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Article

17 Sep 2021

Author:
UN Human Rights B-Tech Project

Bridging the private equity gap to tackle tech business model risks

... The role of private equity in technology

Tech-focused private equity (PE) and venture capital (VC) funds are rapidly rising in prominence. Between 2016 and 2019, some 1,800 new start-ups focused on artificial intelligence (AI) technologies had raised their first round of equity funding—with $19 billion in equity funding going to AI start-ups in 2018 alone.

Although a growing number of investors are using their leverage to promote respect for human rights among tech companies that make it to public financial markets, their ability to create change in business model-related risks is undermined by public tech company ownership structures and the minority shares held by most public equity investors. The investors with most leverage to shape the business models of tech companies happen to be the ones that invested while companies were still young and private, from VC funds at start-up, followed by other forms of PE capital investments throughout the growth stage of companies.

As with all institutional investors, PE investors have a responsibility to respect human rights in line with the UN Guiding Principles on Business and Human Rights (UNGPs). Yet in practice, PE investors are lagging behind others in the broader investment community when it comes to aligning their investment practices with the UNGPs...

Signs of progress are emerging

There are promising signs of PE progress on human rights... PE investor actions that promote respect for human rights are not just possible, they are also good for business... The is also growing recognition of digital rights as material by investors and standard setters...

Recommendations for PE action on business model-related risks

PE investor action to prevent and mitigate business model-related human rights risks is an urgent priority...

As a starting point, these firms should:

  1. Adapt their core business activities to manage human rights risks...
  2. Support entrepreneurs by creating space and provide funding for human rights due diligence...

Part of the following timelines

OHCHR B-Tech Project releases guidance on implementing the UN Guiding Principles with respect to technology

Investigation takes stock of venture capital's human rights oversight, finding vast majority of firms are failing responsibilities & lacking diversity