors and other small donors who were keen to create a better operating environment and address systemic risks, as well as manage potential reputational risk