Introduction

Investor understanding of materiality is expanding from a financial focus to include environmental and social impacts. This “double materiality” considers how companies affect people, the environment, and the economy, and how these, in turn, influence financial outcomes. The report proposes that investors use the saliency-materiality nexus to target contexts where severe human rights harms intersect with financially material risks.

While progress has been made in environmental stewardship, human rights risks in conflict-affected and high-risk areas (CAHRA) remain under-addressed. Rising global conflict and the integration of human rights into legislation and reporting frameworks are increasing pressure on investors to align financial strategies with social responsibilities.

The challenge

Geopolitical conflict and authoritarianism are increasing, with global freedom declining for 16 consecutive years. By 2030, two-thirds of the world’s poor are expected to reside in fragile and conflict-affected settings. In 2023, there was a 12% rise in conflict incidents from the previous year. These settings, classified as CAHRA, involve polythreats such as climate crises, cyber-attacks, and forced displacement.

Investors face challenges due to poor data on corporate proximity to human rights harms, limited resources, and a lack of context-specific analysis. Regulatory frameworks on human rights risks are emerging, but tools tailored to investor needs are scarce. Existing “S” data lack consistency, quantitative depth, and decision-usefulness compared to environmental data.

The solution

The saliency-materiality nexus identifies where human rights harms lead to financially material impacts. These include regulatory fines, legal liabilities, reputational damage, and operational disruptions. CAHRA are particularly prone to this nexus due to state fragility, violence, and poor governance.

Twelve case studies show over USD 85 billion in financial losses linked to corporate proximity to human rights harms. These include BNP Paribas’s USD 8.9 billion fine for Sudan-related sanctions violations, ZTE’s USD 7 billion market cap loss from export controls, and Westpac’s AUD 1.3 billion AML fine. Other examples include Shell’s cumulative legal settlements in Nigeria and Hikvision’s USD 26 billion drop in market value due to restrictions linked to Uyghur surveillance.

Recommendations include enhanced due diligence, proactive risk identification, stakeholder engagement, and responsible exit strategies when mitigation is not feasible.

The practice

The Heartland Initiative developed the nexus as a practical tool for institutional investors. It assesses corporate exposure through geographic, relational, and operational proximity to human rights harms in CAHRA. Heartland supports investors with analysis, case studies, and engagement strategies that focus limited resources on the most systemic risks.

Wespath applies the nexus through an invest-engage-avoid model. It categorises holdings based on CAHRA exposure and adjusts investment and engagement strategies accordingly. In a case involving Mondelez’s operations in Russia, Wespath filed a shareholder resolution after dialogue failed to address risk concerns.

Schroders incorporates the nexus into its Global Norms Framework and due diligence processes. The firm uses proprietary tools such as SustainEx™ to estimate social and environmental externalities. For example, Schroders engaged with firms affected by the Russia-Ukraine war to assess forced labour risks among refugee populations. Companies are expected to adapt policies for conflict contexts and conduct enhanced human rights due diligence.

Conclusion

The saliency-materiality nexus is presented as a contextual and standardised framework for identifying and prioritising systemic social risks. It enables investors to fulfil fiduciary and legal responsibilities by aligning investment, engagement, and exclusion decisions with emerging human rights and sustainability obligations.