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ESG, Investments, and Human Rights: new FNI input to the United Nations


Amidst the rapid expansion of Environmental, Social, and Governance (ESG)

investing, the United Nations Working Group on Business and Human Rights solicited insights from a broad spectrum of stakeholders, according to a predefined Questionnaire.


Responding to the UN Working Group, the Facts and Norms Institute (FNI) prepared a technical note addressing the relations between ESG, investments and human rights.


Investors, ESG and human rights


Prepared by professors Bárbara Dayana Brasil and Henrique Napoleão Alves, FNI's input to the UN provides an understanding of what ESG in finance mean, and how ESG and human rights factors can relate to investments.


The input also provides a useful outline for future studies on how the main types of investors can take into account ESG and human rights factors in their engagements and decision-making processes.


In this sense, FNI's study suggests questions to be made in relation to major institutional investors, mutual funds and exchange-traded funds, impact investors, sovereign wealth funds, retail investors, family offices and high-net worth individuals, venture capital and private equity firms, development finance institutions, asset managers, among others.


ESG offers risks and opportunities for human rights


FNI's input warns about how the risk of ESG criteria being dominated by large corporations and bureaucracies could unfairly advantage big businesses, enabling them to comply with or influence ESG requirements and use them as marketing tools, while smaller entities struggle.


Conversely, adopting ESG practices offers significant opportunities for businesses and investors by mitigating potential damages, avoiding legal issues, and enhancing credibility with stakeholders. Effective ESG measures include integrating human rights policies, conducting due diligence, and establishing remediation mechanisms for adverse impacts, thereby aligning with sustainable market trends and fulfilling tangible commitments towards human rights.

The role of States international organizations


Globally, various mechanisms and regulations at state, regional, and international levels aim to align investment and financing with ESG criteria, incorporating human rights considerations and adhering to the UNGPs.


France's Corporate Duty of Vigilance Law mandates major corporations to mitigate adverse human rights and environmental impacts, with legal consequences for non-compliance. The UK's Modern Slavery Act requires transparency in eliminating slavery and human trafficking, influencing ESG-focused investments by promoting ethical practices. Brazil's constitution and recent legislation emphasize social justice, environmental protection, and human rights, integrating ESG principles into economic activities and holding entities accountable for violations.


In the U.S., the growth of ESG funds contrasts with anti-ESG legislative efforts that challenge the integration of human rights and environmental considerations. Internationally, the PRI and the Equator Principles advocate for responsible investment and environmental and social risk management, despite critiques of their effectiveness.


The EU's Corporate Sustainability Reporting and upcoming Human Rights and Environmental Due Diligence Directives demand comprehensive risk assessments in supply chains, reinforcing the global trend towards sustainable and responsible business practices.

Fostering human rights in investment and finance


FNI's technical notes closes with a systematization of measures that the States can adopt to foster human rights through investment and finance. These include legislative actions to mandate human rights due diligence, requiring businesses to identify, mitigate, and report human rights impacts. Developing regulatory frameworks that integrate human rights considerations into compliance and reporting obligations, ensuring these are fair for all businesses, including small ones. Policies should align with the UNGPs and detail business-related implementation steps.


States can also support capacity-building by providing guidance and training for integrating human rights into financial decisions. Incentivizing responsible investment through tax benefits or recognition, strengthening grievance mechanisms for affected individuals, and including human rights due diligence in public procurement can influence corporate behavior. International cooperation is crucial for promoting global human rights standards.


Establishing independent oversight bodies with the power to enforce compliance, requiring transparent reporting on investment's human rights impacts, and involving stakeholders in policymaking can ensure that regulatory measures are informed and effective.


 

To read the full report | input, click here:


Brasil BD; Alves HN. ESG, Investments, and Human Rights. Input to the UN.
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