Week of 18 May 2020
An alliance of asset owners and managers finds that addressing risks to people as part of efforts to integrate ESG into investment activities remains widely neglected, and provides guidance on how to thread the UN Guiding Principles throughout ESG practices (Investor Alliance for Human Rights)
The Investor Alliance for Human Rights has released a toolkit for institutional investors, developed with input from asset owners and managers from a range of countries, designed to support investors in addressing risks to people in their own business and across their investment value chains.
The toolkit starts with a call to action which reminds institutional investors why “[t]his is the moment that investors need to get the ‘people part’ of ESG right or risk missing the mark with disastrous consequences for people, sustainable development, and the sustainable finance movement as a whole.” One reason (among others) is new EU rules requiring European investors to disclose the steps they have taken to address the adverse impact of their investment decisions on people and the planet. (EU member states have until May 2021 to implement these rules).
The toolkit highlights a significant limitation. “While a growing group of mainstream investors are integrating ESG criteria into their investment activities, many institutional investors are still far from doing so. Moreover, assessing and addressing risks to people in investments remains widely neglected and underestimated within the investor community, even among those that do integrate current ESG considerations into their policies and practices. Compounding this problem, ESG ratings criteria and relevant frameworks are far from being uniform and aligned with human rights standards. At the same time, ‘human rights’ are too often characterized by institutions as ‘niche’ or only relevant to active investment strategies, rather than understood as an embedded across a wide range of ESG-related concerns and all forms of investment.”
The toolkit specifically discusses the value of the UN Guiding Principles to investors – going beyond the S. “While most evidently relevant to the ‘S’ in ESG, the UN Guiding Principles provide a management system approach, replicated by the OECD, that can assist investors with systematically assessing and addressing a broad range of ESG risks and impacts. This approach allows investors to more appropriately focus on credible processes and outcomes rather than often impractical and inefficient ‘issue-by-issue’ or ‘sector-by-sector’ approaches.” The toolkit describes the benefits to investors of threading the UN Guiding Principles throughout their ESG practices.
The toolkit then sets out a framework to guide investor action on human rights at (1) the institutional level and (2) the investment level. Of particular note, the toolkit provides:
- A table providing real-life examples of investor leverage, ranging from company dialogues, shareholder resolutions and proxy voting, peer-to-peer initiatives, multi-stakeholder engagements, regulatory and civil society engagement
- A checklist for investor human rights policy commitments and for investor human rights governance
- A set of questions that asset owners should request of asset managers to ascertain the extent to which assets are managed in line with the UN Guiding Principles
- Guidance to support investors in prioritizing opportunities for engagement and key human rights questions investors can ask of companies to exercise their leverage
- Template human rights resolutions to use in influencing portfolio companies