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March 05, 2013
Investors Highlight Human Rights in Corporate Engagement
    by Robert Kropp

A new report builds upon the Guiding Principles on Business and Human Rights to provide investors with tools for assessing the human rights performance of companies.

In 2011, Professor John Ruggie, the UN Secretary-General's Special Representative for Business and Human Rights (UNSRSG), published Guiding Principles on Business and Human Rights. The document, which was described by Rev. David Schilling, the director of human rights for the Interfaith Center on Corporate Responsibility (ICCR), as a "significant breakthrough and an indispensible resource for investors in assessing the human rights performance of companies," was quickly endorsed by the UN Human Rights Council.

Ruggie himself said that the Guiding Principles "will not bring business and human rights challenges to an end," and some critics of the document argued that its generic nature failed to fully account for the influence of institutional investors.

In a 2011 letter to the UN Working Group on Human Rights and Transnational Corporations and Other Business Enterprises, the Vice President of NEI Investments wrote of "the need to add the concept of fiduciary duty to the list of influential areas of business law and policy that require review with a human rights lens."

"The Guiding Principles do not address directly the special position of influence held by investors, as the owners of public companies, to either support or hinder the efforts of companies to implement robust human rights policies and due diligence processes," the letter stated.

Nevertheless, according to a new report, "The UN Guiding Principles provide a robust analytical framework for investors and are likely to remain the most widely accepted global standard on business and human rights." The new report, entitled Investing the Rights Way: A Guide for Investors on Business and Human Rights, was jointly published by ICCR, Calvert Investments, and the Institute for Human Rights and Business (IHRB).

The report lists lawsuits, penalties and fines, suspension of operations, divestment, and reputational damage as possible financial consequences of corporate exposure to human rights abuses. To avoid such consequences, the report advises, companies will have to redefine the traditional concept of risk management: instead of focusing on risks to their own operations, companies must assess the impacts of their activities on people and human rights.

"As compelling as the business case for respecting human rights has become - focusing in particular on diminishing or avoiding risk to the company - human rights are intrinsically worthy of respect and not simply on the condition that this respect brings a financial benefit," the report states.

Institutional investors with commitments to sustainability have a long history of emphasizing human rights in their various engagements with companies. The modern history of sustainable investment includes the important role of institutions in the divestment campaign that helped topple apartheid in South Africa in the 1980s. Even today, engagement with companies over business operations in Sudan remains the most frequently employed strategy of sustainable investors, according to the 2012 Trends Report by US SIF: The Forum for Sustainable and Responsible Investment.

Investing the Rights Way focuses on three elements of the Guiding Principles of particular importance to investors. In order to express their commitment to human rights, companies should publish and make publicly available a human rights policy that investors can use to help them assess that commitment. Companies should also carry out human rights due diligence, which entails identification and management of impacts on people and their rights. For investors, human rights due diligence processes "show that companies are actively taking steps to determine and address human rights risks to people and their related reputational, financial, and operational risks to the company," according to the report.

Finally, companies should establish grievance mechanisms for individuals and communities that have been adversely affected by business operations. For investors, the presence of grievance mechanisms indicate that companies have gone beyond mere statements of policy to actually address human rights issues on the ground, thereby managing risk more effectively.

The report also includes important sections on emerging guidance on human rights issues governing specific groups such as children, women, migrant workers, and indigenous peoples, as well as enhanced accountability through judicial and other mechanisms. It concludes with the acknowledgement that better tools for assessing the human rights performance of companies, such as industry-specific key performance indicators (KPIs), have yet to be developed.

The importance of accurately assessing the human rights performance of companies was highlighted in a statement by Bennett Freeman of Calvert Investments. "Virtually every company in every industry faces some degree of human rights-related risk, and investors have a responsibility to evaluate that risk across portfolios and asset classes," he said.


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