Shortlisted for PRI Awards 2024: Recognition for Action – Human Rights
Organisation: Redwheel
Signatory type: Investment manager
HQ country: United Kingdom
The approach, initiative or process
In 2023, human rights were central to the Redwheel sustainability agenda. The research we undertook and the development of the toolkit were not for the purposes of client-facing thought leadership; rather, this work was focused specifically on empowering investment teams to practically embed human rights risk and opportunity in their investment process.
We began with a recognition that regulations and international norms have evolved, and human rights are increasingly at the heart of responsible business activity. Depending on the jurisdiction, companies that fail to meet minimum human rights regulatory requirements can face reputational damage, civil liabilities, fines and penalties, or import bans. New global norms for business and human rights have opened avenues for civil society, human rights defenders and communities to challenge a company’s license to operate.
For investors, this landscape has underscored the importance of human rights risks relating to human impacts and real financial materiality. Poor performance on human rights can also be an important canary in the coalmine, potentially signalling other business issues. For example, assessing how a company translates human rights policy into practice can provide insights into how a corporate cascades strategic programming from its headquarters to its global sites. Similarly, a company’s supply-chain management practices are important from a human rights perspective and because of what they reveal about how prepared company operations are to respond to disruptions in a volatile and unpredictable world.
The are numerous pieces of guidance and frameworks on human rights due diligence, from international norms such as the United Nations Guiding Principles on Business and Human Rights to voluntary guidance from human rights expert organisations. The challenge lies in translating the theory into investment strategy practice; we took three core actions to address this.
The Greenwheel human rights toolkit
First, following extensive consultation with our investment teams regarding their needs in the human rights context, we built the Greenwheel human rights toolkit. This is made up of two components.
- A full human rights risk-mapping tool. This included building our own in-house, forced-labour risk index across over 170 countries, undertaking sector and commodity risk mapping, and developing a company risk identification tool. Investment teams use the human rights risk-mapping tool to identify inherent human rights risk exposure as well as the most salient risks in their portfolios.
- We also developed a full, in-depth, human rights due diligence framework, aligned with international standards and further informed by a thorough review and mapping of legislative requirements, voluntary guidance and human rights benchmarks.
The framework was designed to be a self-guided tool for investors. It translates international standards on human rights into 12 key indicators to assess a company’s performance across governance and policies, management systems, data and targets, and reporting. In our framework, we break each indicator into sub-indicators – where to look for evidence, key assessment questions for investors as part of their self-assessment and questions investors can ask portfolio companies (in case of data gaps). Depending on the indicator, red flags are highlighted where inaction may indicate poor human rights performance that can expose investors to human rights controversies.
We recognise that there are no perfect companies and that addressing human rights issues is a process of continuous learning and improvement. To capture these nuances, the framework situates company actions along a maturity model. Human rights performance is assessed against a continuum of practices, from companies that are in the early stage of human rights due diligence (beginner) to companies with best practices (leading).
Toolkit implementation through team engagement
Second, we concentrated on supporting implementation through ongoing training with Redwheel investment teams to empower them to use the insights and toolkit. This involved extensive one-on-one time with investment teams led by the Greenwheel Social Research Lead, Jessica Wan. Training was continuous throughout 2023 to ensure teams were well equipped to roll out the risk mapping and framework, depending on their focus. The relationship between Greenwheel and the investment teams has been a core component of the success of this roll out as it enabled us to provide extensive early support to teams. By acting as partners to investment teams, we were able to refine the toolkit to ensure it was investment team ready.
The research pipeline
Third, we built a research pipeline to support the wider understanding of human rights issues by sector and theme. This included an array of topics such as:
- Integrating human rights into our teams’ understanding of nature and climate with our in-house Just Transition toolkit;
- Deep dives into issues like land rights in nature-based solution investing;
- Human rights considerations in relation to key enabling materials for the just transition;
- The challenge of what companies and investors should do in the context of conflict regions.
The outcome
The impact of this three-pronged approach has been huge. Nearly all our investment teams are now implementing – or beginning to implement – a component of the human rights toolkit or are engaging with the broader research agenda. To give a few examples:
- Our Global Equity Income Team has led the way with full human rights due diligence on key stocks and is expanding this over time (highlighting in a recent joint paper that they did not buy a stock as a direct result of their enhanced human rights knowledge through this partnership with Greenwheel);
- Our UK Value Team has used the toolkit for in-depth engagement with a key mining stock with legacy human rights issues, which led to the company agreeing to a series of steps to improve their position over time;
- Our Sustainable Health Team, supported by Greenwheel, implemented the risk mapping across all stocks in early 2024 to create a heatmap of top human rights concerns to analyse and on which to engage;
- Our Sustainable Planet Team has been working with Greenwheel to roll out the full human rights due diligence assessment on key stocks, and has particularly focused on the human rights component of biodiversity given exposures to forestry assets;
- Our Sustainable Emerging Markets Team has used the Just Transition toolkit in company analysis and is rolling out the human rights toolkit.
The measures to ensure transparency
Transparency was at the core of the value add that we saw our human rights toolkit providing to our investors. By building it in house, we were able to provide full methodological visibility of the evidence base for the toolkit to our investment teams; this includes PRI guidance alignment and how we constructed various components. For example, we provided a detailed methodology for how we built our in-house forced labour risk index and why we felt it was important to do so given other options on the market. Through in-depth training, were able to provide any additional answers and evidence that our teams required.
We have also shared our work with the PRI human rights experts for feedback and discussion in the spirit of transparency and knowledge sharing. More broadly, we share our extensive write-ups of all human rights tools, research and frameworks – including clear methodological sourcing – with all investment teams, as well as an array of Redwheel colleagues.
PRI disclaimer: This case study aims to contribute to the debate around topical responsible investment issues. It should not be construed as advice, nor relied upon. It is written by a guest contributor. Authors write in their individual capacity – posts do not necessarily represent a PRI view. The inclusion of examples or case studies does not constitute an endorsement by PRI Association or PRI signatories.
Redwheel disclaimer: No investment strategy or risk management technique can guarantee returns or eliminate risks in any market environment. Past performance is not a guide to future results. The prices of investments and income from them may fall as well as rise and an investor’s investment is subject to potential loss, in whole or in part. Forecasts and estimates are based upon subjective assumptions about circumstances and events that may not yet have taken place and may never do so. The statements and opinions expressed in this article are those of the author as of the date of publication, and do not necessarily represent the view of Redwheel. This article does not constitute investment advice and the information shown is for illustrative purposes only. Whilst updated figures are not available for all sources, we have performed further analysis and believe that this data has not significantly changed and remains reflective.
