Background

The report, submitted to the Human Rights Council, clarifies the responsibilities of investors regarding human rights under the Guiding Principles on Business and Human Rights. It highlights the integration of human rights considerations within environmental, social, and governance (ESG) investment approaches.

Objectives

The report aims to raise awareness among investors about their human rights responsibilities, clarify baseline responsibilities under the Guiding Principles, and provide recommendations for aligning ESG approaches with these principles.

Methodology, definitions and scope

The report draws from submissions by over 70 stakeholders, including states, businesses, civil society organisations, and international bodies. It includes insights from consultations in various cities and a review of relevant literature and policies. The focus is on institutional investors, comprising asset owners and managers, but excludes fintech, insurance companies, and retail investors.

Context

ESG data and human rights

Investors primarily rely on corporate disclosures, media reports, and commercial data providers to identify human rights impacts. The report notes the need for more decision-useful information and better data from investees, emphasising qualitative and forward-looking assessments.

Materiality and human rights

The report discusses financial and impact materiality, stressing the importance of considering both to understand the full scope of human rights impacts. It highlights frameworks like the Global Reporting Initiative and the European Sustainability Reporting Standards, which support the assessment of impact materiality.

ESG under a guiding principles lens

State duty to protect human rights

The report underscores the role of state legislation in fostering investor respect for human rights. It suggests integrating investors into national action plans on business and human rights and ensuring consistent standards across different types of investors and asset classes.

Examples of state initiatives on ESG investments

Various countries and regions have adopted regulations to integrate ESG criteria into investment practices. For instance, India and Japan have addressed ESG data providers’ transparency, while the European Union has included human rights in its sustainable finance disclosures regulation.

Enforcement of state legislation

Effective enforcement combines sanctions with incentives to foster transparency and accountability. The report mentions actions by regulatory bodies like the Financial Conduct Authority in the UK and the US Securities and Exchange Commission against greenwashing and misleading ESG labelling.

Investors’ responsibility to respect human rights

Policies

Investors are expected to adopt and publish human rights policies, approved at the highest level, and integrated into their operations. The report notes that over 1,900 signatories of the Principles for Responsible Investment initiative have guidelines on human rights.

Human rights due diligence

Investors should conduct human rights due diligence, including identifying and assessing human rights impacts, integrating findings into decision-making, and tracking and communicating performance. This includes specific attention to gender-based impacts and vulnerable groups.

Recommendations

The report provides several recommendations:

• Adopt human rights policies: Investors should develop and publish policies that align with the Guiding Principles.
• Conduct due diligence: Implement comprehensive human rights due diligence processes, including pre- and post-investment assessments.
• Enhance data quality: Improve the quality and transparency of human rights data from investees.
• Engage stakeholders: Foster engagement with affected stakeholders, including Indigenous Peoples and local communities.
• Support regulations: Advocate for and comply with regulations that integrate ESG and human rights considerations.

By aligning their practices with these recommendations, investors can better fulfil their responsibilities under the Guiding Principles and contribute to more sustainable and ethical investment landscapes.