Money, Millennials and Human Rights: Sustaining ‘Sustainable Investing’
| Date | 01 February 2019 |
| Author | Emily K. Middleton,John Gerard Ruggie |
| DOI | http://doi.org/10.1111/1758-5899.12645 |
| Published date | 01 February 2019 |
Money, Millennials and Human Rights:
Sustaining ‘Sustainable Investing’
John Gerard Ruggie and Emily K. Middleton
Harvard University
Abstract
The first part of this paper examines the rise and current state of environmental, social and governance (ESG) investing. The
second addresses the conceptual and statistical weakness of the S domain. The third describes how drawing on internationally
recognized human rights standards can strengthen the S and thereby improve the robustness and comparability of ESG
aggregations. This should interest investors, issuers, and human rights advocates alike.
As recently as the late 1990s, ‘there was no recognition that
companies had human rights responsibilities’, according to
Arvind Ganesan, head of business and human rights at
Human Rights Watch (quoted in Economist Intelligence Unit
(EIU), 2015). Today, that responsibility is increasingly recog-
nized by global firms as well as the transnational regulatory
ecosystems in which they operate. According to the EIU, the
‘watershed event’in gaining recognition for the corporate
responsibility to respect human rights was the endorsement
by the United Nations (UN) human rights council in June
2011 of the Guiding Principles on Business and Human
Rights (UNGPs).
1
UN High Commissioner for Human
Rights, Zeid Ra’ad Al Hussein (2015), calls the UNGPs ‘the
global authoritative standard, providing a blueprint for the
steps all states and businesses should take to uphold human
rights’.
Of course, this responsibility is far from being universally
acted upon even in societies where the recognition itself is
relatively robust. ‘We didn’t take a broad enough view of
what our responsibility is, and that was a huge mistake’,
Facebook CEO Mark Zuckerberg conceded in the wake of
the Cambridge Analytica privacy breach fiasco, in which as
many as 87 million Americans’user profile data were com-
promised and then weaponized in the 2016 US presidential
election (quoted in Wagner, 2018).
Capital markets and stock analysts in particular have been
remarkably slow to catch on to the issue of corporate
responsibility let alone human rights specifically, even as
their salience to companies and stakeholders has increased
significantly for the past two decades. But that complacency
is now being challenged by the fast growing interest on the
part of asset owners and asset managers in environmental,
social and governance (ESG) investing: integrating environ-
mental, social and corporate governance performance of
companies into investment decisions. Some form of ESG
investing, also known as ‘sustainable investing’, now
accounts for some $25 trillion or 25 one-quarter of all assets
under professional management globally (GSIA, 2016).
2
However, a potential challenge for ESG investing going
forward is the lack of standardization and the mixed quality
of information in all three domains, especially the social (S),
which is by far the weakest. As a result, investors’decisions
may be relying on bad information while issuers may be
wrongly discounted by misleading ratings. This may come
to adversely affect ESG investing as a whole.
Our focus in this article is on the S in ESG. Social perfor-
mance is about how well a company manages risks to peo-
ple connected with its core business. Therefore, the S
domain in ESG is heavily populated with labor and human
rights-related elements, as seen in Table 1. Strong perfor-
mance can help create value for the firm, while value
destruction can result from poor practices. Nevertheless, S
factors tend to be seriously under-conceptualized and fail to
draw on well-established substantive and procedural human
rights standards. Fixing this problem would improve the reli-
ability and comparability of S ratings and of trust in ESG
data overall.
The first part of this paper examines the rise and current
state of ESG investing. The second addresses the conceptual
and statistical weakness of the S domain. The third
describes how drawing on internationally recognized human
rights standards can strengthen the S and thereby improve
the robustness and comparability of ESG data. This should
interest investors, issuers and human rights advocates alike.
1. ESG investing
The socially responsible investing industry has existed since
the 1970s, when the first socially screened mutual funds
were established (Lydenberg, 2005). In the 1980s major pen-
sion funds took part in the divestment campaign against
the apartheid regime in South Africa. In the 1990s, the first
research firm was established to market social and environ-
mental data on publicly traded companies to the invest-
ment community. Rating agencies using such data soon
followed. Multi-stakeholder initiatives establishing principles
©2019 University of Durham and John Wiley & Sons, Ltd. Global Policy (2019) 10:1 doi: 10.1111/1758-5899.12645
Global Policy Volume 10 . Issue 1 . February 2019
144
Policy Insights
To continue reading
Request your trial