What are the implications for business and human rights from the apparent
slowing of what had seemed the unstoppable rise in Environment, Social,
Governance (ESG) investment and the transition to a sustainable financial
system?
The so-called "ESG backlash" in the political sphere — particularly, in the
United
States;
but more recently in
Europe,
too — has been accompanied by some reversal both in returns and in the flow of
funds, leading several asset managers to withdraw ESG products and cutback on
specialist ESG staff.
However, representatives of both ESG and mainstream funds present on day three
of this year's UN Forum on Business and Human
Rights
in Geneva remain bullish — both about prospects for their sector and in its
ability to help drive sustainability practices.
Petter Forslund —
Sustainability Analyst at Swedish pension fund AP2 — said
they were "not concerned" about the backlash and saw current trends in terms of
economics, not politics.
"Rising interest rates in the last two years have put up the price of debt, and
ESG investments are generally more debt heavy," he said. "Asset managers have to
mitigate negative returns. But it's all about what's happening in the world — a
fluctuation; it absolutely won't be a long-term trend.”
Investors unmoved
"We've taken part in many discussions but have concluded it's not going to
change much," agreed Iraz
Soyal, Director of
Social Impact at Canada's Manulife Investment
Management.
"At the recent climate investor summit, other asset managers were all saying:
It's just noise in the background," she told the Forum. "We haven't changed our
own sustainable investment. We also don't change our approach for different
clients — sustainability is always part of the deck."
Soyal argued that ESG should simply be seen as part of the investor's fiduciary
duty to manage risk and that a large part of it is client advice, meeting their
demands and expectations in any case.
Jessica Wan, Social
Research lead at London-based asset manager
Redwheel, suggested the best
answer to the backlash might be a very straight-forward one: "Perhaps it's just
about finding a new acronym?"
One UN agency also told me in the fringes of the Forum that they simply had
started referring to “sustainability” not “ESG,” and that this had been very
successful in drawing the sting from criticism of their work.
Wan also argued that current retrenchment in ESG investment is temporary and
could be seen as contributing to significant long-term growth.
"This whole movement is weeding out the non-serious players," she said. "It is a
tough ride in the short term; but in reality, we are losing asset owners and
managers who never really integrated ESG in the first place."
Data still lacking
So, what will catalyze further investor support to promote better corporate
performance on human rights?
The common refrain: A big focus should be on better data.
"Most firms are reliant on data providers for much of their decision-making, and
data is very difficult to find on human rights," asserted Ben
Checkroun, Senior ESG Analyst at
Candriam — who said the firm is
pressing data providers to 'compete' on providing better ESG information. "You
need to drill down: Do companies report on specific cases of human rights
challenges, on alerts, on remediation, on human rights impact assessment?"
This is not just a question of rating business, but also of informing investor
engagement with companies.
Checkroun explained how his firm used data from the World Benchmarking
Alliance (WBA) to identify best
practice in different sectors.
"We say to companies: Look at your peers’ governance system or human rights due
diligence — why don't you do it?", he added.
The firm also integrates existing human rights data in its scoring and has been
prepared to change its voting at company Annual General Meetings, as a
consequence.
WBA representatives explained that companies that have engaged with their
investors on human rights scores are shown to fare 15 percent better on the
organisation's corporate human rights
benchmark.
Engagement
How far can investors engage with stakeholders to
better understand and promote corporate respect for human rights?
Nabylah Abo Dehman — Head of
Stewardship, Social Issues and Human Rights at the Principles for Responsible
Investment — shared insights from organising 20
opportunities for investors to directly interact with affected
rights-holders,
which proved to be an important learning experience.
"Where there are headline
risks,
investors do listen," Wan added. She appealed to civil society organisations to
be open to engagement and to provide practical recommendations for action by
companies in their reports.
The Forum also heard how new tools are being developed to help investors assess
and integrate information on corporate respect for human rights.
Bee Delgado,
Deputy Director at the UN Global Compact UK
Network, presented UNGC UK’s new 'rapid
framework' to help investors decide on what is decision-critical data in company
efforts to eliminate child labor.
Peter Webster, Chief
Executive of the Eiris Foundation, demonstrated
its new Social LobbyMap
methodology — enabling investors to assess how far companies align their
political
engagement
to social and human rights standards.
Joana Pedro — Head of
Social Issues at the UNEP Finance Initiative —
presented an interactive, web-based tool that will assist investors in acting on
each of the UN Guiding Principles on Business and Human
Rights,
which is due to be finalised before the end of this year.
People
However, the Forum also heard warnings that investors must not see this as an
issue of data alone.
"Human rights have to be human centric as well as data centric," Forslund
asserted. "We have our own methodology which we apply to the agriculture,
footwear and government sectors. But when we applied it to southern suppliers,
the score was next to nothing."
This call for investors to focus on impacts on people was underlined by Phil
Bloomer, Chief Executive of
the Business and Human Rights Resource
Centre.
"We remain stuck today in single, not double,
materiality,"
he argued — making the case that investors must address risks to people as well
as to the business.
Bloomer said that the COP29 climate summit decision, which put the onus on
private capital investment in the climate
transition
and limits public support to derisk this private investment, puts even greater
emphasis on the need for investors to undertake full human rights due
diligence
on their own portfolios. It also strengthens the case for the financial sector
to be brought into the scope of Europe's Corporate Sustainability Due Diligence
Directive
at its forthcoming review, he added.
Smart
So, the 2024 UN Forum ended as it had started — seeing strengthened regulation
as an integral part of the "smart
mix" to
address human rights in business. Market-based solutions through sustainable
investment will equally have an advanced role, according to the mood in Geneva —
it is not a choice between the two.
The only backlash in Geneva was against violations of human rights — met by a
united belief in the critical role of states, business and civil society working
together to combat them.
Read recaps of day one and two at the UN Forum on Business and Human Rights 2024.
Get the latest insights, trends, and innovations to help position yourself at the forefront of sustainable business leadership—delivered straight to your inbox.
Richard Howitt is a strategic adviser on Corporate Responsibility and Sustainability, Business and Human Rights. He is also a Board member, lecturer at Audencia Business School and host of the Frank Bold ‘Frankly Speaking’ responsible business podcast. Richard was Member of the European Parliament responsible for the EU’s first rules on corporate sustainability reporting and subsequently Chief Executive Officer of the International Integrated Reporting Council.
Published Dec 3, 2024 8am EST / 5am PST / 1pm GMT / 2pm CET