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Human rights: the next ESG investment frontier?

Expanding the scope of ESG will be good for people, good for the climate and good for the industry itself – if we can more fully rise to the challenge this time.

It’s remarkable, when you think of it, how many humans are dedicating their life’s work to completely reshaping the world around a single molecule. That is the reality of the climate change movement today: it’s all about CO2.

This might sound surprising coming from someone who runs a renewable energy company (less so if you’ve read my previous articles) but I wish it wasn’t. To get serious about our ecological crises, we are going to have to widen our scope of understanding. Climate change involves more – much more – than a simple forcing effect around atmospheric levels of one molecule.

My favourite part of our episode with Cathrine de Coninck-Lopez, Global Head of ESG at Invesco, was when we shifted the conversation beyond the narrow bounds of carbon. Cathrine, a scientist by training, has long had an interest in biodiversity as another facet of the environmental challenge, and it was great to get her thoughts on the Montreal Conference (and nice to talk about the COP that worked!)

It was in that spirit that I asked her: what do you see as the next frontier in ESG finance? Which other issues are rising up to the surface of consciousness in the investing world? Here is her reply:

“Human rights. It is a big topic that is not universally agreed upon. What we are trying to do right now – and what we’ve actually done just in our research framework, in our proprietary rating system – is we have included some new data to start scoring companies on human rights.”

It seems obvious, but human rights have been rather MIA in the ESG world. Correcting that could have profound implications for ethical investing – and climate too.

Why ESG needs human rights, right now

An increased focus on human rights in the asset management world is fantastic in and of itself. They are such a critical part of human flourishing and deserve just as much attention as climate change. They have existed as an activist concern far longer than climate has, and dominated political conversation as recently as the pre-2008 era, as the post-9/11 security state was constructed around surveillance, rendition and torture. More recently, climate has sucked up all the oxygen; perhaps a necessary corrective but not a sustainable one.

Work on human rights remains as necessary as ever and would benefit from any renewed attention ESG can bring to bear. But I also believe that the ESG movement itself would benefit equally as much. I’ve written before about the problems and opportunities within the ‘wobbly stool’ of ESG, where Governance gets short shrift. Human rights will give more heft to the Social element, and anything that brings the three pillars into more balance is for the best.

More importantly, it represents an opportunity to move away from our current obsession with quantification. Let’s be honest: at least some of the popularity of climate within finance is because counting carbon is easy. The consequence is a dumbing down of ethical investment. The Social pillar of ESG, beyond some simplistic measures of diversity, has been left behind exactly because it is more diffuse and qualitative, and therefore seen as more challenging from a bean-counting perspective.

Human rights don’t lend themselves to quantification, but they do feel a lot crunchier than other social issues. Rights also have a moral backbone which is much harder to dismiss as wishy-washy or woke, and most people would say they recognise rights violations when they see them. El Salvador’s prison system, women’s rights in Afghanistan, Russian political repression, indigenous land grabs… there’s not much arguing with these realities. Thus they are more resilient to misinformation and denial, which means we can get on with the job of fixing problems rather than having to defend their existence.

Climate is a human right

Which brings us to the question of how human rights and climate change are connected. Most obviously, a stable climate is surely one of the most fundamental rights, in and of itself. Liveable ecosystems, clean air and water, relationships with the land and other species… that there are no explicit environmental rights in the Universal Declaration of Human Rights says a lot about the myopia of the post-war Western culture than authored them and is surely due for correction.

Climate breakdown will have devasting impacts on other aspects of human rights too. It will destroy communities, sink ancestral lands beneath the ocean, and drive migration and famine. In many places, it may accelerate autocratic control and despotism. It’s easy for us in the West to imagine this happening in places like China and Singapore, but we might have the humility to notice the crackdowns on environmental protests in our own backyards. From the militarised invasions of indigenous lands at places like Standing Rock, to the increased use of SLAPPs (Strategic Lawsuits Against Public Participation) by corporate power, to the Police, Crime, Sentencing and Courts Act in the UK attempting to make environmental protest ‘almost illegal’ – Climate activism is increasingly dangerous here at home.

It is also worth considering the relationship from the other direction: does promoting human rights help combat climate change? The answer is surely yes. They share the same root philosophy, an understanding that human flourishing comes not from dominance and control of others (be they other humans, or the land and other species) but is rooted in values of respect, care, and reciprocity. Tending to one of these concerns nurtures the same root values that support the other.

Furthermore, we should understand climate change as a product of a world that feels fundamentally unsafe for so many people. Environmental destruction and war, for example, are intrinsically linked – just look at the ties that bind the conflict in Ukraine and fossil fuels, and consider that the US military alone, if it were a country, would be the 55th biggest emitteron the planet. Anything which promotes rights and peace will reduce our destructiveness not only against each other but against the planet too. I believe too that when people can rest in a position of genuine psychological safety, they will be more supportive of the climate message; greed, short-sightedness and consumer addiction all flourish in environments where basic human needs go unmet.

Getting rights-based investing right

So ESG needs human rights, and rights-based investment will be good for the climate too – but only if we can get it right. Here is an opportunity to refresh ESG not only in scope but in rigour too.

To my mind, this centres on the question of who decides what counts. The history of ESG has been fairly spotty in this regard, with far too much greenwash and tepidness in the selection and rating criteria. Fund managers don’t want to underperform benchmarks; asset managers fear moving too far, too fast; and ratings groups have no interest in rocking the boat given the bulk of their business comes from existing exchanges and indices. The result is too many ‘ESG’ funds are still haunted by oil companies, miners, and the financial firms who fund them – perhaps weighted down by a percentage point or two. It’s not good enough anymore.

Integrating human rights into ESG offers a chance to do things differently. The FTSE 100 is full of companies with pretty glaring track records on human rights – from Shell’s complicity in the extra-judicial killings of peaceful protestors (the Ogoni Nine) in the Niger Delta in the 1990s, to Rio Tinto knowingly blowing up a 46,000-year-old aboriginal sacred sitein 2020. It surely is more difficult for ratings agencies and index compilers to include these in a human-rights-aligned index – unlike the muddying of greenwash, we all know a rights abuse when we see one.

Perhaps we should go one step further. The human rights world has some venerable, deeply respected, and widely recognised third-party authorities, from Amnesty to Human Rights Watch to Transparency International. Why not invite them to take part in helping design, benchmark, and rate firms for human rights within an ESG investing framework? Leaving this job to financial insiders allows them to mark their own homework, or simply shrug and hide behind fiduciary duty or client demand. If the industry wants to get serious about doing ESG with rigour, they should invite real experts to the table.

For all these reasons, I’m hugely in favour of human rights becoming the next frontier in ESG investing, for the climate as well as for their own sake. It won’t be easy – human rights washing will be much harder to pull off than greenwashing. But it is the confrontation the financial industry needs, to finally get serious about creating markets that are truly part of the solution.

This article was originally published on LinkedIn in by Christopher Caldwell CEO @ United Renewables and MBA, Sustainability Columnist & Podcast host on March 22nd, 2023

 

If you loved this article you may also enjoy reading the articles below.

The selfish case for climate reparations

Bloom and bust – regenerative business lessons from a microalgae start-up

Our sustainable future will be no-size-fits-all

The wobbly stool of ESG: what does governance have to do with climate change anyway?

May a hundred ‘small experiments’ bloom

 

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