Here’s a reality check on how people approach financial decisions during a crisis: The evidence suggests most of us are actually more careful when chaos surrounds us. Some of this behavior lies in the fundamentals of human psychology. Other aspects are just obvious, as in the fact many of us are stuck at home, rarely go out if ever and, therefore, we have more time on our hands. So here’s a word of caution for anyone sitting in a C-suite (or is now doing so virtually from home) who thinks his or her company can let some things slide due to this pandemic: Investors are still monitoring companies, perhaps even more closely now than they had before. In turn, consumers are tracking their investments the way hawks swirl airborne while they watch their prey. Furthermore, asset managers that give the short shrift to the social impacts of their investments will only hurt their companies in the long run. This stubborn reality applies to huge global problems such as human rights.
To that end, the Investor Alliance for Human Rights recently launched a toolkit with which asset owners and managers can assess how their investments could pose social risks on communities worldwide. Such a framework is even more necessary during this current crisis, as it’s been clear that we now face wider economic and social inequalities in wealthy and poorer nations alike.
Think of this overriding framework as a checklist that varies based on the role one has in the investment world. At the institutional level, for example, this framework reminds asset owners and managers of basic yet very important questions: Is your firm’s human rights policy commitment clear? What about the company's human rights governance statement? Have you done thorough due diligence so problems don’t fester? Are grievance mechanisms in place? Are the appropriate disclosures complete? The Alliance provides tools that can help those tasked with monitoring investors’ social impact and compliance, as well as examples to ensure these policies, commitments and statements are effective.
Considering the missteps that have sidetracked many companies, including those that have assumed their social responsibility commitments were effective, reviewing a firm’s human rights policies (and of course, following them) are more critical now than they were just a few months ago.
“In this global crisis, we see why investment-as-usual must change. An essential step in this process is recognizing that institutional investors, even minority shareholders, have a responsibility to address the risks to people present in their investment value chains. To do this, investors should know the human rights risks connected to their investment portfolios and show how they are taking action to manage those risks in line with globally agreed upon standards,” said Paloma Muñoz Quick, director of the Investor Alliance for Human Rights, in a public statement.
The Alliance’s toolkit is far more than something to be bookmarked. It’s also a reminder for institutional investors to brush up on ethical business standards including those within the U.N. Guiding Principles on Business and Human Rights and the OECD’s Guidelines for Multinational Enterprises.
True, more investment professionals are integrating ESG (environmental, social and governance) factors into their decisions as to how they allocate their funds, but many of them are still overlooking ESG criteria. And even if institutional investors can prove they are evaluating ESG concerns, too many of them are still overlooking the “S” in ESG. So, at a time when the novel coronavirus is often piling on its worst impact on society's most vulnerable, these human rights challenges should be top of mind now more than ever, whether they be labor rights, discrimination in any form, or child exploitation.
“Make no mistake: People are paying close attention to how companies respond — and how they treat their stakeholders when it matters most,” TriplePundit’s senior editor, Mary Mazzoni, wrote during the onset of this pandemic. That is definitely the case with the global financial industry, too.
Image credit: Tim Mossholder/Unsplash
Leon Kaye has written for TriplePundit since 2010, and became its Executive Editor in 2018. He's based in Fresno, CA, from where he happily explores California’s stellar Central Coast and the national parks in the Sierra Nevadas. He's worked an lived in South Korea, the United Arab Emirates and Uruguay, and has traveled to over 70 countries. He's an alum of the University of Maryland, Baltimore County and the University of Southern California.