In line with UNGP guidelines, investors should be engaging all stakeholders effectively to ensure a just and rights-centred transition, according to Phil Bloomer, executive director at the Business and Human Rights Resource Centre, and COP28 next month is an opportunity for investors to support policies to achieve this.
Here Bloomer answers ESG Clarity’s questions about best practice for transition frameworks and how they can include a human rights focus, as well as what legislative frameworks investors can support and how to take a non-prescriptive approach to engagement.
What should investors be on the lookout for at COP28 this year?
Given finance is one of the critical enablers of sustainable climate action, investors can and must play a fundamental role at COP28 – from support for deployment of renewable energy in key countries under Just Energy Transition Partnerships, to investment in environmentally and socially responsible projects and firms, to support for global policy architecture that integrates social and climate action.
Investors at COP28 should embrace this key role by advocating for ambitious policy action to support a just transition – one that, at minimum, prioritises mandated human rights due diligence as part of the duty of care owed to rightsholders by companies and the state; a commitment to fair negotiations with workers and communities; and efforts to realise the goal of shared prosperity as a deliberate outcome of the transition.
How can human rights issues be addressed by investment firms at COP28 this year?
The single greatest threat to human rights today remains the climate crisis. While the speed of the transition will depend on the scale and scope of investment available, it will also depend on retaining public support – secured in part through respect for human rights and commitment to shared benefit – particularly with those directly affected by new mining operations and renewable energy mega-projects.
Our research demonstrates the transition mineral mining and renewable energy sectors are exposed to similar human rights risks as the fossil fuel and traditional extractive industries: threats to environment, livelihoods, land, Indigenous Peoples’ rights and culture, and labour rights, among others.
Responsible investors can capitalise on these important steps by the renewable energy sector by committing to rights-respecting investments; actively engaging with investee companies; and undertaking inclusive human rights and environmental due diligence. At COP28, this would be a powerful message from them. Investors can and should influence the development of a renewable energy industry that respects human rights – while simultaneously securing sustainable investments, benefits for communities and workers through a just transition.
Transition frameworks for finance firms are likely to be a focus of groups at the conference this year, what would you say are the hallmarks of best practice?
Strong transition frameworks are critical both for the financial sector and the real economy. The UN’s High‑Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities has set out clear recommendations on standards net-zero commitments must meet, and these should also be followed for more specific transition frameworks. These include short-, medium- and long-term targets, science-based KPIs aligned with credible sector pathways consistent with 1.5C with no or limited overshoot, and mechanisms for monitoring the effectiveness of the transition plan.
Like any policy, a transition plan should be embedded within the business strategy and supported by sufficient resources mobilised from the top down to achieve it. This includes board oversight and a chain of command beginning from the top, down through middle management and widely understood and upheld by the workforce.
There is clear recognition of the importance of integrating impacts related to the just transition in transition plans and net zero commitments. Financial institutions can look to recommendations by LSE Grantham on integrating just transition into net-zero commitments. Regulators are starting to take on board the intersection between climate and human rights. For example, the UK Financial Conduct Authority plans to strengthen transition plan requirements based on the Transition Plan Taskforce’s disclosure framework, which integrates human rights and social impacts specifically.
Importantly, consultation with affected stakeholders, and communication on progress as well as challenges, is an essential hallmark of best practice in respect of transition frameworks, as is public communication of the framework – in line with UNGP guidelines – to ensure accountability.
What do you think about the fact that business is setting the standards for sustainability frameworks for policymakers rather than the other way around?
Consultation and collaboration with business is necessary in these processes, as these firms must implement the resulting reporting requirements. However, when business is the only or largest stakeholder in such consultations, ambition for robust regulation of business will inevitably be curtailed.
For the transition to net zero to be successful, we need to think outside the realm of business as usual. By raising aspirations and levelling the playing field for everyone, a rights-centred approach to the transition will over time become a standard, rather than an exception.
Investors can play an important role in pushing for this shift, including by engaging national governments and standard setters to influence the adoption of national policy, regulatory and legislative frameworks to protect human rights through public support for:
- Emerging mandatory Hredd, sustainability disclosure legislative acts and corporate governance reforms that seek to change the business model by addressing the causes of short-termism in business conduct and to fully embed human rights and environmental impacts in corporate strategies.
- Stronger legal guarantees on the protection of human rights as part of investment incentives – with specific attention given to land rights and Indigenous Peoples’ fundamental rights when considering investments in new countries.
- The development of national policy frameworks on co-ownership/co-equity models.
How can investment firms ensure they consider a range of stakeholders in a way that is fair and decolonial, rather than prescriptive?
Recognising that it may not be feasible or appropriate in all circumstances to engage directly with rightsholders, investors should seek to build strong relationships with civil society, human rights organisations, and credible representatives of the rightsholders to inform their human rights approach. Note that direct investor engagement with affected communities may be necessary where the adverse potential impacts are extreme and to this end, investors should build capacity over time to engage in sensitive, robust, secure engagement.
Another role of investors is working with investees to ensure access to remedy is effective when harm is caused corporate action. In some cases, this can lead to substantive change in the way industries operate as we have seen through investor leadership on the Global Industry Standard on Tailings Management.
Finally, investors should commit to exploring alternative business models in the context of the transition, with particular focus on co-equity models and other shared benefit approaches with hosting communities.