Investors embrace human rights in the era of Corona
‘Build back better’ is the new catchphrase of business and politics. Diana Kearney and Sharmeen Contractor look at what it translates to in practice
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COVID-19 Sheds Light on Corporate Human Rights Performance
The 2020 AGM season regaled investors with a series of spectacles and firsts: most companies transitioned from in-person meetings to a virtual-only format; Japanese firms faced backlash from investors rejecting all-male boards; Alec Baldwin styled Chevron the ‘Harvey Weinstein’ of oil companies for failing to clean up its toxic sludge in Ecuador; and, importantly, more shareholder proposals than ever received majority votes.
While ESG proposals of all stripes recorded impressive tallies this year, human rights due diligence (HRDD) resolutions – those that request companies mitigate human rights abuses in their operations and supply chain – performed particularly well. Pre-COVID-19, this trend was already on the rise. BlackRock, for example, supported a February 2020 resolution targeting a company for lack of disclosure on material risks associated with its human rights performance. Recent developments like mandatory HRDD laws in the EU and bills proposing supply chain transparency in the US likewise suggest the writing is on the wall, meaning forward-thinking investors would do well to press management to stay ahead of legislative mandates.
COVID-19 has accelerated this rising tide of investor support for responsible human rights performance into an urgent call for change. In May, a coalition of 335 investors representing $9.5trn AUM called on companies to respect the human rights of their workers, and ensure their response to the pandemic would safeguard the health and safety of individuals throughout their supply chains.
Surging Support for HRDD
Oxfam’s 2020 shareholder resolution results likewise reflect this surge in investor support for resilient supply chains and labour rights. Shareholders voted in favour of Oxfam’s HRDD proposals at unprecedented levels, including:
- 45% support HRDD disclosure at Kroger;
- 65% independent vote support HRDD disclosure at Pilgrim’s Pride (Parent company JBS owns approximately 78% of Pilgrim’s Pride stock)
- 37% support HRDD disclosure at Sanderson Farms; and
- 39% independent vote support for conducting human rights impact assessments on high-risk commodities at Amazon (CEO Jeff Bezos owns approximately 15% of Amazon stock).
Given that human rights-related proposals typically hovered around 20% support during the pre-COVID-19 era, such figures are striking.
Why the drastic shift? COVID-19 has shone a bright light on the financial toll companies pay when they ignore workers’ rights, community impacts, and the importance of resilient supply chains. Outbreaks of COVID-19 in poultry processors like Tyson, whose CEO announced their “supply chain is breaking” following the illness and death of factory workers, have led to volatility and declines in stock price.
COVID-19 is exposing the true long-term losers and winners. Companies with stronger social performance, whether it be surrounding gender equality, commitment to racial justice, or environmentally-friendly operations, or strong human rights safeguards, are in a better position to weather the storm. Just Capital’s Large Cap Diversified Index – which tracks companies’ performance relative to the support they provide to stakeholders, including workers, communities, and consumers – evinces that companies with strong ESG outperformed the market, demonstrating that sustainable strategies offer better returns. Savvy investors would do well to place their money in companies that prioritise strong human rights practice to minimise the risk and ensure long-term financial performance. As Oxfam’s shareholder resolution results make clear, investors are already taking note.
Investors and the New Social Contract
The existing social contract between companies and the public at large has long been extractive; for years, corporations have cut costs regardless of the human toll, resulting in harmful outcomes for workers, communities, the environment, and shareholders. This growth-at-all-costs model at the expense of human rights is becoming less tolerated, even more so under the current climate. The social license to operate post-COVID-19 will impose stricter conditions on business; workers, consumers, those who value the long-term value of their stocks will continue to ramp up pressure on corporations to do right by society at large – and not just line the pockets of management seeking the sugar high of short-term gains.
“Build back better” is the new catch phrase echoing throughout the halls of the World Economic Forum, uttered by CEOs of multinational corporations, and from the likes of US presidential candidate Joseph Biden. What does this idiom translate to in practice? In the aftermath of COVID-19, investors can play a catalytic role in changing the narrative, ensuring that corporations consider the social sustainability of their operations and do not blindly continue to champion a myopic focus on short-term profit maximisation, rent seeking, crony capitalism, corruption and monopolistic behaviour. The resounding success of HRDD shareholder proposals during the 2020 AGM season demonstrate that investors are increasingly poised to assume just that role.
Diana Kearney is a Senior Advisor for Legal and Shareholder Advocacy at Oxfam America. Sharmeen Contractor is a Senior Advisor for Market Systems and Investors at Oxfam America.