Short-termism Limiting UNGP Adoption by Investors

Forthcoming OHCHR report must emphasise the central role played by the UN Guiding Principles in supporting responsible investment.

A focus on short-term returns by companies externalising social costs is preventing better alignment of ESG investment strategies with the UN Guiding Principles on Business and Human Rights (UNGPs). 

“We are still in a world that is dominated by the primacy of short-term returns to shareholders,” said Phil Bloomer, Executive Director of Business and Human Rights Resource Centre (BHRRC).   

“If the primacy of short-term returns is the main message that the board and the directors receive, it’s likely the direction they will follow.” 

His sentiments follow a call for input from the Office of the UN High Commissioner for Human Rights (OHCHR), which is developing practical guidance to policymakers, businesses and financial institutions on aligning ESG approaches to the UNGPs in the context of financial products and services.  

Speaking to ESG Investor, Bloomer said he welcomed the OHCHR’s focus on finance as it plays a “defining role” in corporate behaviour and incentives. Further, finance is a “crucial actor” in shaping regulation by policymakers.  

Governments heavily consider the input of investors, and when they perceive something as worthwhile, they are more likely to take action,” he said. 

The OHCHR’s Working Group on Business and Human Rights is seeking written input of all stakeholders including institutional investors, human rights institutions and policymakers, among others, until 30 September 2023.  

A report based on input from relevant stakeholders is to be presented to the 56th session of the Human Rights Council in June 2024.  

The recommendations offered in the report will be targeted to jurisdictions, financial actors and other relevant stakeholders, with the aim of addressing the strengths, weaknesses and opportunities that financial regulations, policies and practices offer to move towards a sustainable finance framework centred on a human rights approach. 

Too little too late? 

The OHCHR consultation underlines the fact that international finance has not fully embraced the UNGPs, first codified and endorsed by the UN Human Rights Council in 2011.  

“A key challenge is that most financial actors fail to connect human rights standards and processes with ESG criteria and investment practices because of a prevailing lack of understanding on how human rights issues should be reflected in social criteria, environmental and governance indicators,” said the OHCHR Working Group in a previous paper.  

Bloomer said progress on integrating UNGPs was slow across the sector.  

“I serve on the civil society advisory board for the Principles for Responsible Banking, and they have yet to fully incorporate the [UNGPs] into their work,” he says, noting that there is a “significant gap” that needs to be filled, with the OHCHR working group’s efforts looking to bring finance into this discussion, “albeit somewhat late”. 

But Bloomer said companies have reached a “pivotal moment”, with many beginning to recognise the interconnected nature of environmental and social-related risks and the danger they pose to the long-term sustainability of their businesses.  

“The advent of social media has made it clear that if a company is associated with a major adverse event, it can swiftly encounter substantial reputational and even legal risks,” he said. This shift is altering the risk assessment within boardrooms, added Bloomer, prompting companies to reconsider how they view social costs, which were previously considered externalisable expenses.  

“These costs are now more visible and tangible than in the past.” 

From this perspective, according to Bloomer, the risks to investors encompass reputational damage, legal liabilities, costs associated with protests and resistance, and impacts on their relationship with consumers and talent recruitment.  

“Millennials and Gen Z increasingly seek employment with organisations that align with their values, making this a critical factor for companies to consider.” 

Above and beyond 

Bloomer said that he hopes the OHCHR report will emphasise the central role played by the UNGPs in supporting responsible investment globally.  

“It’s crucial for the working group, as a UN body, to underscore that the due diligence practices observed in Europe are not anomalies or rooted in peculiar Western values,” he said. 

“Instead, they should assert that these practices are in alignment with the [UNGPs] and advocate for their global adoption.” 

Bloomer added that report should “go beyond” the current human rights and environmental due diligence framework, urging them to “contemplate the evolution of business incentives and regulatory approaches”.  

“Concepts like ‘co-equity’ and wealth sharing, in addition to income redistribution, should be explored further,” he said.  

Ahead of the G20 Summit in Delhi (9-10 September), a group of almost 300 millionaires, economists and politicians have called for urgent action to prevent extreme wealth “corroding our collective future”.  

“This represents an opportunity for the UN Working Group on Business and Human Rights to set ambitious targets for the world over the next 10 to 15 years,” added Bloomer.  

“These targets should encompass not only addressing income inequality but also wealth and power disparities, ultimately promoting the respect of human rights on a broader scale.” 

The BHRCC aims to advance human rights in businesses, with the organisation collecting data on the human rights policy and performance of over 10,000 companies in over 180 countries, making information publicly available. 

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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