Opinion: Why and How Should Investors Act on Human Rights?

23 September 2021

The food sector spans the globe: seafood from Thailand, sugar from India, cocoa from Ghana, and coffee from Brazil. But this global reach brings problems: poor working conditions and low wages, forced labour, child labour, gender inequality, and violation of community rights to land. What’s a responsible investor to do?

Sharmeen Contractor Senior Advisor, Market Systems and Investors with Oxfam America explains why and how investors should engage with human rights.

From coffee (pictured in El Salvador) to sugar to cocoa, most people enjoy food products from across the globe. However, multinational companies often reap huge profits on these goods, while squeezing workers and the environment. Photo: Donna Morris / Oxfam America

Multinational companies in the food sector command vital resources–land, labor, and finance–to produce, process, distribute, and sell food products. Because of the power that these companies hold, they’ve been able to reap huge benefits while squeezing workers, communities, and the environment.

Yet their business model is proving to be unsustainable; companies’ desire to place profits above the rights of people and the environment is slowly but increasingly proving to be costly.

COVID-19 has clearly shown that societal impacts and business risks are intertwined, and that short-term profit maximization has come at a huge cost to society and to long-term profit. Among the problems facing companies and their investors:

  • Fines, penalties, and legal costs;
  • Operational inefficiencies, disruptions, delays, and resource diversion;
  • Loss of consumers and/or markets;
  • Loss of talent and high turnover rates;
  • Loss of access to capital; and
  • Loss of goodwill.

Evidence gathered by Oxfam from stakeholders in the food sector–coupled with the potential for government clampdown on private sector on human rights, increasing worker and community discontent, and changing consumer behavior–showcase that respect for human rights is not only the right thing to do, but makes business sense.

It’s becoming abundantly clear that if investors want strong returns and resilient portfolios in the long-term, they must pay attention to human rights violations within their investment portfolios. In a new briefing note from Oxfam titled Food for Thought: Investing in a Sustainable Food System,” we provide evidence based on case studies and interviews with stakeholders and monitoring and evaluations on companies, to investors that companies are falling short on their human rights commitments

Savvy investors are already ahead of the curve. 2020 was the year that changed it all. Investors woke up to this reality amidst the pandemic. For the first time, human rights resolutions at US companies dominated the companies’ annual general meeting season. In 2021, human rights resolutions averaged 30% support, higher than in 2020 (when human rights resolutions received 25% support), showcasing a slowly increasing acceptance among investors that human rights violations pose a business risk.

Investors have also proactively engaged companies over their human rights records. In May 2021, over 50 investors announced their intention to address egregious human rights risks as a result of their business ties to the Uyghur Region. During the European Commission’s consultations on corporate governance in 2020, investors threw their support behind the EU law on mandatory human rights due diligence (mHRDD). In March 2020, the Investor Alliance for Human Rights coordinated a statement in support of mHRDD that was signed by 176 investors representing over $4.5 trillion in assets under management (AUM). In April 2020, 105 investors representing US$5 trillion AUM called on governments to enact mHRDD.

Investors are finally waking up to the fact that respect for human rights is good for business. But is it enough? Despite all the effort and action, human rights violations and abuses are still widespread, highlighting that more support is needed from the investment community. Respect for human rights needs to be embedded into the DNA of investment policies of the largest global investors. Unless they start compelling companies to act, real change will be elusive.

Investors have a choice: they can be part of the problem or part of the solution. Our evidence does show that some companies are taking steps toward mitigating human rights violations in their supply chains, but more needs to be done. Concerted, collective, and widespread investor support for human rights will be crucial to initiate change.

Investors can play a leading role in building a resilient and stable food system and ensuring that companies’ policies and practices to respect human rights trickle all the way down the supply chain. The UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Responsible Business Conduct for Multinational Enterprises present a path for investors to ensure respect for human rights is a significant factor in their decision-making.

In its briefing note, Oxfam outlines a series of recommendations that pave the way for investors to ensure respect for human rights, including:

  • Aligning policies and practices to articulate human rights standards in line with the UNGP and OECD Guidelines;
  • Implementing the policies across companies in their portfolio of investments; and
  • Restructuring the way the private sector assesses human rights.

Investors are well placed to help companies emerge more resilient from the crisis. Respect for human rights can increase the robustness of corporate risk management processes, reduce human rights violations, and help investors achieve strong returns.