In investment decisions, the incorporation of human rights considerations falls short, representing a missed opportunity for investors to exert significant influence in compelling companies to disclose information regarding adverse human rights impacts and to implement measures addressing these issues.
The persistence of human rights abuses by corporations can be attributed to various factors, including the complexity of global value chains, the insufficient integration of human rights in business practices, weak legal enforcement, a lack of comprehensive data, and limited pressure on corporations from investors.
Across the globe, individuals continue to endure the negative repercussions of corporate activities. Human rights violations stemming from mining operations remain prevalent, while tobacco companies pose a substantial threat to the right to health, sometimes employing unethical tactics to entice children into smoking. Many of these human rights transgressions, however, occur deep within the intricate web of global value chains, far removed from the larger companies that initiate these activities.
The persistence of such abuses is a consequence of the complexity of global value chains, the involvement of informal sectors, a historical lack of emphasis on human rights within Corporate Social Responsibility (CSR) efforts, feeble legal enforcement, and limited attention from investors, resulting in inadequate pressure on corporations to enhance their practices.
This raises the question of how to invest in a manner that upholds and bolsters human rights. In addition to the efforts of governments, civil society, and families, institutional investors possess significant potential to contribute. Nonetheless, institutional investors often assert that human rights are not an investable factor.
At best, they can currently invest in companies perceived to have relatively better practices than others, but with inadequate information to substantiate such claims or ascertain whether “better” genuinely meets the required standards. Information concerning a company’s adverse human rights impacts and its human rights performance is scarce, and it is seldom integrated into financial and sustainable databases or investment considerations.
The absence of sufficient data is problematic, particularly for the individuals affected who deserve protection and respect for their human rights in accordance with international treaties. Moreover, the consequences of climate change, biodiversity loss, and pollution increasingly lead to severe human rights violations. Consequently, the UN Human Rights Council recently declared a healthy and sustainable environment to be a universal right.
The deficiency of data also presents a broader societal concern, as society at large stands to benefit from increased justice, equality, and a more educated workforce. Countries with stronger institutions in these regards tend to have more resilient economies and social structures. Companies themselves should also be concerned, as they face significant business and reputational risks if they fail to ensure responsible conduct within their value chains, which is increasingly a concern for consumers as well. Additionally, businesses can reap the rewards of improved societal outcomes.
All of these factors make it a matter of concern for investors, particularly for universal owners such as large pension funds or insurers with investments in a substantial portion of the global economy. It is also relevant for investors who adopt a strictly financial perspective, as companies better prepared to operate sustainably, including their performance in human rights, are anticipated to deliver improved financial results. Investors capable of identifying and investing in such companies (or avoiding those that fall short) should stand to benefit.