Human rights must form a core part of financial institutions’ sustainable investment strategies, a leading financial body has said.
With climate change protests across the globe, there has been a concerted push by various parties for firms to incorporate sustainability considerations into their business models.
Sustainable finance is moving into the mainstream with the government this week setting out standards for asset managers within the sustainable investment sector in a bid to shore up its green credentials.
But a report commissioned by Luxembourg for Finance published today claims that while much has been made of the environmental aspect of ESG, the ‘S’, which includes human rights, has not been afforded the same attention.
The report, which was jointly conducted by Finance & Human Rights in Luxembourg and the Geneva Center for Business and Human Rights in Switzerland, concluded that human rights are linked to fiduciary, risk mitigation and opportunity for better financial performance.
As a result institutions must allocate more resources and invest in building human rights expertise.
It comes after the Principles for Responsible Investment recently urged investors to consider human rights in their investment decisions.
Over half of financial institutions already engage with investee companies and clients on their approach to human rights, according to the report. But awareness of human rights issues remains largely at the C-suite level, and the body predicts it may take some time to trickle down the organisational chart.
While the financial services industry is aware of its role, the report highlights that a lack of company data plays a role in restricting institutions from better addressing human rights. That said upcoming EU regulation should make more data available to firms.
Dorothee Baumann-Pauly, Director of the Geneva Center for Business and Human Rights, noted: “Ultimately however clients are the main drivers of change, as they pivot towards products that incorporate human rights financial institutions will increasingly make it an integral part of their strategies.”
While financial institutions themselves need to allocate sufficient resources, governments must also step up their efforts to advance the regulatory processes.
Luxembourg for Finance recommends governments should step up efforts to advance the regulatory processes to “create consistent regulatory standards at the European level”.
Nicolas Mackel, chief executive of Luxembourg for Finance said: “This first study is a step in the right direction to take stock of where financial institutions stand and raise awareness of the topic. The COVID pandemic has underscored the importance of social issues in the business sector. Financial institutions can play a critical role going forward by making human rights a core factor of their sustainability strategies.”