Sustainable Investing and Human Rights: A Path Forward for Valuation
Nancy Cao, MBA 17
The annual State of Sustainable Business Report issued by BSR and GlobeScan shows that “Human Rights” is consistently a top concern for sustainability professionals. Yet among these same professionals, there is a lack of clarity and consistency about what counts as “human rights” issues and how to address them as a multinational business. How much control do they have over working conditions in their extended supply chain, who may be producing for multiple brands? What are their rules of engagement for countries where human rights protections are weaker? What’s the risk and the potential gain?
The primary challenge is that there is no definitive, quantified analysis that directly links human rights standards with company valuation – or says which practices lead to long-term business value. In addition, though investment funds increasingly have a screen for sustainability and human rights issues, it is not yet considered material to investment decisions. While it may seem callous to discuss human right protections as a financial decision, in order to significantly shift the approach of investors and businesses, we must quantify the value.
This was the central topic for discussion at the February 17 Expert Roundtable on Sustainable Investment and Human Rights hosted by the Center for Responsible Business at Berkeley-Haas, and in partnership with the University of Washington School of Law and the Berkeley Center for Law, Business, and the Economy. Chaired by Bennett Freeman and organized by our own Faris Natour, a gathering of sustainability professionals representing academic, NGO, and corporate viewpoints sat down to create a path forward for conducting this sorely needed research. As Bennett noted, “We need to do a better job of meeting mainstream investors where they are, and they care about materiality.”
After some context-setting and overview of existing research (and research gaps), the group jumped into discussion, asking questions including:
- How will we define human rights?
- How should we quantify short-term vs. long-term value?
- Do we focus on financial risk only, or look to quantify business results?
- How do we move the conversation beyond reputational risk?
- Can this work help us to find alpha (abnormal returns)?
We determined that in order to make progress, our initial target audience for the research work are asset managers and portfolio managers. By demonstrating materiality to them, we will be able to enact change at scale. Most excitingly, we hope to demonstrate financial gain, not only quantify potential loss. The first step will be to develop a framework for examining human rights and sustainable investment – then we aim to catalyze research efforts through strategic partnerships in additional to conducting our own. It is well past due for this important work to take place, and I am eager to see the results over the next few years.