Why do human rights abuses by investee companies persist? And what can be done about it? In a Rotterdam School of Management, Erasmus University, working paper, Willem Schramade and I explore these questions and we propose two new institutions in the investor ecosystem: 1) dedicated human rights data gatherers; and 2) dedicated human rights investors.
Together with NGOs and human rights defenders on the ground, such institutions could improve human rights data flows to capital market participants and improve the allocation of capital accordingly, putting much more pressure on companies to behave and make sure their suppliers behave. Read the full working paper here to the summary below:
Across the globe, people are continuously affected by business activity. Along with that, issues related to human rights abuse by businesses arise. When looking at business and human rights, the human rights regime is historically aimed towards state actors and their obligation is to promote and protect the rights of their citizens (Freeman, 2017; International Council on Human Rights Policy,2002). Today it consists of nine core international human rights treaties and their United Nations (UN) monitoring bodies. Where in the past, states mostly sought to fulfill their duty to protect by calling on businesses to commit themselves to voluntary initiatives, now, states are moving from voluntary to mandatory human rights due diligence. Namely, Investors are part of the institutional context in which companies are held accountable for human rights in their value chains. Besides due diligence, the standards require investors to embed human rights in all the relevant policies and management systems and identify potential and actual adverse impacts. The identification process should enable them to undertake two key exercises: 1) the determination of investor involvement and 2) the prioritisation of adverse impacts.
Despite clear due diligence expectations towards investors and their investee companies and an increase in legislation to enforce it, human rights abuses by investee companies still exist. Accordingly, we explore four reasons why human rights abuses by investee companies are so persistent and why investors’ human rights performance is lacking. The first is the inherent complexity of global value chains. Also, a lack of integration of human rights in business and insufficient legal enforcement, are considered to be causes for the persistence of human rights abuses among investee companies. Lastly, there exists a problem of inadequate data and limited pressure on corporations by investors. The field of Business and Human Rights (BHR) might alleviate some of the issues related to human rights abuses as it focuses on a clearer commitment in the area of human rights than CSR does.
Additionally, investors are required to identify and prioritise adverse impacts but find that there is inadequate data and limited pressure on corporations. What’s more, investing in human rights is hampered by the fact that most companies do not publish suficient and/or reliable information on their human rights performance, absence of a standard methodology in order to assess companies’ performance on the issue, generalist ESG data providers’ limited incentives and resources to gather information and insufficient demand for human rights information as it is not deemed material enough, nor central to investment strategies.
As a response to these hindering factors, initiatives such as the Corporate and Human Rights Benchmark (CHRB) and the Workforce Disclosure Initiative (WDI), have emerged to increase the availability of data on investee companies’ responsible business conduct. However, These initiatives and platforms have a common and crucial limitation in their approach: they mostly rely on information provided by companies themselves. The Standards require investors to consult additional sources to verify or triangulate claims by companies regarding their human rights performance. Investors may lack the scale and incentives to do that, but specialised human rights data gatherers could fill this gap. Since such specialised human rights data gatherers need funding, they are ideally complemented by specialised human rights investors.