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Investors need to understand that integrating environmental and human rights due diligence into their investment processes is no longer a question of personal preference or values. As Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct, recently wrote, “businesses have a responsibility to avoid and address the adverse impacts of their operations.”
The regulatory expectations that investors face have always changed over time. That investors must now broaden due diligence is just one more example of how societal concerns and evolving attitudes shape regulation. Ignoring these expectations will ultimately expose investors to financial and reputational risk.
Importantly, due diligence should not just focus on the risk for the investor. Today, both UN and OECD standards expect private-sector companies to go one step further: Investors must first assess whether or not human rights infringements are linked to their investments — regardless of whether or not those investments amount to a business risk. In a second step, they must then address any infringements appropriately.
The president of the Centre for Human Rights Studies at the University of Zurich, Professor Christine Kaufmann, agrees that “investors can be linked to human rights violations through their investments. It is the states that have a legal obligation to protect human rights, but companies are responsible for respecting human rights. There is no reason why financial institutions should be excluded from such responsibilities. Instead, their distinctive features need to be taken into account when defining the appropriate due diligence requirements.”
In this context, two international standards are particularly important for asset owners and investment managers: the UN Guiding Principles on Business and Human Rights (UN Guiding Principles) and the OECD Guidelines for Multinational Enterprises (OECD Guidelines). The first, although not legally binding, is considered a global reference point in questions of business and human rights. The 2011 update of the OECD Guidelines explicitly refers to the UN Guiding Principles. The importance of the latter was reinforced in the summer of 2015, when the G7 leaders expressed their strong commitment to the UN framework and urged the private sector to implement human rights due diligence.
Note that the OECD Guidelines are supported by a unique implementation mechanism: National Contact Points (NCPs), which are agencies established by the 45 adhering governments. The purpose of the NCPs is to promote and implement the OECD Guidelines.
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1. A very brief description of this NCP case can be found here: https://sloanreview.mit.edu/article/human-rights-the-next-frontier/. For details, see the final statement of the Norwegian NCP: http://www.responsiblebusiness.no/files/2013/12/nbim_final.pdf