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Sustainability in general, and sustainability within the finance industry, has gained considerable traction. In 2018, global sustainable assets have reached USD 30.7 trillion, with Europe accounting for the largest share (USD 14.1 trillion). The sustainable finance trend is expected to continue growing, with stakeholder expectations for responsible business conduct being fuelled by the Covid-19 pandemic, reinforcing the desire to re-imagine capitalism, ‘build back better’, and work towards a ‘just recovery’. Thus far, sustainability conversations in the finance industry have mainly been focused on the environmental dimension of ‘ESG’, with much less attention being paid to the social dimension, which includes human rights.
Making human rights an integral part of sustainable investing strategies is vital for investors seeking to comprehensively assess risks and opportunities.
Research objective
Considering the rising interest in sustainable finance and the need to address human rights, the research presented in this report establishes baseline data on how human rights aspects are currently being integrated into the core activities of European financial institutions. Core activities refer to the roles of financial institutions as lenders, underwriters, advisory service providers, and investors. It is through these core activities that financial institutions have the greatest impact on human rights. In this report, following a brief explanation of our methodology, we discuss the key findings of our research, and conclude with recommendations on ways to advance human rights in practice.
Key findings in brief
- Human rights are considered a key topic linked to financial institutions’ fiduciary duty, as well as to risk mitigation and the creation of opportunities for better financial performance.
- The key stakeholders driving the need to address human rights in financial institutions are clients and employees, alongside broader societal expectations.
- Governments should set clear legal standards through human rights regulation – respect for human rights should not be left to voluntary initiatives alone.
- Human rights are often addressed at top organisational levels, but organisational obstacles and gaps remain. Impediments to addressing human rights are mainly associated with a lack of time, lack of organisational knowledge, as well as a lack of human resources.
- A clearer understanding of what is expected of financial institutions, as well as better and more reliable data are needed to better address human rights.
Recommendations in brief
- Financial institutions should allocate adequate resources, invest in building expertise on human rights, and assign clear responsibilities for human rights throughout all levels of the organisation.
- Financial institutions should continue including and further integrating human rights considerations in their decision-making processes when working and engaging with investee companies and clients.
- Financial institutions and trade bodies should work together towards the adoption of industry standards for adequate due diligence and management processes, data generation, and reporting on human rights.
- Lawmakers should step up their efforts to advance the regulatory processes underway to create consistent regulatory standards at the European level, while regulators should continue encouraging financial institutions to develop industry-specific reporting frameworks.
- Whenever possible, companies should strive to provide meaningful data on their risk exposure and management capacity relating to human rights. Clients should ask for sustainable financial products that integrate human rights considerations.
