Engaging with investment trusts on human rights

EdenTree's Carlota Esguevillas shares engagement case studies with renewable energy investment trusts

To achieve net zero by 2050, investment in renewable energy must triple by 2030, reaching around $4trn (£3.2trn).

However, as the renewables industry expands at pace, so too have concerns about its social impact. Allegations of forced labour in solar supply chains, child labour in battery mineral sourcing, and indigenous rights violations in wind farms highlight the need for a nuanced and ethical approach to the energy transition.

In response to these challenges, over the last six months, EdenTree’s responsible investment team has engaged with the renewable energy investment trusts held within our Green Infrastructure fund. We chose to focus on these trusts due to their unique corporate structure, which often results in less transparency in disclosures and less scrutiny from investors.

The engagement aim has been to encourage each organisation to publish a standalone human rights policy, addressing specific risks and committing to Free, Prior and Informed Consent (FPIC) where relevant. Alongside this, the team wanted to better understand how they were using their influence to drive forward standards on human rights.

Despite the sector’s relative lag in disclosure compared to other industries, our engagements with investment trusts have unveiled robust due diligence processes and a genuine dedication to driving best practices in human rights. It was pleasing to see that this commitment extends beyond the operation of assets to encompass the often higher-risk areas of sourcing and supply chains.

A number of key themes emerged from our engagement discussions, including:

  • Indigenous Rights & Land Use: Renewable energy assets, despite their positive contribution to decarbonisation, are notably more land-intensive than traditional fossil fuels. Onshore wind and solar projects, for instance, require about 10 times more land than fossil fuel projects to produce the same power, putting significant pressure on local communities and indigenous populations globally.
  • Despite an initial unfamiliarity with FPIC, the trusts we engaged with expressed commitment to exploring and potentially integrating FPIC into their policies. The discussions also revealed their efforts to deepen understanding and recognition of indigenous rights, with examples such as early engagement with the Sámi people when operating wind assets in Sweden.
  • Forced Labour: Forced labour emerged as a recurring concern in conversations around solar, particularly due to the dominance of the Chinese province of Xinjiang in polysilicon production. Even though not directly sourcing from Xinjiang, trusts were rightfully concerned about the potential contamination of their supply chains with goods produced using forced labour. In-depth due diligence was highlighted as crucial, and this includes direct engagement with suppliers, conversations with CEOs and in-person audits.
  • Partnerships and “Collective Leverage”: Given the systemic nature of challenges, trusts are also aiming to use their influence to drive sector-wide change. Partnerships and collaborations were emphasised as essential tools for exerting “collective leverage.” This included work to implement traceability within the polysilicon supply chain and the EU’s growing influence in improving standards in the Chinese solar market.

The initial engagement objective was for our investment trust holdings to publish a stand-alone human rights policy outlining their approach to tackling salient issues. The majority have signalled their commitment to developing and publicly disclosing a human rights policy.

Post-engagement, several trusts also sought our input on their human rights policy and broader sustainability disclosures. Some also acknowledged the value of these in-depth conversations with investors internally, helping them build the business case for action. This positive two-way dialogue underscores the importance of engagement by investors.

As we move forward, it is important to remain committed to constructive engagement with investment trusts on the topic of human rights. Our hope is that it will foster a collective commitment to protecting human rights in the pursuit of a sustainable and just energy transition.