The scale and severity of the unfolding COVID-19 pandemic has emphasised the need to put people centre stage. While the climate emergency has been the top issue for the responsible investment community over the last couple of years, and rightfully so, the current reality is prompting a stronger investor focus on the social dimension of ESG.
The virus itself doesn’t discriminate, but our social and economic arrangements do. For example, workers in the ‘gig economy’ on zero-hour contracts are significantly affected by the shut-down of economic activity linked to COVID-19. Some will be let go overnight, often without wages or severance, many of whom support households, lack savings, and have no access to a governmental social safety net.
Equally, we see strong disruptions in supply chains having immediate consequences for workers. From brands cancelling orders with short notice or delaying payments to suppliers, to materials shortage from exporting countries – all have negative impacts on people and their livelihood. It is clear that COVID-19 disproportionately impacts the poor and most vulnerable, in part because they lack the resources to take adequate precautions.
Many are now calling for a more human-centric model, or perhaps a ‘new social contract’, to address the economic, health and general negative human rights impacts and inequalities of our current system. We believe that international human rights standards are the best universal framework for the necessary economic recovery and reform.
The role of the private sector
While governments are instrumental in responding to the current crisis, we should not forget the role of the private sector and the financial system. Their influence has increased as a result of the globalisation of our economies in which efficiencies in transport, communication and the flow of capital, for decades, have allowed private companies and investors to shift activities and investment to where domestic laws, labour standards, and tax regimes were most favourable.
The Universal Declaration of Human Rights – the historical document crafted in 1948 – calls on “every organ of society [to ensure the] universal and effective recognition and observance of human rights”. The finance sector is a key contributor to the fulfilment of this aspiration.
As often in a time of crisis, we need to shift our mindset and recognise that “business as usual” is no longer viable. COVID-19 has made this clear. We now need to better understand the negative impacts of the business community and ensure that respect for people’s dignity is at the core of our decision making.
The expectations outlined in the UN Guiding Principles on Business and Human Rights, unanimously endorsed in 2011 by the UN Human Rights Council, are particularly helpful for this. They emphasise the duty of states to protect human rights, but also emphasise the responsibility of business enterprises to respect them too.
Companies, whether big or small, are now faced with a range of unprecedented challenges that require an even stronger focus on their corporate responsibility to respect human rights. Eyes are on those showing leadership in protecting their employees, their suppliers and business partners, customers and the communities they serve. But those who fail to do so are also being watched. And, the UN Office for the Higher Commissioner for Human Rights in 2013 made clear that this corporate responsibility also extends to institutional investors.
The role of investors
The financial system will play a critical role in enabling economic recovery, development and contributing to wider societal well-being. We need to emphasise the responsibilities of institutional investors, our signatories, to respect human rights more broadly to ensure that the financial sector contributes to, not detracts from, more inclusive societies.
Institutional investors have a responsibility to respect human rights more broadly to ensure that the financial sector contributes to, not detracts from, more inclusive societies
While there is growing investor leadership and momentum on respecting human rights, many institutional investors are still unaware of or unclear on how to fulfil this responsibility. We are faced with an implementation gap. But this serves as an opportunity for investors – recognising the leverage they have to influence better societal outcomes.
The PRI’s position, grounded in international standards, is that institutional investors have a responsibility to respect human rights. Later in the year, we will publish details and guidance on how we expect our signatories to meet this responsibility, including reporting on it. We will work with signatories to address collective challenges and to improve the practices of the investment community to ensure respect for human rights.
So, as we contemplate a world post COVID-19, we need to ensure that the recovery respects both the boundaries of the planet and the rights of its people. As the recent Statement by the UN Working Group on Business and Human Rights highlights ”making real progress in implementing the Guiding Principles will better prepare us for the next crisis”. These values must inform our response to avoid environmental disaster, safeguard the dignity of people, and build the resilience needed for managing disruptions, now and in the future.
Bettina Reinboth is head of social issues and Nikolaj Halkjaer Pedersen is senior specialist, responsible investment at PRI.