A plan to improve the human rights data available to financial institutions is close to inauguration, supported a multi trillion-dollar coalition of asset owners and managers.
The Investor Initiative on Human Rights Data (II-HRD) is in the process of gathering an alliance of institutions to engage with data providers and proxy advisers to bring clarity about the human rights stance of publicly listed companies. It’s hoped that the combined efforts of leading asset owners and managers including the Church Commissioners for England (CCfE) and Aviva Investors will lead to the production and use of better data to inform investment decisions and stewardship activities.
“If we could shape the way that a lot of large, responsible investors globally have access to certain data, and enable them to act on that data, that can then have a systemic impact on… addressing social inequality and achieving just transitions to a nature- and net-zero world”, CCfE social lead Dan Neale told ESG Insight.
Corporate Behaviour
The II-HRD is intent on broadening and improving the data available to investors on the human rights policies and practices of the companies in which they could invest. That data can then be used to support company analysis and potentially be integrated into standard or bespoke policies to inform voting strategies by corporate stakeholders. Further, armed with that granular data, they can engage in other ways to influence the corporate behaviour of their portfolio companies.
Prospective signatories to the initiative have been given until next week to join. About 15 investors are already on board and Neale said others are potentially ready to participate.
The II-HRD was conceived last year by allies of the World Benchmarking Alliance, which ranks 2,000 companies on their contribution to sustainable development and respect for human rights. While that focused on high-risk sectors, investors saw a need to expand quality human rights data for all public listed companies.
The need for better data was shown during a CCfE pilot voting project last year that sought to oppose the re-election of company leaders based on their approach to human rights. Organisers also saw an opportunity to capitalise on the momentum for increasing corporate transparency generated by the introduction of regulations such as the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), which require companies to report on their human rights due diligence.
“The commissioners really believe that how companies approach respecting human rights is a critical part of their role in either entrenching or solving issues of inequality,” said Neale. “We take a systematic approach to stewardship for the topic of human rights in a way that cuts across all companies, all sectors, because we fundamentally believe that how companies do it is financially material – and that goes for all companies and all sectors – because it underpins both their impact and financial materiality analysis as well.”
Data Providers
The pilot demonstrated not only that data vendors often weren’t yet providing the granular detail needed to make suitable assessments but they also failed to provide transparency into their methodologies. Once the participatory sign-on period closes at the end of the month the initiative’s members will begin working with data providers to resolve those issues.
Neale hopes that the initiative’s efforts may eventually help investors who are creating sustainability-focused funds.
“When we looked at some of the products coming out from ESG data providers about whether a company had a norms breach or not, and whether it had a decent approach to understanding its risks and impacts, we fundamentally didn’t agree with some of the things that were coming out of there,” Neale said.
“We think better data will also help investors when they want to create different types of sustainability classifications, which may then in the long run go into create different funds.”
While the II-HRD aims to improve data available to investors, Neale doesn’t envisage it will be used to create investment screening tools or to rank companies on their human rights performances.
“It’s more about that broader piece, which is, ‘is the data there that means the investors as a whole in the market can take informed action on whether companies are meeting fundamental expectations about the respect for human rights’?” Neale said.
“It is an attempt to change the bigger picture piece, because we also understand that business respect for human rights is really important for stable, sustainable economies, which underpin our own long-term returns.”
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