Four actions investors can take against human rights abuses

Federated Hermes' Leon Kamhi says the business case for corporate action is compelling

Although there is growing awareness of these issues, poverty, modern slavery and inequalities persist.

However, with tough new US and EU regulations coming down the track, more and more companies will be put under increasing pressure to scrutinise their supply chains, and identify and address human rights abuses.

The UN Sustainable Development Goals (SDGs) include the eradication of poverty (goal 1) and ensuring decent work for all (goal 8), which are key foundations for building thriving societies and economies.

The issues

Many of the problems targeted by these two SDGs can be disproportionately found in supply chains, due to their complex, dynamic and obscure nature.

Runaway fuel and food prices, and the Covid-19 pandemic, have pushed many people closer to the brink of poverty over the last two years.

The climate crisis is also negatively impacting working conditions for millions of people around the globe. In 2019, the UN’s International Labour Organization (ILO) reported that 80 million jobs would be at risk if rising temperature predictions materialise, with productivity impacted by unliveable working environments.

Low-income outdoor workers, such as those employed in agriculture or construction, are especially vulnerable to heat stress, making their working lives a misery, and vastly impacting productivity and output. India and Pakistan suffered in near 50°C heat this spring, which can be seen as a warning of what is to come.

The case for action

Against this backdrop, the business case for corporate action is compelling. Social inequality is a systemic risk that undermines political and economic stability. A commitment to wider stakeholders and economic sustainability must include helping to lift communities out of poverty and finding ways to reach the vulnerable and disenfranchised.

Beyond the ethical case for respecting human dignity, and the fact that forced labour and child labour are illegal, being able to articulate human rights risks and implement effective human rights strategies is indicative of robust enterprise risk management.

See also: – Human rights due diligence spots investment risks earlier than ESG

Finally, decent labour standards and fair treatment have been enshrined in international standards for many years, through ILO Conventions and corporate codes of conduct. A corporate responsibility to respect human rights is outlined in the United Nations Guiding Principles on Business and Human Rights (UNGPs).

Building on these soft law expectations, current and pending regulations will pose significant challenges to businesses globally that may be unwittingly connected to human rights abuses in their operations and supply chains.

What can investors do?

Responsible investors should align with the UNGPs and develop a strong policy commitment, plus governance and leadership mechanisms to ensure that salient human rights risks are investigated, and appropriate due diligence is implemented. This should involve engagement with identified high-risk companies or sectors.

The Principles for Responsible Investment (PRI) has developed useful guidance on how to accelerate change on human rights and social issues. For example the PRI recently launched a new stewardship Initiative called Advance where institutional investors will work together to take action on human rights and social issues. Investors will use their collective influence with companies and other decision makers to drive positive outcomes for workers, communities and society.

Investors should take a holistic approach to engaging with companies on these issues. For example, a US company may perform poorly in terms of providing decent work to employees in its supply chain, but a Taiwanese company in the same chain may face challenges with its direct employee base.

Companies may commit to being a living wage employer, but this is more common for direct employees. Although companies can commit to paying a living wage across their supply chains, it is widely acknowledged that there is no clear definition of what this means or how it will be paid, particularly in low-income markets where it may be most relevant.

During 2022, we look forward to seeing more of an engagement focus to support companies develop a clear understanding of the salient human rights issues in their operations and supply chains. We will examine whether effective and proportionate controls are in place to identify, mitigate and remedy these issues.