Investors should be included in human rights due diligence rules, finds RI survey

Investors should be included in the raft of upcoming due diligence rules to address human rights violations in supply chains, according to an RI survey.

To mark 10 years since the UN Human Rights Council unanimously endorsed the Guiding Principles on Business and Human Rights (UNGPs), RI set out to explore the state of play of investors and human rights by surveying investors, as well as from NGOs, ratings providers, and academia.

66.9% of respondents said they believe human rights will become as mainstream a consideration as climate change for investors

Currently, a flurry of legislations are being proposed or implemented regarding mandatory enforcement, for example, in the EU, the Netherlands, Belgium, and Germany. However, the extent to which investors will be subject to them is not always clear.

For example, the EU Sustainable Corporate Governance Directive currently covers Limited Liability Companies. But the European Parliament approved plans earlier this year to roll them out to all corporations operating in the EU internal market, including banks and investors.

More than three quarters of the 130 respondents to RI’s survey said investors should be included in these types of rules. Only one person said “investors should never be included”, while the majority of respondents not in favour of including investors responded either “don’t know” or “not right now”. 

Similarly, an overwhelming 93% pushed for mandatory human rights-related disclosures – only 5.4% voted for voluntary.

On reporting, yesterday the Climate Disclosure Standards Board (CDSB) announced it will be expanding its scope to encompass financially material social issues to provide greater guidance and direction for companies in developing mainstream disclosures useful for investors.

Although it acknowledged current jurisdictional requirements, for example, the UK's Modern SIavery Act, as well as international principles and voluntary frameworks and standards, it claimed it is “clear that many companies are failing to meet current expectations”.

“Too often, social disclosures are made up of discrete, unconnected metrics and boilerplate statements, instead of focussing in on the social risks and opportunities that matter most to companies, investors and people.”

The update of the reporting framework will be completed at the same time as efforts by the IFRS Foundation to establish an International Sustainability Standards Board (ISSB), according to the CDSB.

In another sign that human rights are rising up the investor agenda, around two-thirds of respondents to RI’s survey said they believe human rights will become as mainstream a consideration as climate change for investors.

Last month RI reported that there has been a strong uptake of the UNGPs, as well as increased investor engagement and shareholder voting on human rights, according to a report by the Working Group on Business and Human Rights.

This AGM season also saw a number of proposals at major banks and investors on racial equity and the treatment of workers during the pandemic.

Meanwhile, survey respondents were split on whether human rights risks are financially material or if they are primarily ethical considerations. Just over 60% argued the former and around one-fifth the latter, with remaining respondents saying either both or neither.

A recent report on how to amplify the 'S' in ESG by a new partnership comprising Thomson Reuters Foundation, Refinitiv, International Sustainable Finance Centre, White & Case, Eco-Age, The Mekong Club and the Principles for Responsible Investment, arguably countered the view that human rights are an ethical consideration only.

“Social issues can create key risks; they are salient and will be increasingly relevant in the future,” it said. The report added many mainstream investors wrongly believe that they should remain ‘returns first’ and, therefore, putting additional effort into understanding the relevance or importance of social indicators is not necessary. 

Moving forward, three key things were highlighted in RI’s survey as required by investors to help integrate social considerations into their decision-making: better data, global standards, and more in-house expertise.

The above 'S' report, however, said that while there are still significant data gaps due to a lack of standardised reporting requirements, “in particular, for global supply chains – many quantifiable social indicators are available for investors to include as part of their investment analysis.”