How to Invest in Human Rights

Investing in Human Rights

Can investing be a mission, a statement, or a belief that the world can and should be a better place for all? Yes. Investors who are passionate about human rights use their investing not just to plan for their future but to support causes they believe in, from Black Lives Matter to climate change to women’s rights and more.

They are joining a growing movement—also part of socially responsible investing and investing with impact—of being part of the solution, with mutual funds and ETFs following suit, featuring companies that can score high on established human rights benchmarks (1).

Here is what you need to know about investing for your future—for your individual financial plan as well as the sustainable future of society.

Human rights and companies’ obligations

Human rights, the United Nations states, are “rights inherent to all human beings, regardless of race, sex, nationality, ethnicity, language, religion, or any other status. Human rights include the right to life and liberty, freedom from slavery and torture, freedom of opinion and expression, the right to work and education, and many more.” And most importantly for businesses and governments, the UN states, “Everyone is entitled to these rights, without discrimination.”

With this right comes the obligation of companies and governments to address, mitigate, and compensate for human rights abuses. The UN’s Guiding Principles on Business and Human Rights, which were unanimously endorsed in 2011, reaffirms this obligation and emphasizes that companies have a responsibility to respect human rights. Companies must ensure that they are not profiting from forced labor or land grabs or child labor, for example, and report their progress in a verifiable way. That means even more information for investors to sift through, but there are ways to assess the human rights records of companies or funds you may want to invest in.

Benchmarks such as environmental, social, and governance (ESG)

The social factor of human rights (the “s” in ESG) is essential to consider when building a portfolio that supports a sustainable future. Many investors rely on benchmarks provided by Environmental, Social, and Governance (ESG) markers or the Corporate and Human Rights Benchmark (CHRB) before deciding to invest in a company.

Environmental, social and governance (ESG) data and metrics give investors insights into the success and value of a company’s policies, including human rights, whose violations often occur in tandem with other ESG factors. The COVID-19 pandemic highlighted inequalities but the silver lining was that communities and companies reexamined priorities, from the impact of climate change to human rights. An increase in global fund assets in ESG funds has set ESG assets on a trajectory to more than $50 trillion by 2025 (2). Essentially, socially conscious investors are in good company.

Why Invest in Human Rights?

Investors who want their money to help support human rights around the globe look for companies and funds that measure up to their high standards. But can these assets’ potential growth also measure up? Because good business requires good business practices, your money can do good and perform well.

Socially conscious investors have many reasons why they invest in human rights:

To make a difference

Human rights investing has the power to make an impact. For example, divestment played an important role in the anti-apartheid movement in South Africa.

Hold companies accountable: While the majority of S&P 500 companies publish a sustainability report, only a fraction of the data for environmental and social performance were externally verified (3). By choosing funds with positive ESG scores, investors can help drive change.
Engage with companies on human rights issues: Investors’ money can light a fire under businesses. For example, while U.S. families often can’t find affordable housing, institutional investors have been purchasing 1 in 7 U.S. homes (4). Investors can shift their money to funds in the real estate sector whose investments are responsible and protect a person’s right to housing.
Push companies toward responsible sourcing: Investors can keep a public spotlight on companies’ practices. For example, the push for green energy technologies has accelerated the production of minerals such as graphite, lithium, and cobalt. Mining these raw materials, however, is dangerous to workers and could include land grabs and harm to Indigenous populations. By looking for green technology funds with positive ESG ratings, Investors help keep the “s” in ESG top of mind for companies.

To grow income or support long-term plans

There is mounting evidence that companies tend to benefit financially when they uphold human rights. That counts as win-win for socially conscious investors who want their portfolio to reflect their values and support their financial plans.

Achieve higher average returns: Human-rights-conscious investments are likely to be more successful, with companies with higher ESG ratings having a higher average return, compared to companies with lower ratings (5).
Reap benefits from incentives: Beyond helping to promote worker and stakeholder relations, companies that advocate for human rights also benefit from economic incentives.
Lead the way: A company’s or fund manager’s commitment to human rights positions them as a leader, and investors who choose these assets help to accelerate positive change with their portfolios. In 2020, an international group of 176 investors, representing $4.5 trillion in assets under management, collectively notified certain companies to improve their human rights due diligence. In 2021, 208 investors representing nearly $6 trillion in assets called in companies to improve the human rights scores, in a statement released by the Investor Alliance for Human Rights (6). These are just two of many investor groups holding companies accountable and becoming potent drivers of profitable change.

Addressing human rights means working toward large, systemic change. As an investor, it’s possible to have a mission—like addressing systemic human rights issues—and a plan: to pressure companies to address social issues, with human rights at the forefront.

How to Invest in Human Rights

ETFs and mutual funds make investing with a clean conscience easier than ever. A search on Magnifi suggests there are a number of different ways for interested investors to support this part of the ESG landscape:

References:

Mutual Funds and Exchange Traded Funds (ETF’s) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
Muñoz Quick, Paloma, “Bridging the human rights gap in ESG investing,” April 15, 2022, GreenBiz,com, https://www.greenbiz.com/article/bridging-human-rights-gap-esg-investing.
Bartels, Jaap, and Willem Schramade, “Investing in human rights: overcoming the human rights data problem,” April 6, 2022, Journal of Sustainable Finance & Investment, https://www.tandfonline.com/doi/full/10.1080/20430795.2022.2053943.
Glaze, Tim, “Investors are buying up single-family homes across the US,” May 19, 2021, Housingwire.com, https://www.housingwire.com/articles/investors-are-buying-up-single-family-homes-across-the-us/.
Lodh, Ashish, “ESG and the cost of capital,” February 25, 2020, MSCI, https://www.msci.com/www/blog-posts/esg-and-the-cost-of-capital/01726513589.
“How do investors use the Corporate Human Rights Benchmark?,” June 3, 2022, World Benchmarking Alliance, https://www.worldbenchmarkingalliance.org/impact/how-do-investors-use-the-corporate-human-rights-benchmark/.