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INSTITUTIONAL INVESTORS CALL FOR HUMAN CAPITAL REPORTING TO BECOME A GLOBAL STANDARD


Human rights have become a key issue among investors, finds Andrew Holt.


An investor coalition that manages more than $1trn (£795bn) of assets is calling on the International Sustainability Stand- ards Board (ISSB) to make human capital and human rights a priority for its next set of global reporting standards. A letter, co-ordinated by responsible investment campaigner Share Action and signed by 21 investors across the globe, states that investor demand for a greater volume of better-quality workforce data “is at an all-time high” and urges the ISSB to “prioritise researching human capital and human rights dis- closure standards in its upcoming two-year work plan”. The investors, which include a mix of asset managers and asset owners, say they have gone to the ISSB specifically in response to its Request for Information (RFI) – launched in May 2023 – seeking feedback on which area of sustainability to focus its next set of standards on. James Coldwell, head of the Workforce Disclosure Initiative (WDI) at Share Action, said this is “an opportunity” for the ISSB to “set the global reporting baseline” needed for investors to be able to understand and take meaningful action on labour and human rights abuses.


Joined-up thinking


The letter also calls on the ISSB to consider “how to disclose human capital and human rights information together” by addressing the connections between the two topics. It argues that in practice, neither companies nor investors treat the two topics as separate areas. Human rights due diligence processes, for example, are used as key tools for identifying labour issues. Concepts such as unionisation and modern slavery belong to both categories, argues the letter. “We know that workers around the world face exploitation by unscrupulous companies, harming the workers themselves and creating risks for investors,” Coldwell said. “Tackling these issues can only be achieved when there is transparency around corporate practices – something the ISSB is perfectly posi- tioned to deliver. “This is why we’re calling on them to prioritise research into human capital and human rights, to develop a globally accepted reporting framework,” he added. The letter follows a Share Action poll that gauged how British savers feel about where their money is invested. The results show the majority (74%) have a negative view of financial insti-


tutions that invest in companies which fail to meet human and labour rights standards.


Asset owner requests


It is an issue that has momentum. As it comes after the UN- backed Principles for Responsible Investment (PRI) also called on asset owners to include human rights in their request for proposals (RFPs). To do this, the PRI has issued a guidaince for asset owners: How to identify human rights risks: a practical guide to due dili- gence, which highlights that “investors should, where neces- sary, prioritise companies with the most severe actual and potential adverse human rights outcomes”.


The PRI said asset owners who outsource some, or all of their investment management, should set clear expectations to their asset managers in terms of how human rights risks are identi- fied and prioritised, and ensure that they monitor risk expo- sure and actions to address issues via regular information from their fund managers.


The PRI suggested a prioritisation framework to identify and prioritise human rights risks: through sector, company and country assessments – which should be tailored to suit individ- ual investment strategies. The Council on Ethics of Sweden’s AP Funds have also set up an initiative, backed by Railpen, to put tech giants on notice over human rights risks.


Financial materiality


The aim of the initiative is to make sure tech firms take solid measures to address human rights risks in connection to their products and business models, while encouraging greater transparency and reporting on the related impacts. The group cited engagement with Alibaba, Alphabet, Amazon, Apple, Meta, Microsoft and Tencent during the next three years to assess progress. Vincent Kaufmann, chief executive of signatory Ethos Founda- tion, a charity to promote well being in society, said Covid-19 – and the subsequent mass fluctuation it caused in the labour market – emphasised “how critical human beings are to the long-term success of any business”. And he added: “As the financial materiality of these issues becomes increasingly clear, it is crucial investors have access to comprehensive and comparable social data from businesses to help inform investment decisions. It is imperative the ISSB prioritises developing human capital and human rights stand- ards as soon as possible to help deliver this.” The WDI has also announced that it is launching an investor working group focused on global social data reporting, which will be launched following the closure of the RFI in early September.


Issue 126 | September 2023 | portfolio institutional | 25


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