Investors play an important role in engaging proactively with companies on developing policies and tools that can prevent human rights violations, rather than only reacting to them once they have happened.

Investors are increasingly aware and concerned about the significant potential and actual operational, legal and reputational risks companies might face when they do not take adequate steps to manage human rights issues. These could include project delays and cancellations, lawsuits and significant fines, and negative press coverage and reputational damage.

As evidenced by an academic study cited in the paper, successful investor engagements can improve profitability at target companies. Therefore, it makes financial sense for investors to actively engage with companies. Meanwhile, extractive companies that manage human rights well can ensure inclusive socio-economic development and reap benefits from several opportunities.

The extractive sector consists of companies operating in mining, oil and gas. Companies in these industries tend to have big operational footprints, although the scale of operations can vary considerably among different players (e.g. oil majors and large mining companies vs smaller operators or joint ventures). There are various phases in the value chain of an extractive company/project, which mean that different risks and impacts may occur at different points: exploration, extraction and preparation, transport, processing, distribution and consumption – and decommissioning (once the project has reached it end of life).

Key human rights issues facing the extractives sector include: employee/labour relations, security, human trafficking and sexual exploitation, artisanal and small-scale mining disputes, community engagement relating to impacts such as water quality and land access, rights of Indigenous people and environmental impacts. These arise from operations in high-risk locations, use of unskilled labour, hazardous working conditions, lack of collective bargaining and freedom of association, and accidents. As noted above, these may or may not occur in different forms and magnitudes depending on the stage of the project.

The UN PRI (Principles for Responsible Investment) conducted a global engagement project in 2015-2017, applying the UN Guiding Principles as a framework. The engagement targeted a group of 32 extractive companies on six core areas and objectives: response to human rights incidents or allegations; human rights commitment; governance; human right risk assessment; stakeholder engagement and grievance mechanisms; business relationships. The report includes key insights for successful company engagement, examples of good practice from target companies, as well as areas to watch for improvement.

This research may be particularly useful for institutional investors who are currently engaging with companies, or planning to, and for companies who are being targeted by investor engagement on human rights issues or who are in the process of developing and/or strengthening their approach to managing human rights issues.

1. Active investor engagement with companies makes financial sense and can improve profitability at targeted companies.
2. By managing human rights well, companies in the extractives sector can ensure inclusive socio-economic development and benefit from several opportunities.
3. There are a variety of human rights issues facing companies in the extractive sector, depending also on the stage of the value chain, and this is important to consider for effective engagement.
4. All 32 companies engaged with disclosed a public human rights policy commitment, and 75% of them have incorporated human rights considerations into their risk management processes.
5. During the engagement period, target companies made significant progress in their reporting and disclosure on the key six core areas and objectives.
6. For target companies, implementation of commitments as well as monitoring and tracking the effectiveness of existing processes remained areas for improvement after the engagement period.
7. Engaging with both laggards and leaders, geographical proximity, connections with relevant people and top level company representatives, multi-stakeholder initiatives, and company culture were key for successful engagements.