Holding corporations accountable on human rights – investors are watching

Investors are alarmed that corporations don’t seem to take human rights seriously.

What do an ultra-high-end international clothing designer and a low-end U.S. grocery chain have in common? They don’t appear to care enough about human rights. With the 70th anniversary of the Universal Declaration of Human Rights, investors remain alarmed by the lack of evidence that corporations take human rights seriously.

It appears to be a common misstep made by some of the world’s largest, best-known companies, according to the latest data from the Corporate Human Rights Benchmark (CHRB) released in November. The 2018 Benchmark focused on large-cap apparel, agricultural products and extractives companies, rating their public disclosures looking at governance, policy and practice. More than a quarter of the 101 companies in the survey – companies with household names – scored under 10%, indicating they haven’t implemented the UN Guiding Principles on Business and Human Rights.

An alarming 40% of companies score no points at all across any of the criteria on human rights due diligence. It’s possible these companies have the right practices in place, but investors can’t take this on faith. We need to see it in their disclosures to be able to judge how they are doing.

The CHRB results signal a profound disconnect between the world’s largest corporations and their key constituents.

We want to make it absolutely clear that mainstream investors care about human rights. To put this into a perspective, as of April 2018 nearly 2,000 financial institutions have signed the Principles for Responsible Investment (PRI). This is a commitment to integrate sustainability and governance factors into their investment decisions. These institutions manage a total of $ 81.7 trillion.

Protection of human rights should matter to companies on every level. It seems obvious that it’s the right thing to do from an ethical point of view. But it’s also the right thing from an operational, legal and capital management point of view.

As responsible investors we see good performance on human rights as good business, in both the short and long term.

APG and Nordea are stewards of capital. On behalf of millions of people, we invest with a long term perspective to contribute to a sustainable world. That is why we are calling on companies to accept and demonstrate their accountability on human rights issues.
Complacency is not an option and it’s not only investors asking for action.

Governments around the world are taking bolder steps toward regulation for mandatory reporting, requesting more detailed information from companies in exchange for operating licenses as a way of discouraging high-risk practices in high-risk sectors.Consumer awareness is on the rise. The statement, “A good reputation may get me to try a product—but unless I come to trust the company behind the product I will soon stop buying it, regardless of its reputation”, had agreement from 63% of those polled in the 2018 Edelman Trust Barometer on the State of Trust in Business.

There is evidence that companies that take a stand on social, responsibility and impact issues also have a recruiting advantage. On the issue of gender pay, two-thirds of US employees indicated they would not apply to companies with a perceived gap, according to data compiled by a 2017 Harris Poll conducted on behalf of job site Glassdoor. Roughly two-thirds of workers want their employers to exert their influence on issues such as immigration, equal rights and climate change.

“A profound disconnect between the world’s largest corporations and their key constituents.”

When it comes to raising capital, the trend among investors is undeniable. This is also the case in the US, as shown by the latest figures of US SIF Foundation’s 2018 Report on US Sustainable, Responsible and Impact Investing Trends. Sustainable, responsible and impact investing represents 26% of the $46.6 trillion of US assets under professional management. And it’s a high growth area, having jumped 38% from almost $9 trillion at the start of 2016 to $12 trillion at the beginning of this year.

Human rights is the top criteria for more than $2 trillion of that investment, and among the top handful for almost all of it.
Research shows a correlation between responsible business conduct and better financial performance. The CHRB provides a methodology for comparing companies’ human rights records so that investors can make informed, responsible decisions about how they deploy capital, but it doesn’t end there.

We want to engage constructively with companies to improve their performance and transparency with respect to human rights.
We are watching, but not just standing by. We will use our leverage as investors act on what we see.

Anna Pot is a responsible investments manager for APG Asset Management and Magdalena Kettis is head thematic engagement at Nordea. They are members of the CHRB Advisory Council. CHRB home page.