Investors need good data to manage human rights risks

Anna Triponel

December 20, 2022
Our key takeaway: A series of different drivers are leading more and more investors to seek data on companies’ human rights risks. First there is the convergence between international and national human rights standards. Additionally there are increasing market incentives to focus on impacts on people. Investors are landing on prioritising human rights risks as part of companies’ identities, satisfying client demand, contributing to value creation and preventing economic and reputational risks. However, there are challenges to find available, accessible and comparable information on human rights risks of companies. Improving disclosure and access of information are key to allowing investor oversight and the exercise of their leverage.“When investors can harvest and process the data they need, they will be able to incentivise companies to implement effective risk management processes that can have real impacts on the dignity and equality of people.”

The Principles for Responsible Investment (PRI), in partnership with UN Global Compact and in collaboration with Shift, released “Managing Human Rights Risks: What Data Do Investors Need?” (December 2022), reporting on the ways financial institutions understand and rate how investee companies manage their impacts on people:

  • Investors are gathering more and more data about companies’ human rights practices: Human rights data is being used by investors along different stages of the investment process, including research, valuation, portfolio construction, stewardship and reporting. It underlies a variety of investments decisions, like the decision to buy, hold or sell shares, or the decision to engage with investee companies through stewardship. PRI has identified that investors’ main sources for data-gathering are corporate reporting, media and NGO reports, country reports by multilateral and governments, human rights benchmarks, communications with affected stakeholders and their representatives (e.g., trade unions), and commercial data and social media analysis. The data found through these sources, according to PRI, expands across four big categories: (i) information on companies’ inherent human rights risks; (ii) information on how the board and leadership help embed commitments into company culture and practice; (iii) information on the quality of companies’ human rights due diligence; and (iv) quantitative information about positive human rights outcomes to which companies have contributed.
  • It’s challenging to find available, accessible and comparable data: Despite the multiple sources of information available on companies’ human rights risks, investors struggle to find strong data. For instance, regarding information on inherent human rights risks, investors reported that the challenge is that “only a small number of facts about a company tend to be publicly available.” Furthermore, investors interviewed by PRI reported that they find that board leadership, governance and embedding of policy are “at best weak signals” of addressing risks effectively. Instead, investors reported relying on assessing “[h]ow frequently the board is updated on, and meaningfully engages with, the company’s salient human rights risks”, “[w]hether the board includes, or has access to, the necessary expertise and information to scrutinise company responses to these risks”, “[w]hether the board – or relevant sub-committee – has met with affected stakeholders”, or “[w]hether compensation for senior leaders is linked to the company’s performance against strategic social indicators.”
  • Making information available, accessible and measurable supports better risk management: One way companies can help make the data on human rights risks and HRDD more available to investors is by “aligning corporate disclosures on social issues with international human rights standards.” What this means, according to PRI, is to expand and improve data availability across four areas: contextual data about the company; data on whether the company has the necessary culture and leadership to achieve change; insights into the quality of HRDD; and measurements of the positive human rights outcomes that the company has contributed to. Additionally, companies and other actors in the reporting eco-system can make data more accessible and comparable by increasing data tagging, supporting and adhering to agreed taxonomies, implementing digital corporate reporting, and contributing to the evolution of algorithmic analytic techniques to manage and compare the data. PRI also stresses investors’ need to have high confidence on assurance providers who are “central to creating a virtuous cycle of data supply and demand.” To conduct better and broader analysis of human rights risks, assurance providers should be capable of “conducting good quality analysis of corporate disclosures” and to “source and verify human rights-related information in line with relevant international standards.” Finally, PRI recommends that for data be "better integrated into the investment and stewardship process” we must set the expectation that fund managers focus on human rights due diligence and, for instance, implement further efforts on “better mapping of a company’s value chain.”

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