Human Rights

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From climate change to women’s rights to anti-discrimination, human rights issues are more pervasive corporate issues than we might think about as we pour our cereal or brush our teeth in the morning. But, whether we think about them or not, human rights issues exist.

Human rights violations don’t always happen in isolation, but often occur in tandem with other environmental, social and governance (ESG) investing factors. For example, according to an interview in GreenBiz with Lauren Compere of Boston Common Asset Management, beyond environmental degradation, deforestation is strongly correlated with human rights abuses. These issues are more prevalent than one might think in the world of corporate social responsibility programs.

According to a March 2020 report by Rainforest Action Network (RAN), major banks and brands are failing to stop deforestation and protect human rights, despite public commitments to do so. This is in large part because the fast-moving consumer goods that they make, including non-durable goods such as packaged foods, beverages, toiletries, are strongly linked to deforestation. 

These brands include big names including Colgate-Palmolive, Ferrero, Kao, Mars, Mondelēz, Nestlé, Nissin Foods, PepsiCo, Procter & Gamble, and Unilever. The banks include Mitsubishi UFJ Financial Group, Bank Negara Indonesia, CIMB, Industrial and Commercial Bank of China, DBS, ABN Amro, and JPMorgan Chase. 

The report argues that these brands are complicit in deforestation and human rights abuses in their “sourcing of forest-risk commodities –– including palm oil, pulp, and paper.” (Note that in September 2020, many of these brands collectively launched the Forest Positive Coalition of Action, an initiative to end deforestation.)

How does the RAN report call for change to harmful deforestation and human rights practices? 

For one, it commends the follow through of many European and US banks and investors on their commitments not to finance companies that engage in these abuses. Investors have power to influence even the biggest business entities, and socially and environmental advocates are asking investors to use that power.  

Here’s what you should know about human rights in the modern world, and why you should consider them when building your portfolio.  

What Are Human Rights?

According to the UN, human rights “are rights inherent to all human beings, regardless of race, sex, nationality, ethnicity, language, religion, or any other status. Human rights include the right to life and liberty, freedom from slavery and torture, freedom of opinion and expression, the right to work and education, and many more.  Everyone is entitled to these rights, without discrimination.”

The UN’s Guiding Principles on Business and Human Rights, which were unanimously endorsed in 2011, have two primary goals: (1) “to reaffirm that governments have an obligation to protect against human rights abuses by third parties, including businesses” and (2) “to clarify that all companies have a responsibility to respect human rights.”  These principles provide actionable steps for companies and governments to meet their obligations in protecting and respecting human rights.

These principles are also important for investors. According to the Columbia Center of Sustainable Development’s Five-Pillar Framework, “a key component of sustainable international investment includes promoting and respecting human rights that might be affected by investments.” The UN’s Guiding Principles offer investors a framework from which to assess the human rights advocacy or abuses of the companies they invest in.  

Why Consider Human Rights When Investing?

ESG investing factors include human rights, and human rights investing has the power to make an impact. For example, divestment played an important role in the anti-apartheid movement in South Africa. 

Beyond impact, as with other ESG priorities, there is mounting evidence that companies tend to benefit financially when they uphold human rights. So, human rights conscious investments are likely to be more successful. 

Business success is linked to good business practices for a variety of reasons. For one, “reputation is now recognized as a major source of business risk,” according to the 2018 report Good Business: The Economic Case for Protecting Human Rights

But, there are other reasons. Companies that value human rights tend to share a long-term view of success, which they execute over time. Beyond helping to promote worker and stakeholder relations, advocating for human rights also benefits from state-based economic incentives, including public procurement, export credit support, and trade incentives. A commitment to human rights also reduces litigation costs and positions companies in a favorable way as regulatory trends develop. 

In May 2020, the Investor Alliance on Human Rights released an Investor Toolkit on Human Rights. The toolkit provides a framework for investors to assess their investments based on human rights criteria.

But, aren’t companies busy with other things, especially under the stresses of a tumultuous economy? 

It’s quite the opposite. In the midst of a pandemic, companies are suddenly tasked with, in the words of The PRI, “protecting their employees, their suppliers and business partners, customers and the communities they serve,” and how they choose or choose not to do so will influence how they come out of the crisis. 

So, it’s not surprising that in September 2020, BlackRock and Vanguard launched four total new ESG ETFs that screen for human rights issues. These include iShares ESG Screened S&P 500 ETF (XVV), iShares ESG Screened S&P Mid-Cap ETF (XJH), iShares ESG Screened S&P Small-Cap ETF (XJR), and Vanguard ESG U.S. Corporate Bond ETF (VCEB). 

If we consider the global supply chain, human rights aren’t something so separate from our cereal or our toothpaste. For savvy, socially conscious investors, understanding whether the companies they invest in enforce or dismiss human rights with their corporate decisions should be a key factor for consideration.  

How to Invest in Human Rights

ETFs and mutual funds such as those mentioned above make investing with a clean conscience easier than ever. A search on Magnifi suggests there are a number of different ways for interested investors to support this part of the ESG landscape.

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