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Equity Investors Deliver Human Rights Warning

Ignoring companies’ human rights violations can have disastrous consequences in investment portfolios, fund managers say.

  • Joe McGrath

Equity investors who overlook companies’ track records on human rights may miss an important aspect of their performance.

Human rights issues can do more than impact the value of an investment, according to Shami Nissan, who is the responsible investment director at Actis, a fund manager focused on emerging markets. They can “obliterate” entire investments, she said Tuesday at the Principles for Responsible Investment conference in Berlin.

Investors should calculate such risks as worker conditions and community engagement to estimate how they might impact a company’s value, according to Nissan. Representatives from KLP and MFS Investment Management also warned conference attendees that ignoring human rights violations may result in unexpected investment losses.

“Human rights drive stock prices,” said Rob Wilson, a research analyst at MFS. “That is the main reason why an investor would be interested in these topics.”

About 40 percent of senior business leaders in an Economist Intelligence Unit survey said adverse events associated with their suppliers, such as human rights breaches and criminal involvement, were becoming more frequent, the Financial Times noted in a report earlier this month.

Asset management firms are now considering ways to assess these risks before investing, and which approach to take when discovering human rights issues at companies after capital is deployed. KLP, for example, is working with mining group BHP Billiton after an investigation into its role in the deadly Samarco dam disaster in Brazil in 2015.

“We asked what did the company do to assist the families?” said Annie Bersagel, head of responsible investment at KLP. “What systems did they put in place to make sure that this sort of disaster won’t happen again?”

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Divesting from companies where problems have been identified doesn’t always help a portfolio’s performance, or have a positive impact on their approach to human rights, according to Bersagel. Engaging companies may be more influential.

“The fundamental impact of KLP divesting means absolutely nothing to them,” she said. “It is the reputational impact that is important to them.”

Bersagel added that when fund managers do choose to divest, it’s important to specify the human rights issues that prompted the decision so other investors are aware. Fearing reputational damage, she said, companies may then change their behavior.