(or why we don't send children up chimneys anymore)
For many people human rights is a values and ethics issue. There are company behaviours and actions that are just plain wrong. And they don't want their capital, their money, invested in companies with poor human rights records and practices. And for many years, that was as far as it went. Human rights, with a few major exceptions, was a moral issue.
And then the world started to change. Society's views on human rights became more enshrined in the law. In many ways this should have been expected. Public opinion leads, and the politicians follow. And over time the penalties move from ineffective sanctions, through fines, to action's that have material impacts on companies.
Now, it is increasingly understood that human rights is no longer just a values and ethics question. It's also now very much an investing issue, one that can have a very direct impact on a company's long term value creation. Companies that do not prepare for this new world will lose competitive positioning; it's not just about paying fines anymore. Companies increasingly bear responsibility for what happens in their supply chains, and they face legal action in their home country for acts elsewhere.
This does not make the ethics aspect of human rights any less important to investors. But, what it does add is a double hit for companies (and investors) that pay lip service to human rights, those who see it as a box ticking exercise. First, people are much more willing to call out greenwashing. And second, not properly taking human rights into account in investment decision making can have material implications for financial value.
Much of what we read around human rights and it's impact on investors, starts with the law or regulations. Companies must do this, or they will suffer fines etc.
We think the thought process needs to start earlier - we need to start with what societies standards are, and how they are changing. Public opinion leads, and the politicians follow. In the same way that companies and investors need to track and stay ahead of changes in technology, or new consumption patterns, they also need to stay ahead of changes around human rights. And this means thinking outside of the box - human rights impacts a whole range of wider social and environmental issues. If companies are not prepared, they face material damage to their long term value creation.
This blog was previously published as a Deep Dive in December 2022.