Reputational risk most mitigated by addressing human rights

But only 31% of asset managers employ specialists within their organisations to tackle this


European asset managers are seeing human rights violations as a risk for businesses, and have said reputation is the most pertinent factor that can be mitigated by addressing these.

A human rights survey was commissioned by Luxembourg for Finance, and jointly conducted by Finance and Human Rights in Luxembourg, the Geneva Center for Business and Human Rights in Switzerland, and Löning – Human Rights and Responsible Business in Germany, and was completed by 55 financial institutions in France, Germany, Luxembourg, the Netherlands, Switzerland and the UK representing €13trn as of 31 December 2021, of which 73% were asset managers.

The resultant report, Sustainable Finance and Human Rights, found most respondents, 85%, found reputational risk to be the most pertinent factor addressing human rights issues can mitigate.

Only in second place were rights infringements themselves listed, with 73% of respondents noting them the most pertinent risk factors that can be mitigated by addressing human rights.

In their own organisations the firms surveyed mostly use the UN Principles for Responsible Investment (65%) as the voluntary framework to address human rights concerns, followed by the UN Global Compact (47%), the UN Guiding Principles on Business and Human Rights (38%), and their own organisation’s human rights policy (36%), but said regulation and global standards would be the key drivers of progress.

“The topic of human rights in sustainable finance is gaining traction,” said Professor Dorothee Baumann-Pauly, director of the Geneva Center of Business and Human Rights.

“Legislation is having a strong effect on company’s engagement: human rights are no longer optional.”

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The report also found only a third (31%) of firms employ human rights specialists, significantly lower than the 53% who said they did in 2020.

It noted this could be because it has become encompassed in ever-shifting sustainability roles.

It follows that 31% also said lack of organisational knowledge was a main barrier to engaging investee companies on human rights, along with lack of resources and time.

Unsurprisingly, lack of data, disclosure and reporting were also found to be obstacles.

The report therefore made two recommendations to firms:

  • To build organisations capacity for advancing human rights in corporate practice
  • To use their legal duty to report on human rights as part of their ESG activities

It also suggested trade bodies take a more proactive role in highlighting human rights issues and lawmakers should create consistent regulatory standards.

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