Human rights due diligence for private markets investors: A technical guide (PRI)

Anna Triponel

June 16, 2023
Our key takeaway: It was a pleasure for us at Human Level to facilitate a session for investors at the PRI on remedy last year, and now we have PRI’s guide for investors, hot off the press. The pressure on investors to conduct human rights due diligence (HRDD) over their internal activities and investments is not going anywhere - well it is, it’s going up. This PRI report provides guidance to investors on how to take it one step at a time - while ensuring that the due diligence efforts are meaningful. An investor hasn’t caused or contributed to an impact - but is directly linked to it? Then don’t forget about the remedy eco-system and the role an investor can play there. An investor doesn’t have full visibility? Then don’t forget about tangible ways to prioritise the information-gathering - building on where the risks to people are the most severe. This is win win - for people, but also for investors to better manage their financial risk, and meet the evolving demands of beneficiaries, clients and regulators.

The Principles for Responsible Investment (PRI) released the Human Rights Due Diligence for Private Markets Investors: A Technical Guide (June 2023):

  • Why is it important for investors to conduct robust HRDD?: The expectation that investors conduct HRDD of their investments is increasingly a legal requirement and non-compliance can present serious legal, litigation and financial risks. This expectation is grounded in the UNGPs; a soft law instrument that has formed the basis for HREDD and reporting laws and regulations at the EU and State level. Investors are also facing pressure from shareholders, clients and wider society to ensure that their investments are not connected to adverse human rights impacts. Media scrutiny of companies’ role in adverse human rights impacts in their supply chains can pose serious reputational and financially material risks to businesses and, therefore, investors. Investors, however, are well-placed to “integrate human rights into their investment processes and support changes that lead to better human rights outcomes” given the level of influence private markets investors have over their investments. They can also build on the human rights work they are doing with investee companies to maintain the social licence to operate: “[M]any investors already have elements of human rights risk management processes in place, and work with their investees on a wide range of human rights issues, such as health and safety or forced labour.”
  • How can investors respect human rights in investment activities?: The report highlights how investors can meet their responsibility to respect human rights under the UNGPs: 1) Establish a policy commitment to respect internationally recognised human rights as recognised under the UNGPs; OECD Guidelines; International Bill of Human Rights; and ILO Labour Standards through their internal and investment activities; 2) Conduct due diligence; and 3) Provide or enable access to remedy. To conduct robust HRDD, investors should a) identify and assess actual or potential adverse human rights impacts throughout their value chains. To do this in a way that is manageable given the complex nature of supply chains, investors can first map key or tier 1 suppliers and then gather information from them on companies further down the value chain. Once investors have mapped their human rights risks and impacts across their entire value chain, they can conduct in-depth assessments with on-site visits and interviews with workers and stakeholders. Investors can also choose to carry out further assessments if, for example, “human rights impacts above a certain severity threshold are identified.” Investors should also b) prevent and mitigate the actual and potential adverse impacts identified. To do this, investors may need to understand whether and to what extent investees may be willing and able to act on human rights; “communicate their expectations on human rights to, and build their leverage with, investments and the value chain” through, for example, shareholder agreements and post-transition 100-day or ESG action plans; and engage with investees and stakeholders over the course of an investment. In addition, investors should c) track and communicate their human rights performance to help them “identify the most effective strategies and interventions for addressing human rights impacts” and “ensure that clients and beneficiaries have access to the full picture of an investor’s performance on human rights.” A mixture of qualitative and quantitative metrics should be used to track performance.
  • Investors should provide or enable access to remedy to those who are impacted: In situations where investors are connected to adverse human rights impacts, they are expected to provide or enable access to remedy which can take the form of: “financial compensation, apologies, operational and management changes to ensure events do not reoccur, and so on.” The remedial action taken depends on whether the investor has caused, contributed to, or is directly linked to the impact. For the first two modes of involvement, investors are expected to provide remedy. If investors are directly linked to the impact, they can support a remedy ecosystem, which involves working with other organisations and stakeholders to provide or enable remedy, taking into account the investor’s leverage. Investors can also develop their own, or assess their investees’ grievance mechanisms making sure that they follow the effectiveness criteria under the UNGPs. It is important to note that the way in which investors are connected to an impact is not always clear-cut; in situations such as these, investors can ask themselves a series of questions to identify which mode of involvement they fall under: “Is there a clear attribution of negative human rights impacts to the activities or actions of an investment?” “What is the threshold to determine which impacts require remedy?” Does the investor’s position in the investment (for example, control or minority investor) influence its role in providing or supporting remedy?”

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