World’s leading proponent of responsible investment sets clear expectations for investors in new report, outlining why and how to consider human rights in investment activities.
The United Nations-supported Principles for Responsible Investment (PRI) released a new report, Why And How Investors Should Act on Human Rights, which sets out clear expectations for investors based on global human rights standards and provides recommendations on the integration of human rights into investment practices.
The report from the PRI, a global organization of over 3,000 signatories with more than $103 trillion in assets, highlights the growing demands of stakeholders – employees, beneficiaries, clients, governments and wider society – for investors to consider various human rights issues in their decision making. Since the development of the UN Guiding Principles on Business and Human Rights (UNGPs), and the UNGPs’ endorsement by the UN Human Rights Council in 2011, it has become increasingly clear that the consideration of human rights in investment activities is of fundamental importance to the advancement of Environmental, Social and Governance (ESG) investing.
Leading investors also recognise that meeting international standards – and preventing and mitigating actual and potential negative outcomes for people – leads to better financial risk management and helps to align their activities with the evolving demands of beneficiaries, clients and regulators.
“Our signatories have made it clear that they want the PRI to increase its focus on social issues, including human rights,’ said PRI CEO Fiona Reynolds. “And we have seen social issues really come to the fore during the COVID-19 pandemic. Our aim is that, like with climate change, in five years’ time we’ll see all signatories incorporating human rights into their investment process. Implementing the UN Guiding Principles on Business and Human Rights across business and investment activities has the potential to deliver a transformational contribution towards achieving the SDGs, with obvious benefits for people, planet and prosperity.”
PRI’s report outlines a three-step process for investors to demonstrate their respect for human rights:
Publishing a policy commitment: The report recommends investors establish a policy commitment to respect human rights, approved at the most senior level, throughout the organisation with proper resourcing. The commitment should be integrated into governance frameworks, management systems, investment beliefs, policies and strategy to inform investment decisions, stewardship of investees and policy dialogues.
Having due diligence processes in place: The report recommends that management of actual and potential negative human rights outcomes be reflected in investors’ investment decision-making process, including in portfolio construction, security selection and asset allocation, and/or in selecting, appointing and monitoring external managers/funds and other services providers.
Enabling or providing access to remedy: The report asserts that investors are responsible for providing access to remedy for people affected by their investment decisions when the investor is either contributing to or causing the negative outcomes. For outcomes investors are directly linked to through an investee, the PRI maintains that investors should use and build influence to ensure that investees provide access to remedy for people affected.
According to the report, investors have a unique opportunity to influence the value chain, meaning they have the ability to set expectations and influence companies to know, act on, and model behavior that demonstrates how they manage harm to human rights coming from their business activities and relationships.
The PRI will introduce human rights questions into its Reporting Framework initially on a voluntary basis by 2022, eventually becoming mandatory in the years to follow.
Laetitia Tankwe, advisor to the president of the board of trustees of Ircantec commented:
“Human rights (HR) have for too long been put aside by investors, partly because of a lack of understanding of the impacts of HR on their investments and the impacts of their investments on HR, and partly because even when they are well aware of these different consequences, investors were struggling to put in place a consistent approach to address them. With the PRI paper, investors have the support they need to give human rights the consideration they deserve.”
John Ruggie, professor at Harvard’s Kennedy School of Government adds:
“This important initiative by the PRI could not be more timely. If investors ever had questions about the critical role of the S in ESG, Covid has provided the answer. The S addresses how business treats people, and therefore is foundational to a socially sustainable globalization—which remains at risk today”
John served as the UN Special Representative for Business and Human Rights and authored the Guiding Principles.