The past four years have seen a proliferation of legislation addressing human rights and social issues. The European Parliament’s Corporate Sustainability Due Diligence Directive is the most significant recent example, but this regulatory trend is happening on a global scale.[1]
Figure 1: Increase in due diligence laws by region since 2010
Source: S&P Global Ratings
Beyond direct regulatory risks, investors are asking themselves several questions related to broader societal trends.
- How do we assess and respond to the systemic risks posed by growing economic inequality?
- How can you prevent or mitigate the potential impact of regional or geopolitical conflicts on your portfolio?
- In what areas will AI pose risks and opportunities, and how will it change the relationships between companies and stakeholders?
- How do we manage the inherent supply chain risks associated with the low carbon transition?
In other words, investors are increasingly concerned not only about opportunities related to the human rights and social performance of their portfolio companies, but also about legal, reputational and operational financial risks.
We conducted an in-depth analysis of 2023 signatory reporting data to analyze how the more than 3,700 PRI signatories (specifically asset owners and investment managers) are implementing human rights standards in global markets. It is perhaps unsurprising to find that there has been a surge in investor activism on human rights as a means to navigate a challenging investment environment.
In recent years, we have worked closely with signatories to provide guidance and tools to help investment organizations strengthen their human rights governance and due diligence.
Our guidance and signed reporting framework is based on recognised international human rights frameworks such as the United Nations Guiding Principles on Business and Human Rights (UNGPs) and its three requirements: policy commitments, due diligence and access to remedies.
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Key findings
The results of the 2023 reporting cycle show that human rights and social issues are becoming increasingly important to institutional investors, and signatories are taking more action to shape real-world outcomes.
- More than half of the signatories have responsible investment (RI) policy commitments that include guidelines on human rights.78% of RI signatory policies have broader guidelines on social issues, up from 69% in 2021. More signatories in Europe and Oceania are incorporating and publishing these guidelines.
- total 2,251 signatories, or 60% of those reporting in 2023, said they use one or more human rights and labour rights frameworks. To identify intended and unintended sustainability outcomes associated with their investment activities, companies developed sustainable investment strategies. Of these frameworks, the United Nations Sustainable Development Goals (SDGs) were the most commonly used, followed by the UNGPs and the OECD Guidelines for Multinational Enterprises (OECD Guidelines).
- Adoption of the UNGPs and OECD Guidelines has increased most notably among investment managers. (An increase from 18% to 30% of signatories in two years). A large number of asset owners continue to use these frameworks to identify human rights outcomes. A total of 950 investment managers and 235 asset owners report using these frameworks, representing US$61.8 trillion and US$13.2 trillion in assets under management (AUM), respectively. The adoption of these frameworks is primarily a European phenomenon, with 71% of signatories using these frameworks being from this region.
- About 11% of signatories reported that it enabled access to relief.Of these, 8% provided access to relief through engagement with their investees, and around 3% provided access to relief directly themselves.
Although an increasing number of signatories have adopted the human and labour rights framework, only a minority of PRI signatories (9%) have taken action across all three pillars outlined in the UNGPs (policy commitments, due diligence and access to remedies).
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