This report highlights how institutional investors can respect human rights as defined by international standards. The UN Guiding Principles on Business and Human Rights (UNGPs) outline investor’s responsibilities, whose violations could lead to erosion of its social license to operate. Meeting human rights expectations leads corporates and investors to more effectively manage complex ESG issues.

The six principles

Environmental, social, and governance (ESG) issues affect investment portfolios to varying degrees across companies, sectors, regions, asset classes, and through time. By committing to the six principles of ESG investing, institutional investors can align themselves with broader societal objectives and promote ESG acceptance within the investment industry. The six principles are:

• Incorporate ESG issues into investment analysis and decision-making processes.
• Be active owners and incorporate ESG issues into ownership policies and practices.
• Seek appropriate disclosure on ESG issues by entities in which the investors invest.
• Promote acceptance and implementation of the Principles within the investment industry.
• Enhance effectiveness in implementing the Principles.
• Report on activities and progress towards implementing the Principles.

How to respect human rights in investment activities

Investors must embed their approvals throughout the organization and integrate them into governance frameworks, management systems, investment beliefs, policies, and strategies to inform investment decisions. They must seek to identify actual and potential negative outcomes for people arising from investees. The UNGPs recommend the following steps to respect human rights in investment activities:

• Adopt a policy commitment to respect internationally recognized human rights.
• Assess the potential and actual negative human rights outcome to decide whether to engage or divest.
• Engage or divest if the investor has insufficient leverage.
• Prevent/mitigate and enable remedy if the investor has leverage.
• Seek to increase leverage if the investor has leverage, but there is no good response.

A global framework on business and human rights

Organisations have an independent responsibility to respect human rights. Investors should consider actual and potential negative outcomes, even when states fall short in protecting human rights. Leading investors recognize that meeting international standards also leads to better financial risk management and helps to align their activities with the evolving demands of beneficiaries, clients, and regulators. The report provides links to guidance documents and toolkits to facilitate investors in respecting human rights in investment activities.

Conclusion

This report urges institutional investors to respect human rights in all their investment activities. It provides recommendations so that they can meet international standards and enact best practices. By doing this, investors would better align themselves with the broader societal objectives and promote acceptance of human rights within the investment industry.