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Fiona Reynolds and John Ruggie: What institutional investors need to know about the ‘S’ in ESG

Today, the Principles for Responsible Investment is publishing a landmark human rights framework for institutional investors, Why and How Investors Should Act on Human Rights, thereby deepening its own focus on human rights and establishing a multi-year programme of work to embed the UN Guiding Principles on Business and Human Rights (UNGPs) into investment activities. Why this topic? And why now? We will explain...

The early ESG adopters were supportive from the start. Mainstream investing, however, has been slow to the party. 

But three developments are opening doors. The first is the remarkable rise in ESG investing following the 2008 financial sector meltdown, coupled with the increased recognition that most of the S factors in ESG are human rights related. The second is the inescapable materiality of many human rights concerns, even on the narrowest definition of materiality. The third is COVID-19, which has shone a bright light on the S in ESG, including the unsustainable economic and social inequalities built into our current economic system...

Many companies have miscalculated human rights risks on lack of materiality grounds and paid high costs for their mistake because they were “material” to victims. Now the conceptual gap between the two is narrowing because growing numbers of jurisdictions are transposing elements of the UNGPs into domestic hard law. To date, all involve the core construct of human rights due diligence (HRDD)...

Similarly, recent years have seen a surge in industry initiatives...

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