Chloë Poynton, Manager, Advisory Services, BSR

The Guiding Principles on Business and Human Rights have provided significant clarity on the responsibility of businesses to respect human rights in their activities and business relationships. While this responsibility extends to investment firms as companies, there is little clarity on their role in respecting human rights through investment decisions.

Last week, I attended the launch of a report that answers this very question. “Investing the Rights Way” (PDF) developed by the Institute for Human Rights and Business, Calvert Investments, and the Interfaith Center on Corporate Responsibility, provides a framework to help investment firms and financial service providers better understand a company’s human rights performance. The report identifies three elements of the Guiding Principles that investors should consider as part of their due diligence process:

  1. Human rights policy: Does the company have a human rights policy that is aligned with the Guiding Principles?
  2. Human rights due diligence: Does the company “know and show” its respect for human rights through a robust due diligence process?
  3. Grievance mechanisms and remedies: Does the company have grievance mechanisms in place and a system for delivering remedies if human rights infringements occur?

At BSR, we have assisted numerous companies in drafting human rights policies, implementing due diligence processes, and developing appropriate remedies. The companies we have worked with are increasingly transparent about their human rights activities, yet many mainstream investors have yet to integrate this data into their investment decisions. BSR is now helping investment firms and financial service companies better understand company performance when it comes to human rights and then integrate human rights data—which is becoming increasingly public.

Investors should note that human rights are important to respect regardless of a business case. However, a company that infringes upon human rights also presents an investment risk, as the violating company is likely to face operational, legal and regulatory, and reputational costs.

While there are no easy answers when it comes to human rights due diligence, BSR recommends that investment firms and financial service providers integrate human rights into their due diligence process by:

  1. Developing a policy on investing in areas with significant human rights risks:  A policy that establishes baseline requirements for investing in companies with significant human rights risks will minimize financial risks and strengthen both investor and corporate respect for human rights.
  2. Identifying human rights indicators to incorporate into investment decisions: These indicators will vary by industry and geography but can be used to benchmark companies effectively and determine sound investment decisions.
  3. Communicating on progress: Transparency on how human rights factor into investment decisions signals the importance of human rights due diligence to companies, informs interested stakeholders, and provides opportunities to share insights and lessons learned among investors.

As an investor, I care about the companies I invest in. I do not want to be exposed to the moral and financial risks associated with companies that perpetrate human rights infringements. And the US$3.47 trillion dollars already invested in socially responsible investments suggests that I am not alone. My hope for this report is that investment firms and financial service companies integrate human rights into their investment decisions, helping to deliver strong financial returns while rewarding companies that “know and show” their respect for human rights.