Background and focus

This report by the United Nations Working Group on Business and Human Rights examines how investors utilise ESG and sustainability approaches globally. It seeks to raise awareness about investor practices and their responsibilities to respect human rights, clarify these responsibilities under the UNGPs, and provide recommendations. The Working Group identified a significant gap where financial sector actors often fail to integrate human rights standards with ESG criteria due to a lack of understanding.

Key findings

1. Varied ESG Approaches: ESG and sustainability approaches differ widely among investors, strategies, and asset classes. The absence of uniform definitions and global standards leads to risks of greenwashing and human rights-washing.
2. Need for Regulation: Implementing consistent and robust standards through regulation can bridge silos between environmental, social, and governance criteria, ensuring human rights considerations are applied universally.
3. Double Materiality: Adopting a double materiality approach, which combines financial and impact materiality, can help identify, prevent, mitigate, and account for adverse human rights impacts in alignment with the UNGPs.
4. Transparency Issues: Current ESG rating methodologies lack transparency and consistency and do not adequately include human rights data. Investors require decision-useful data from investees on human rights and their alignment with the UNGPs across ESG criteria.
5. Centrality of Human Rights: Investors must prioritise risks to people and the planet in their decision-making. This includes embedding human rights into policies and strategies, ongoing due diligence, and remediating adverse human rights impacts.
6. Collaborative Efforts: A collaborative effort between investors, investees, states, and rightsholders is crucial to achieving meaningful access to remedies and ensuring appropriate stakeholder consultation.
7. Different Approaches: Investors can fulfil their human rights responsibilities in various ways, depending on the type of investor, asset class, and investment strategies.

Key recommendations to states

1. Strengthen Regulation: Develop and enhance legislation on ESG and sustainability approaches.
2. Policy Coherence: Ensure policy coherence by clarifying definitions of ESG and sustainability aligned with the UNGPs and international human rights law.
3. Implementation Support: Support the development and implementation of ESG and sustainability investment approaches that account for human rights.
4. Enforcement Mechanisms: Establish robust enforcement mechanisms, including legal frameworks requiring human rights due diligence and reporting on investee actions.
5. Access to Remedies: Ensure affected rights holders have access to effective remedies.

Key recommendations to investors

1. Embed Human Rights: Integrate human rights into ESG and sustainability policies and strategies with senior-level oversight.
2. Human Rights Due Diligence: Conduct human rights due diligence prior to investing and continuously thereafter, assessing the potential impacts and tracking the effectiveness of these efforts.
3. Stakeholder Engagement: Prioritise meaningful engagement with stakeholders.
4. Conflict-Affected Areas: Undertake heightened human rights due diligence for investments in conflict-affected areas and high-risk sectors.
5. Use of Leverage: Utilise leverage over investees to ensure respect for human rights.
6. Responsible Divestment: Divest responsibly, in alignment with the UNGPs, when leverage cannot change investee practices.
7. Access to Remedy: Promote and enable access to remedy for affected rightsholders.
8. Integration Across ESG: Better articulate the interconnected nature of ESG criteria to ensure human rights considerations are integrated into investment strategies.
9. Capacity Building: Invest in capacity building and human rights education, and undertake research and peer-learning to share good practices.
10. Improved Data: Advocate for improved, coherent, and standardised human rights data from commercial data providers and proxy voting agencies.

Key recommendations to other actors

1. Business Disclosure: All businesses should disclose their implementation of their responsibility to respect human rights under the UNGPs.
2. Data Providers: Commercial data providers and proxy voting agencies should offer clear and transparent methodologies on human rights performance.
3. ESG Indexes: ESG and sustainability indexes should develop criteria to align with the UNGPs.
4. Professional Advisors: Advisors should guide investors on the need for alignment with the UNGPs.
5. CSOs and Trade Unions: Continue to provide human rights impact data and play a pivotal role in education.
6. UN System: Provide practical guidance on the UNGPs for the financial sector.