Introduction

This guide outlines how investors can integrate human rights due diligence (HRDD) into ESG processes, with a primary focus on listed equities and applicability across private equity, fixed income, infrastructure and real assets. It highlights implementation gaps, noting that a 2020 review of 75 large asset managers found 61% had weak or non-existent human rights engagement and 20% were reactive only. The guide positions HRDD as central to responsible investment and aligned with evolving global standards.

What is HRDD in ESG investing?

HRDD is described as an ongoing process to identify, prevent, mitigate and account for adverse human rights impacts linked to investment activities and business relationships. Drawing on the UN Guiding Principles and OECD Guidelines, it outlines four core elements: assessing impacts, integrating findings, tracking responses and communicating outcomes, alongside enabling access to remedy.

The guide explains the shift from soft law to hard law, referencing Australia’s Modern Slavery Act, the EU Sustainable Finance Disclosure Regulation, France’s Duty of Vigilance Law and the EU Corporate Sustainability Due Diligence Directive. It emphasises prioritising severity (saliency), understanding leverage and embedding HRDD throughout the investment lifecycle.

Why HRDD matters for investors now

The guide links severe human rights risks to financial materiality through litigation, operational disruption, regulatory scrutiny and reputational harm. Expanding legislation increases potential liability and governance expectations.

Case studies demonstrate financial consequences. Boohoo’s labour abuses led to roughly 40% market value erosion (over £1.5 billion) and a £100 million investor lawsuit. Malaysian glove manufacturers faced US import bans over forced labour, causing volatility and investor exclusions. OECD National Contact Point complaints involving ING, Barclays and HSBC illustrate reputational and regulatory exposure. In contrast, Storebrand’s divestment from Dakota Access Pipeline companies shows how structured HRDD can reduce risk.

Barriers to HRDD adoption

Investors face limited outcome-based social data, particularly in conflict-affected and high-risk areas. Disclosures often focus on policies rather than impacts. Assessing severity over likelihood requires judgement, and internal capability gaps, minority holdings, engagement constraints and short-term incentives can impede effective implementation.

How investors can integrate HRDD

The guide aligns integration with OECD due diligence steps: embedding policy, identifying and assessing risks, preventing and mitigating harm, tracking effectiveness, communicating actions and enabling remedy.

Pre-investment screening should prioritise salient sector and geography risks using NGO reports, grievance data and specialised benchmarks. Risk assessments should evaluate severity and investor linkage.

Decision-making should incorporate expectations into mandates and covenants, with escalation pathways from engagement and voting to collaborative action or divestment. Active stewardship, particularly in listed equities, enhances leverage.

Monitoring should focus on measurable outcomes for affected people, such as remediation and wage improvements. Effective governance requires board-level commitment, defined roles, training, resourcing and transparent disclosure that protects impacted stakeholders.

Case Studies

The case studies show that inadequate HRDD can result in litigation, regulatory action, import bans, share price volatility and reputational damage. They also demonstrate that escalation, exclusion and collaborative engagement can mitigate exposure and support remediation.

Conclusion

The guide concludes that embedding HRDD within ESG integration strengthens risk management, stewardship and long-term portfolio resilience. With mandatory due diligence expanding globally, systematic HRDD integration is presented as essential to credible investment practice.