Human rights rises up the ESG agenda

At the Responsible Investment Forum: Europe, one lawyer described human rights as having 'ballooned' into one of the biggest topics his firm deals with. GPs should take note.

(L-R) Robert Sroka, Bettina Reinboth, Douglas Bryden

Human rights is rising up the private markets sustainability agenda, according to delegates at PEI’s Responsible Investment Forum: Europe. It “has ballooned into one of the biggest topics we deal with,” said Douglas Bryden, a partner at law firm Travers Smith, during a panel session. While the climate crisis is dominating the current sustainability agenda, “over the next 18 months [human rights] could be the hot topic,” he said.

Bryden noted that he has been seeing an increase in the references in private fund side letters to the “soft law” around human rights, such as the ILO or OECD labour guidelines.

The UN-backed Principles for Responsible Investment has been turning attention to human rights. A little over a year ago the organisation released a paper entitled Why and how investors should act on human rights and this year has been collating relevant case studies to raise awareness of the UN Guiding Principles on Business and Human Rights (“UNGPs”), and the OECD’s guidelines on the topic.

Alongside Bryden on the panel were Bettina Reinboth, director of human rights and social issues at PRI, and Robert Sroka, ESG director for private equity firm Abris Capital Partners.

Reinboth said that the conversation around human rights can feel quite theoretical to investors, and quite overwhelming in scope, but that the first step of creating a policy on human rights “will put you on a stronger legal and moral standing”.

Sroka described to delegates the “fundamental and ethical” obligation to be aware of potential human rights issues in the portfolio. He then explained the four areas in which Abris assesses human rights issues among portfolio companies: working and employment conditions; use of temporary workers through agencies; the supply chain; and the use of new technology.

Recent comments suggest that LPs are indeed sharpening their focus on human rights. “In terms of our reputational risk and the issues that are raised with us, human rights is really up there. It’s one of the issues that we get most focus on from stakeholders,” said Anne-Maree O’Connor, head of responsible investment at the New Zealand Superannuation Fund, at the Responsible Investment Forum APAC Investor Day in September.

Downside risk management

Travers Smith’s Bryden noted that ILO guidelines are “starting to get embedded into regulation”, and that therefore GPs need to “get their heads round them.” He also said that fines associated with human rights violations will likely be financially material: “There are some significant legal ‘sticks’ out there.”

The downside risk to reputation is also material, he added: “It’s a company killer.”

A research report produced this July by Amnesty International stated that the world’s largest venture capital firms are “turning a blind eye” to human rights due diligence. Using the VCJ 50, a list produced by affiliate title Venture Capital Journal of the largest venture firms by capital raised in the previous five years, the organisation “reviewed public information on each VC firm’s human rights due diligence processes” and “sent numerous letters to each firm, requesting additional information”. Of the 53 firms it reviewed (it also included three tech accelerators), Amnesty found that only a single firm – Atomico – had human rights due diligence processes in place that potentially met the standards set by the UN Guiding Principles on Business and Human Rights.