Introduction

Institutional investors have a three-part responsibility to respect human rights: adopting policy commitments, conducting due diligence, and ensuring access to remedy. Due diligence should be applied before and after investment, both proactively and reactively. Negative human rights outcomes should be assessed across the investment life cycle. Priority should be given to addressing the most severe risks or those which may become irremediable if not acted on swiftly.

Objective and scope

This guide presents a systematic approach for equity and corporate debt investors to identify and prioritise human rights risks post-investment. It responds to limitations in ESG ratings and data inconsistencies by offering a structured methodology. Applicable to both asset owners and managers, the guide emphasises the need for asset owners to set expectations with managers and monitor actions through regular updates.

Human rights risk identification

Risk identification involves three tiers of analysis—country, sector, and company.

A. Country assessment
Step 1 involves mapping portfolio exposure to countries where companies are headquartered or operate, including value chains. Sources include the World Bank, Human Rights Watch, and the UN Human Rights Council.
Step 2 focuses on prioritising companies linked to high-risk countries, particularly those with weak rule of law or active state participation in rights violations. Conflict-affected regions require heightened scrutiny.

B. Sector assessment
Step 1 requires mapping sector exposure and assessing severity across three stakeholder groups: communities, workers, and end users. Data indicates that sectors such as metals and mining, agriculture, apparel, and construction are repeatedly associated with high numbers of allegations and workplace safety concerns.

Forced and child labour risks are high in agriculture, apparel, and mining. Living wage challenges are prominent in the Asian garment sector. Gender gaps are notable in sectors like automotive manufacturing.
Step 2 recommends using traffic light or heat map templates to prioritise high-risk sectors. Sector A in the example template faced high risks across all categories, warranting further action.

C. Company assessment
Step 1 involves mapping human rights exposure across operations and value chains. Publicly available sources include corporate disclosures, civil society reports, and human rights benchmarks.

Step 2 suggests using a template combining performance metrics (e.g., WBA scores) and controversy indicators (e.g., BHRRC allegations) to rate companies. In the example, Company B and E were prioritised for action due to low performance and high controversy exposure.

Act

Investors are advised to assess severity, likelihood of improvement, financial importance, and potential outcomes of divestment before acting. Actions may include engagement, increasing leverage through collaboration, or divestment if outcomes cannot be improved. Staying invested while maintaining communication is appropriate when constraints exist.

Prevent/mitigate and enable remedy

Investors can use stewardship tools like engagement, voting, filing shareholder resolutions, and litigation to influence company behaviour. Bondholders may exert influence during capital raising. Broader stewardship can include policy engagement and setting expectations with third-party service providers. Collaboration is encouraged where leverage is limited.

Divest and communicate

Divestment may be necessary when engagement fails. However, its human rights implications must be weighed. If divesting, investors should explain the rationale and outline criteria for potential re-investment.

Appendix: Asset owner questions for investment managers

Asset owners should ask managers how they identify and prioritise human rights risks, what data and stakeholder inputs they use, and how risks affect allocations. Monitoring and communication practices should also be reviewed. Contractual commitments aligned with the UNGPs are recommended.