Responsible Investor readers could be forgiven for complaining of slight fatigue when it came to human rights initiatives. In recent months we’ve had the launch of a benchmark analyzing the human rights performance of 500 companies, new interactive platforms on the issue and now a $4 trillion investor coalition asking companies to embrace the new ‘UN Guiding Principles Reporting Framework’.
All are important developments, but the recent investor backing of the UN Guiding Principles Reporting Framework, is a milestone that stands out from the crowd.
For many years companies have argued that the main barrier to consistent reporting on human rights performance has been a lack of guidance. That is now no longer the case.
The new UN Guiding Principles Reporting Framework has been 18 months in the making and provides companies with a smart and comprehensive framework to assess, manage and report on those human rights risks that are salient to their business. It is clear and sensible, and it allows companies to begin reporting regardless of their size or where they are on the journey towards implementing their corporate responsibility to respect human rights. In short it means that companies now have no excuse not to start reporting on human rights performance.
The investor coalition which Boston Common has brought together to support this new framework already counts 67 investors with almost $4 trillion of assets under management. It includes large mainstream institutions such as APG Asset Management, Aviva Investors and BNP Paribas Investment Partners, as well as faith and SRI funds such as Church of Sweden, ICCR and Calvert.
I believe there are three key reasons why so many investors have chosen to back this new guidance:
1. Protecting and creating value – There is now compelling evidence that mismanagement of human rights risks leads to real value destruction. One example of this was the research by Aviva Investors that mining firm Vedanta Resources has underperformed its peers by 29% due, in part, to a lack of focus on human rights management. Another example was a recent study by research company IFF which found that almost 50% of oil and gas companies surveyed failed to check anti-bribery and corruption policies and were leaving shareholders exposed to human rights related risks in their supply chain. With lower oil prices, this risk could be even higher as companies look to cut in the areas of compliance and supply chain management.Beyond risk management it is increasingly the case that investors are using human rights management as a litmus test to help understand the overall quality (or not) of a company’s management. If a company is not competent in putting sufficient resources into fully understanding and managing human rights issues throughout its supply chain then that can say a lot about the governance of that company.
2. Increasing regulation – Investors want their investee companies to be on the front foot when it comes to the recent growth in reporting requirements in this area. For example, in October 2014 the EU Directive on the disclosure of non-financial information was finalized and requires around 6,000 companies to disclose information on areas such as human rights performance by 2017. In the US we have seen legislation such as the 2012 US Dodd Frank Act (Conflict Minerals Disclosure) and the California Transparency in Supply Chain Act of 2010 also bring in similar measures.
3. Reputational risk to investors themselves – As shareholders we ourselves face real reputational damage, including public censure by the OECD, if we are not perceived to have robust risk management and due diligence procedures in place to assess investee company risks related to human rights. The most notable examples of this was when two large European investors were rebuked under the OECD’s ‘National Contact Point’ system in 2013 for applying insufficient human rights due diligence over their investments in South Korean company Posco – even though both were only minority small shareholders with relatively small stakes in the company.
Watch this space
Amid the many laudable initiatives in this area the creation of this new Reporting Framework stands out. And it does not stop with an investor statement. Later this year the same investor coalition will also launch a collaborative investor engagement to ask a select group of companies in in high-risk sectors – such as apparel, extractives, and ICT – to consider adopting use of the Reporting Framework.
We invite other responsible investors to join our coalition and to ensure that all companies begin to measure, manage and disclose their human rights performance.
Lauren Compere is a Managing Director at Boston Common Asset Management and sits on the Governing Board of the Interfaith Center on Corporate Responsibility.