The report of the Working Group on the issue of human rights and transnational corporations and other business enterprises focuses on investors, environmental, social and governance approaches and human rights [A/HRC/56/55, en/fr/es].
Purpose: This report aims to clarify the responsibilities of investors concerning human rights under the Guiding Principles on Business and Human Rights. It also seeks to align investors' ESG and sustainability approaches with their human rights responsibilities.
The responsibility to respect human rights means that investors should not cause or contribute to adverse human rights impacts, and should seek to prevent or mitigate such impacts that are directly linked to their operations, products or services by their business relationships, including in their value chain.
Key Sections
Introduction:
ESG-focused investment products are growing, indicating increased recognition of their importance. Financial actors can significantly influence companies and enhance the implementation of the Guiding Principles on Business and Human Rights.
Context:
OECD guidance on the financial sector, the toolkit from the Investor Alliance for Human Rights, and the Principles for Responsible Investment, contextualize the responsibility to respect human rights in investments by taking into account ESG approaches and show how investors can fulfill their responsibility to respect human rights.
General issues:
ESG Approaches: They are widely varied, often lacking uniform definitions and specific global standards. There is a risk of green-washing and human rights-washing.
Material or decision-useful information:
“Financial materiality” considers how ESG and sustainability criteria, including human rights aspects, can present risks and opportunities for an investor and, ultimately, affect the ability of the investor to create value or generate improved risk-adjusted returns. It is characterized by an “outside-in” view of ESG criteria (that is, how these criteria affect an investee).
“Impact materiality” considers how an investee or investor can impact sustainability criteria (for example, impact on people and the planet). It is characterized by an “inside-out” view of these criteria (that is, how a business affects ESG criteria).
Both the Global Reporting Initiative and the European Sustainability Reporting Standards provide frameworks for obtaining data relevant to investors.
Implementation and Challenges:
Data and Transparency: Investors need more decision-useful information and better data from investees to assess human rights impacts.
Regulatory Environment: Existing regulations highlight the need for improved enforcement and harmonization across jurisdictions.
Negotiations are ongoing for an international legally-binding instrument to regulate in international human rights law the activities of transnational corporations and other business enterprises.
There is a pushback against ESG. In same States in the US, an investor may be required to consider certain ESG criteria, while in other States in the US, that same investor would be prohibited from considering such criteria in investment decisions.
Investors’ responsibility to respect human rights: Human rights due diligence includes identification and assessment of human rights impacts, stakeholder consultation, prioritization of actions, integration of assessment’s findings, exercise of leverage on investees, tracking investees’ responses, public communication and provision of access to remedy to rights-holders.
Recommendations:
For States: Develop and enforce regulations that include human rights considerations across all ESG criteria. Ensure policy coherence and robust enforcement mechanisms. State-owned financial institutions should comply with the Guiding Principles on Business and Human Rights.
For Investors: Adopt and publish policy commitments to respect human rights, conduct thorough human rights due diligence, and engage with investees and stakeholders to mitigate adverse impacts. Utilize leverage in investment decisions, stewardship, and stakeholder engagement.
Conclusion
Aligning ESG approaches with the Guiding Principles on Business and Human Rights can enhance human rights protection and support sustainable development. Both States and investors play crucial roles in ensuring that human rights are respected in all investment activities. For investors, fulfilling this responsibility can also help them to avoid or reduce legal, reputational, financial and operational risks.
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