Introduction

Climate change is a pressing human rights issue, as it negatively affects various aspects of human life, including security, food production, water supplies, health, and living conditions. The guide emphasises the need for a ‘just transition’ to a sustainable global economy, with human rights at the centre of climate change responses. It also highlights that institutional investors are uniquely positioned to mitigate climate-related human rights risks.

Climate change and human rights

Climate change has a direct impact on human rights, disproportionately affecting vulnerable populations. The report provides examples from around the world, including Australia, the Torres Strait Islands, Pacific Island nations, sub-Saharan Africa, and North America. These examples illustrate the diverse ways in which climate change threatens fundamental rights such as the right to life, health, food, water, and housing. It also discusses the human rights impacts caused by the transition towards sustainable energy, such as child labour and modern slavery in cobalt mining for renewable technologies.

Why institutional investors?

Institutional investors, controlling substantial assets, have significant leverage and responsibility in addressing climate-related human rights risks. They can directly manage risks facing companies and sectors and indirectly support stable systems through investments in climate-resilient infrastructure. The guide emphasises that responsible investing is gaining momentum, driven by factors like strong financial performance, increased awareness of social and environmental responsibility, and evolving consumer expectations.

Responsibilities of institutional investors

Institutional investors have responsibilities under international frameworks, domestic laws, and disclosure requirements to address climate-related human rights risks. International instruments like the UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises establish expectations for companies and investors to respect human rights and mitigate adverse impacts. The guide also mentions the dangers of poor-quality disclosures, ‘greenwashing’, and the emerging spotlight on ‘bluewashing’.

Risk to people, risk to business

The guide highlights the regulatory, litigation, and reputational risks that institutional investors face if they fail to address climate-related human rights impacts. Regulatory risks arise from evolving government policies and mandatory disclosure requirements. Litigation risks stem from the increasing number of lawsuits related to climate change and human rights violations. Reputational risks are associated with growing societal expectations for responsible investing and ethical business practices.

Opportunities and leadership

Investors have the opportunity to effect meaningful change by mitigating climate change risks and pursuing sustainable outcomes. They can exercise their influence through collective action, engagement with investee companies, and shareholder activism. The guide emphasises the concept of investor stewardship, where investors actively influence and collaborate with stakeholders to maximise the long-term value of their investments. It also discusses the potential of impact investing, where capital is intentionally allocated to activities and enterprises that address global challenges.

Action plan for investors

• Embed climate-related human rights risk management into governance frameworks: Recognise the link between climate change and human rights, express commitment to protecting human rights, establish accountabilities, and conduct human rights due diligence.
• Explore potential strategies: Exclude investments based on climate-related human rights risks, affect change through corporate engagement and shareholder action, and allocate capital towards solutions like impact investing.
• Monitor and evaluate the effectiveness of these actions: Monitor the investment decision-making process, engage with other investors, measure and report on the effectiveness of responsible investment programs, and establish grievance mechanisms.
• Receive grievances and provide remedy: Publicise expectations for investee companies to remediate adverse human rights impacts, receive and act on grievances, and engage with companies directly linked to adverse impacts.