This guidance provides tools and resources to help private markets investors adopt consistent human rights practices and make more informed investment decisions
Online summary
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The UN Guiding Principles on Business and Human Rights (UNGPs) state that institutional investors “should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved”. Since the UNGPs were formalised by the UN Human Rights Council and adopted by the OECD’s Guidelines for Multinational Enterprises in 2011, expectations of investors – particularly from governments, through increased legislation and regulation, as well as from employees, beneficiaries, clients, and wider society – have only increased.
Given the control and / or influence that private markets investors often have over their underlying investments, investors can be particularly well-placed to integrate human rights into their investment processes and support changes that lead to better human rights outcomes. Severe human rights impacts can often present reputational, operational and financially material risks. Investors can and should work with their investments to mitigate and / or remedy impacts on the affected parties, as well as potentially lower these risks.
According to the UNGPs, investors have a three-part responsibility to respect human rights:
- Establishing a policy commitment;
- Conducting due diligence; and
- Enabling or providing access to remedy.
| POLICY | DUE DILIGENCE PROCESSES | ACCESS TO REMEDY | |||
|---|---|---|---|---|---|
| Adopt a policy commitment to respect internationally recognised human rights | Identify actual and potential negative outcomes for people, arising from investees | Prevent and mitigate the actual and potential negative outcomes identified | Track ongoing management of human rights outcomes | Communicate to clients, beneficiaries, affected stakeholders and publicly about outcomes, and the actions take | Enable or provide access to remedy |
The human rights policy commits investors to respecting all internationally recognised human rights1 through their internal and investment activities. It serves as the basis for investors’ approach to human rights, and should inform their operational policies and procedures, including those governing investment activities, such as the (responsible) investment policy and fund documentation.
Human rights due diligence should be used to inform decision-making at all stages of the investment process. Human rights due diligence can, for example, support investment selection and inform corrective actions to include in shareholder agreements and / or post-transaction action plans.
For investors, human rights due diligence includes the following elements:
- Identifying and assessing actual or potential adverse human rights impacts with which investors may be involved either through their own activities or as a result of their investments and through their value chains;
- Preventing and mitigating adverse human rights impacts by considering the context in which they occur, communicating expectations to and building leverage with investments, engaging with investments and other relevant stakeholders on an ongoing basis and, as a last resort, considering the case and circumstances for divestment; and
- Tracking and communicating their own efforts to address human rights impacts, through designing and / or selecting appropriate metrics to help identify the most effective prevention and mitigation activities and to connect their activities with real human rights outcomes.
When an investor is connected to negative human rights impacts, they have an obligation under the UNGPs to provide or enable access to remedy to those affected. This can take judicial and non-judicial forms, such as financial compensation, apologies, operational and management changes to ensure events do not reoccur, and so on.
Remedy is typically seen as a process that takes place after a specific event that causes negative human rights impacts. However, investors should also consider it as a preventive tool which can be applied in different forms and at different stages throughout the investment cycle.
Even in cases where investors do not consider themselves to be directly linked to human rights impacts, they may wish to be involved in supporting remediation. This could be for a range of reasons, such as to manage reputational risks, uphold the investor’s values, help create better operating environment and tackle systemic risks.
CREDITS | Author: Simon Whistler | Contributors: Diba Ahour, Marco Longhini, Anna Shaikly, Nikolaj Halkjaer Pedersen, Soh-Won Kim | Editor: Rachael Revesz | Design: Alejandro De La Peza
