A core focus of the PRI’s work in 2021 is to support investors in understanding and engaging on their human rights risks and impacts. In particular, we aim to drive stronger industry uptake of the United Nations Guiding Principles on Business and Human Rights (UNGPs), specifically the three elements of their “Corporate Responsibility to Respect Human Rights” pillar:
- Policy commitment
- Due diligence processes
- Access to remedy
As part of its human rights workstream, the PRI organised a June 2021 roundtable for private markets investors to discuss key challenges and effective approaches for addressing human rights in the investment process.
This article summarises highlights from the roundtable, grouping the discussions into three common themes. The article does not aim to provide investors with guidance on addressing human rights issues; rather, it aims to provoke further conversation on the key themes identified and encourage further action by private markets investors.
Building an organisational approach to human rights
Participants found that the term “human rights” itself can be a challenging concept to grasp within an investment context. This is in part because it covers such a broad range of issues, for example diversity and inclusion, labour rights, the rights of refugees and the gender pay gap. The salience of different human rights issues may also vary considerably from one sector to another – a technology firm’s assessment of human rights risks will likely look very different to that of an apparel or a mining company. Moreover, it can be difficult to know how to respond to the responsibility of addressing human rights issues in certain circumstances; in infrastructure investing, for example, the owner and operator of an asset are not always within the same organisation.
These factors have created difficulties for organisations seeking to build systemic approaches to human rights. Most participants agreed that consideration of human rights has been done on a deal-by-deal basis. As such, investment team or executive awareness of human rights issues may be shaped by a particular transaction rather than a broader understanding of the potential risks and opportunities.
Participants recognised two key starting points for building broader capabilities on human rights:
- further education and awareness-raising, for example of regulatory requirements and existing tools and guidance; and
- closer integration between different functions within organisations.
Some participants noted that recent high-profile media coverage of certain human rights-related issues has been a driver for more action within their organisations, whether at executive level, by legal counsel, or by setting up cross-functional teams to address the issues head-on.
Finally, one important step highlighted by participants is simply for organisations to recognise potential exposure to human rights issues in the first instance, and to communicate their ambitions to address them. Participants recognised the difficulty of completely eliminating their human rights risks and impacts, but agreed that taking ownership of them, to the extent possible, and setting a clear direction of travel are critical steps to more effective management of the issue.
Managing supply chain risks
Participants acknowledged significant challenges around managing certain human rights issues in their supply chains, making reference to both the salience of potential human rights risks and the difficulty investors face in identifying and managing these issues in the first place. The solar power industry was one example cited, given recent focus on the significant role that companies based in Xinjiang, China, have in supply chains.
The due diligence process was particularly highlighted in this part of the discussion, with common agreement that conducting adequate due diligence on human rights becomes more difficult the deeper organisations seek to get into their supply chain. Participants agreed that effective engagement with a broad range of stakeholders, whether local communities, the workforce, or others, is a key part of this process.
However, this is often one of the most challenging elements because site visits or audits are often largely controlled by local management, and many people are unwilling to speak openly about human rights issues. Some participants discussed how they had attempted to overcome these limitations, for example by conducting unannounced visits or ensuring that they consulted with a broad enough group of people to identify which issues could be considered more systematically.
Participants also highlighted the difficulties of building effective relationships with suppliers on human rights. Here, the lack of leverage over suppliers was cited – investors and their portfolio companies or assets may be only one of a supplier’s customers. Therefore pressuring that company on human rights, or dropping it because of a failure to address human rights abuses, may have little immediate financial effect.
As a potential solution, it was suggested that taking collective action or, in the words of one participant, ‘an up and out approach’ may prove more effective. In other words, investors in the same industry could work together to identify suppliers with poor practices on human rights and collectively engage with them or, ultimately, withdraw their business from those that do not take appropriate remedial action.
Empowering portfolio companies and assets
The issue of leverage goes beyond individual companies in a supply chain. Our discussions also covered the importance of investors building stronger relationships with their portfolio companies and assets on human rights issues.
Here, much of the discussion focused on how investors can help empower and build their portfolio companies’ and assets’ own capabilities on human rights so that they can take greater direct ownership of many issues. Participants described various strategies and tools they had used in this regard, including:
- Supporting portfolio companies and assets in carrying out their own ESG mapping and strategies, sometimes with the support of external third parties, to identify and agree on approaches for tackling the most important ESG issues, including human rights-related ones.
- Engaging with management on key human rights issues on a frequent basis, including regular (at least annual) site visits, to help frame and set expectations. How participants approached this engagement was also considered important. In setting targets and assessing progress over time, investors consider factors such as the immediacy and salience of human rights risks and the maturity of the company on the issues.
- Incorporating a qualitative approach to human rights in addition to putting in place basic standards, such as key policies and training for staff at portfolio companies and assets. Qualitative efforts include a nuanced approach to stakeholder engagement and due diligence. Done well, these can help to identify key issues by increasing an understanding of the local context, whether political, socio-economic or cultural.
Participants also noted that a key driver for more action by portfolio companies, assets and suppliers will come from regulation. Many investors (whether private or public markets) and companies recognise the current limits of their leverage. More consistent and stronger action and disclosure on human rights will require more regulation, such as the EU’s plans for mandatory human rights due diligence or France’s Duty of Vigilance law.
The PRI will be continuing its work on human rights over the coming months, including the forthcoming publication of case studies by private markets investors and asset owners.
List of participating organisations
- Triponel Consulting (moderators)
- Abris Capital Partners
- Arcus Infrastructure Partners LLP
- Bregal Investments
- Foresight Group
- FSN Capital
- Helios Investment Partners
- IK Investment Partners
- InfraRed Capital Partners
- Manulife Investment Management
- StepStone Group
- Stonepeak Infrastructure Partners
- Wafra Inc.