Background and context

The environmental, social and governance (ESG) investing has evolved significantly, and responsible business regulations have already been implemented in several countries. This has led to changes in institutional investors’ roles and responsibilities, requiring them to understand the impact of their investments on people and the planet. The report states that these regulations have compelled European investors to disclose the steps they have taken to address adverse impacts of their investment decisions.

The capacity challenge

Despite growing interest in ESG investing, most investors lack a mature understanding of how human rights are a necessary component of a responsible investment strategy. Investors are not equipped with practical tools tailored to their day-to-day activities to ensure that their investments align with human rights standards.

The human rights framework

The UN Guiding Principles on Business and Human Rights guide institutional investors as business actors to respect human rights, but investors lack uniform and aligned ESG ratings criteria and relevant frameworks to suit human rights standards.

At the investment level

Investment professionals must be well-informed and equipped with practical tools to address human rights risks in the making and managing of investments. Investor human rights reporting is vital to ensure investors are accountable for managing risks relating to people in connection with their investment activities.

Recommendations

The report recommends that investors should formally communicate their human rights expectations among all business relationships. They should publicly communicate their human rights expectations with potential portfolio companies. Additionally, institutional investors should integrate human rights throughout their investment activities and engage in investor coalitions and initiatives that develop and promote human rights. Lastly, engagement with human rights remains challenging for institutional investors, and ESG investors must not neglect human rights.

In conclusion, the report highlights the critical role institutional investors should play in changing the reality surrounding business activities and fostering business that benefits individuals, communities, and broader societies. With tools, case studies, and standard-setting activities, this Investor Toolkit encourages proactive management of human rights risks.