Strategy
By The People, For The People – Why Investors Should Care About Human Rights

Companies cannot thrive without healthy and happy employees, consumers, and communities. Investors must use their influence with companies and other stakeholders to ensure the basic rights of these groups are respected.
The following article comes from the team at Aviva Investors
and is part of a series of contributions from that
business.
In the grand pursuit of profit, companies have not always
prioritised the rights and wellbeing of people. Meanwhile, others
have failed in their due diligence, closing their eyes to what
might happen across their supply chains.
“Human rights are the foundation of business,” says Vaidehee
Sachdev, people pillar lead and impact analyst in the sustainable
outcomes team at Aviva Investors, leading the firm’s research and
engagement on social issues.
Investors cannot close their eyes to these issues, either. The
consequences of human rights failures are complex and finding
solutions to them will require the full participation of all
stakeholders.
Communities have been destroyed and lives lost from catastrophes
brought on by bad governance and cutting corners. The
International Labour Organisation also estimates that, at any
given time, 25 million people around the world are trapped in
forced labour; one in four victims of modern slavery are children
(1).
Civil society organisation KnowTheChain aims to help companies
and investors understand and address forced labour risks within
their supply chains. To that end, it benchmarks 180 of the
largest companies across three sectors at high risk of forced
labour – information and communication technology, food and
beverage, and apparel and footwear. (2)
“So far, there has always been one company that scores zero,”
says Felicitas Weber, project director at KnowTheChain. “If not
even the largest global companies in high-risk sectors take
action on some of the worst forms of exploitation, you can only
imagine what that looks like at companies not in the
spotlight.”
“There are a hundred ways to slice and dice social
responsibility, but human rights are the overarching concept,”
says Marte Borhaug, global head of sustainable outcomes at Aviva
Investors. “Everyone will have a slightly different definition,
but if you go back to the roots of human rights, they encompass
all the social issues we talk about when we say the S in
ESG.”
1. Why should investors care?
At the employee level, many HR professionals will be familiar
with key risks around low wages, precarious contracts,
discrimination and harassment, health and safety, and overly long
hours, not to mention modern slavery (which includes forced
labour,
debt bondage and human trafficking).
Modern slavery is a key risk at the supply-chain level, rendered
all the more difficult to find and eradicate by the layers of
suppliers across multiple countries in some companies’ supply
chains.
“From a human rights perspective, a lot of the issues are in the
supply chain. There may be some issues with companies directly
but that is rare compared to the huge amount of child and forced
labour and labour exploitation in the apparel and food sectors,”
says Dan Neale, social transformation lead at the World
Benchmarking Alliance (WBA).
He explains the issue lies in connecting companies to those
real-world impacts. While the UN Guiding Principles on Business
and Human Rights state businesses have a responsibility to
respect human rights, extending into their whole value chain,
their level of responsibility to prevent and remedy a specific
issue depends on their relationship to it.
Figure 1: How a company manages its social footprint
brings risk and opportunity
Source: Aviva Investors, May 2021
This also highlights investors’ responsibility, however indirect,
through the financing they provide to such companies, but also
their demands for short-term returns. It is a systematic market
failure that needs to be addressed.
Beyond the moral imperative, ensuring human rights are respected
and protected and violations remedied also creates opportunities
for companies.
2. What the investors can do
Camille Le Pors, lead for the WBA’s Corporate Human Rights
Benchmark (CHRB), the first open and public benchmark on the
human rights performance of 230 major companies, says investors’
use of benchmark data when they engage with companies is
crucial.
“Benchmarks only fully come to life when they are used by
third-party stakeholders that have leverage over companies and
can use that to push for change,” she says.
The first step for any company wanting to do the right thing is
to understand and apply the UN Guiding Principles within their
own organisation, drawing up a human rights policy, conducting
due diligence, ensuring they treat their workers and customers
fairly, and setting up avenues for claims, whistle-blowing and
remediation (3).
For investors, incorporating human rights in investment decisions
requires them to identify cross-industry themes, understand key
risks at a sector level, and engage companies and governments,
bilaterally and collaboratively with likeminded investors,
including by using their voting rights as shareholders.
The WBA has identified seven global systems transformations
needed to achieve the UN’s Sustainable Development Goals (SDGs)
(4) At the centre of these is the social system, for which
WBA outlines 12 key expectations companies should meet to leave
no one behind, support the SDGs and help create a future that
works for everyone. The CHRB methodology supplements this with a
focus on human rights in high-risk sectors.
Investors can use these metrics and the resulting benchmarks to
compare companies, with the aim of encouraging a race to the top.
This needs to be complemented by a bottom-up approach to
understand which companies might engage, or risk engaging, in the
most harmful behaviours.
Building relationships with NGOs focusing on human rights can
also help investors deepen their own understanding of sectors
that present the highest risks of negative impacts on people. For
CHRB and KnowTheChain, those encompass food and agricultural
products, apparel, and ICT manufacturing. CHRB also covers
automotive manufacturing and extractive industries, including
mining and oil and gas. As far as engaging with companies goes,
prioritisation is critical.
“Engagement takes a lot of one-on-one work with a company’s
management, because you need to develop a relationship, an
understanding of their business, and a shared understanding of
each other’s views. That takes time,” Says Borhaug.
Some of the key factors for investors to think about are the
strength of their existing relationships with companies, which is
often linked to the size of ownership, as well as the likelihood
of change.
Coordinated action by shareholder groups with organisations like
KnowTheChain has driven change. “We engage with a lot of
investors, both to support company-specific engagement and a
collaborative engagement led by the Interfaith Center on
Corporate Responsibility (2) and supported by the Principles
for Responsible Investment (6) on the apparel sector and
forced labour,” says Weber.
Engagement should also be complemented in a much more systematic
way by voting at AGMs. A survey conducted by Dalriada, a provider
of independent professional trustee services to UK pension funds,
found only one-third of asset managers were able to provide
details of how they used their influence through
voting (7).
Sachdev says there has been some improvement on climate-related
voting, because of its momentum, public attention on the need for
firms to transition, and public criticism of investors not using
their voting rights. However, the same cannot yet be said for
human rights.
3. Regulators must define good practice
Although engagement is a powerful tool, changes in regulation can
also play a key role in making responsible practices mandatory
and companies more accountable.
“We've given businesses a number of years now to improve
voluntarily; in some cases, it has not worked,” says Borhaug.
“Human rights can't be voluntary. That is the big weakness that
needs to be addressed if we are to see progress.”
Until human rights become a mandatory responsibility, many
companies will continue to ignore them, largely because it is
cheaper to do so.
“One of the issues is that if one company does this properly it
costs it money, whereas a company that closes its eyes to the
issue possibly saves costs,” says Thomas Tayler, senior manager
at Aviva Investors' Sustainable Finance Centre for
Excellence.
Although human rights are recognised in international law, as
well as in some local laws like the UK Modern Slavery Act, clear
and time-bound targets for companies are lacking.
“The CHRB results show some companies at the bottom that have not
improved since the first benchmark in 2016,” says Borhaug. “If
year after year companies are not improving, the only thing to do
is raise the minimum standard.”
However, setting targets requires nuance, adapting requirements
to the key human rights risks facing each sector. Ten years after
the initial publication of its Guiding Principles on Business and
Human Rights, the UN is launching a review to assess what has and
hasn’t worked so far and to create an updated framework for the
next ten years.
4. Holding companies to account
“We need governments to enforce legislation, ensuring there are
legal avenues for remedies for workers,” says KnowTheChain’s
Weber.
This is the case at a global level, where creating an
ombudsperson would open avenues for redress, and at a country and
regional level, where the Guiding Principles are translated into
law.
Following consultation by the EU on this and related governance
issues at the end of 2020, Tayler says a question remains on what
will happen if companies don’t do enough to uncover human rights
abuses in their supply chains, or do find them and don't do
enough to tackle them.
“Fines are ultimately borne by consumers and investors and don't
necessarily change company behaviour, although of course there
are cases where they are successful,” he says. “The key is to
create jeopardy for the directors, who are the controlling mind
of the company and hold the responsibility. Creating
responsibility for directors could be more a effective sanction
than litigation and fines alone.”
References
1. ‘Global estimates of modern slavery: Forced labour
and forced marriage’, International Labour Organisation,
September 19, 2017
2. ‘Benchmark methodology: 2020/2021 methodology’,
KnowTheChain, April 6, 2021
3. For example, see Aviva’s human rights policy
4. ‘Seven systems transformations for benchmarking
companies on the SDGs’, World Benchmarking Alliance, July 15,
2019
5. ICCR: Interfaith Centre on Corporate
Responsibility
6. PRI: Principles for Responsible Investing
7. Alf Wilkinson, ‘Managers keep pension trustees ‘in
the dark’ on voting, engagement’, Ignites Europe, March 16, 2021
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