ISSB should combine human capital and human rights projects, say respondents

Key stakeholders warned that separating the issues could cause overlap, market confusion, and misalignment with other frameworks.

Asset owners, industry associations and wider stakeholders have called on the ISSB to combine its proposed human capital and human rights projects.

On Friday, ISSB closed a consultation on its priorities for the coming two years. In particular it sought feedback on whether it should pursue research projects on topics including: biodiversity, ecosystems and ecosystem services, human rights, and human capital management. 

In responses to the consultation, a range of stakeholders raised significant concerns about separating the two social topics, given their significant overlap, the standard setter’s limited resources, and the potential for market confusion.

Among them was NBIM, which warned the proposed approach “may risk reinforcing the existing, misleading perception that human capital relates only to a company’s own workforce, while human rights are only relevant for a company’s supply or value chain”.

EFRAG also cautioned that “unbundling” the two would perpetuate “misunderstandings about how they interrelate”.

Echoing the EU standards group, Australia Super noted the strong nexus between the two research areas, particularly when considering material long-term value creation in the direct workforce and the value chain (upstream and downstream supply chains) of entities.

“From an investor perspective, human capital and human rights issues are often considered together,” the Australian fund said. “Due diligence processes and engagement on these issues may consider both labour and human rights risk. It is common for both types of risk to exist for entities and their value chains.”

ICCR also remarked that, in practice, investors and companies “do not treat human capital and human rights as distinct topics, and undertake human rights due diligence in line with authoritative international normative frameworks, like the UN Guiding Principles on Business and Human Rights, as a means of identifying salient labour rights risks”.

The investor network warned that if the ISSB’s research in these areas were to lead to new standards, it would be difficult to avoid overlapping and thus potentially confusing standards, as well as leading to gaps and inconsistencies in coverage.

UK pension scheme Nest also made the point that, by treating them separately, ISSB “is not reflecting the reality of market practices and the complexity of market operations”.

The £30 billion ($38 billion; €35 billion) asset owner argued that human rights due diligence processes can be used as key tools for identifying labour issues, and that areas such as unionisation and diversity and inclusion are both human capital and human rights issues.

“If separated, there is a risk of having overlapping disclosures, which will add confusion to the already fragmented social disclosure framework currently being navigated by companies and investors,” Nest wrote.

ShareAction agreed that “failing to actively consider the relationship between these two areas” will result in standards where information is either missing, duplicated or otherwise confusingly addressed in the framework.

“This will be frustrating for preparers and issuers, as they are using an illogical framework, or lead to standards that are ultimately not fit for purpose, because they do not provide decision useful sustainability information to capital market actors.”

UNEP FI also suggested that “given ISSB’s limited capacity and resources”, it would be in its best interests to combine the projects.

“[This] will allow for better alignment with existing social sustainability standards while at the same time allowing the ISSB to expand its focus on human rights and social considerations. Not only would this avoid unnecessary duplication of work, it would also facilitate the reporting process for prepares and increase usability for users in particular facilitating their decision-making processes.” 

Other stakeholders who called for the two issues to be explored in conjunction included the UK’s Financial Conduct Authority, Aviva, Federated Hermes, New York City Pension Funds/NYC Office of the Comptroller, UKSIF, KPMG, Frank Bold and the Church Commissioners for England.