Overview

The guide summarises human rights and their management in the investment process for asset owners. It is divided into two main parts and concludes with an agenda to promote respect for human rights within the financial system. Links to additional resources are provided throughout the guide.

Part 1: The relevance of human rights

Human rights matter to asset owners due to legal responsibilities, beneficiaries’ sustainability preferences, financial materiality, and reputational risk. The UN Guiding Principles on Business and Human Rights (UNGPs) provide a framework, with three pillars: state duty to protect, corporate responsibility to respect, and access to remedy. Regional regulations, such as the EU’s Sustainable Finance Disclosure Regulation, also apply.

Defining human rights

Human rights are universal and interrelated, entitling everyone to be treated with dignity without discrimination. Key international standards include the International Bill of Human Rights and the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work. Human rights are central to the ‘social’ pillar of ESG factors.

Why human rights matters to asset owners

• Legal responsibility: Institutional investors have a responsibility to respect human rights through a set of policy and process requirements, as set out in the United Nations Guiding Principles (UNGPs) on Business and Human Rights.
• Financial materiality: There are many ways in which human rights issues can affect the performance of individual investees. For example, companies can face higher operational and legal costs due to community conflicts, and they can receive considerable legal penalties if they do not appropriately manage private data.
• Beneficiaries’ sustainability and ethical preferences: An increasing number of asset owners’ beneficiaries are interested in ensuring their money is invested in a manner that aligns with their values, including respect for human rights. For some asset owners, particularly foundations and endowments, promoting human rights for ethical reasons is core to their mission. For this reason, human rights considerations are central to how they manage their portfolios.
• Reputational risk: Media organisations, NGOs and other campaigning groups track how institutional investors allocate their funds. News of asset owners’ investments being implicated in human rights abuses generates significant attention. Respecting human rights helps to safeguard against potential reputational damage.

Part 2: Approaches asset owners can take

Asset owners can adopt various strategies to manage human rights:

Policy, governance, and strategy

• Adopt a policy commitment to respect human rights, approved at the senior level and integrated into governance frameworks.
• During the 2023 PRI reporting cycle, 65% of asset owners reported having publicly available policies covering social issues.

Disclosure

• Regular reporting keeps stakeholders informed of human rights policies and practices.
• Public reporting on human rights indicators is increasingly mandated by lawmakers, e.g., the EU’s SFDR.

Stewardship

• Conduct stewardship activities to honour human rights commitments, either independently or collaboratively.
• Engage with various stakeholder groups on human rights issues, including investees, managers, policy makers, and civil society.

Recommendations and next steps

• Support institutional investors to implement the UNGPs through knowledge-sharing and practical materials.
• Increase accountability among signatories via human rights questions in the PRI Reporting Framework.
• Facilitate investor collaboration through initiatives like Advance.
• Promote policy measures and drive meaningful data to help manage human rights risks.