Fiona Reynolds, managing director of the Principles of Responsible Investing (PRI) has said that said many investors have placed climate change as their top priority but human rights have generally ranked lower in importance.
She made the comments during a webinar with the Global Compact Network Australia on Thursday, as the PRI is set to roll out a five-year program on human rights, underpinned by the UN guiding principles.
“The PRI’s position on human rights is very much grounded on international standards and that institutional investors have a responsibility to respect human rights,” Ms Reynolds said.
“We have some signatories who are amazing about how they go embedding the UN principles on business and human rights into their work and in everything they do and through supply chains. But I have to say, investors don’t do a good enough job on human rights.
“What we want at the end of the five-year period, is human rights [to be] thought of as much as you think about climate change.”
The PRI has around 3,000 signatories, representing more than USD 100 trillion in assets under management.
But Ms Reynolds commented that many businesses and investors do not understand their obligations under the UN guiding principles.
“I think that one of the problems is that people tend to think about ESG issues in a silo,” she added.
“‘I’m dealing with an environmental issue’, ‘I’m dealing with a social issue’ or ‘I’m dealing with a governance issue’ and generally that’s the wrong way to think about issues because they’re all interrelated.
“There’s a climate lens, there’s a social lens to most issues today. And of course, from my perspective, it all starts with good governance.”
Ms Reynolds noted that unless company boards consider issues holistically, they will not manage issues effectively.
“If we look at COVID-19, that really is a perfect example of the interconnectedness of issues,” she said.
“It clearly demonstrates that healthy people and a healthy planet are preconditions to having a healthy economy and healthy [businesses]. Investors really can’t just look at climate change and then social impacts in isolation because they’re very inherently linked.”
Pointing to climate change, Ms Reynolds said that when the investment community considers the issue, it is very focused on stranded physical assets, instead of the social impact.
“All of that was about thinking about this through the physical assets lens, so [as an example] ‘what will happen with my investments that I’ve got in coal mining companies because it’s clear that some fossil fuels will need to be left in the ground? What about the infrastructure that moves that coal, all those fossil fuels around, will that be stranded?’” Ms Reynolds stated.
“But of course it’s not just physical assets that are stranded. People and communities are all assets as well and they all risk being stranded. And so, we need to be able to think about this transition in including both the physical and social sides of things.”
‘You can’t vote away climate change’
The PRI established the initiative Climate Action 100+ in 2017, which has signed on more than 450 investors representing over US$40 trillion in assets under management.
Asset management giant BlackRock signed on in January, as it signalled it would be exiting thermal coal.
Climate Action 100+ has three overarching aims for the companies that its investors engage with: curbing emissions, reporting in line with the Taskforce on Climate-related Financial Disclosures (TCFD) and improving governance.
Focusing in on the last goal, Ms Reynolds said businesses and boards will need to be held accountable.
She also added that investors will need to conduct due diligence on human rights issues, overlooking factors such as supply chains, and they should set an expectation in their company engagement that respect for social issues is not optional.
“Don’t just talk to us again about the physical assets, we want to understand what you’re doing about your business,” she said.
“In terms of your staff if you know that’s… in the next five years you’re going to be closing down plants for example, what are you doing about retraining staff? What are you doing about the community that relies on you? Is there other investment that can happen?”
Unless organisations deal with human rights of the “people side”, the transition to a lower-carbon economy cannot happen, she commented.
“If you look at Australia as an example, but it’s the same in other countries, why hasn’t there been action on climate change, as much as there is happening in other places? It’s because the people issues haven’t been dealt with,” Ms Reynolds said.
“People therefore feel that ‘I’m going to be left behind. My job, the jobs that this coal plant or whatever it might be, are going to go. Where am I going to get a decent job? How is my community going to survive?’
“If you’re in that position, you can completely understand people’s concerns. If those concerns aren’t addressed, then of course you’re going to prick your ears and you’re going to listen to the people who say ‘I’m not going to close that plant. I’m not going to do this,’ and it’s used as wedge politics.
“But you can’t vote away climate change, that’s happening. All you’re doing is voting away action and the longer that action is delayed, the more abrupt and the more disorderly that action.”
The PRI has previously pointed the issue of emergency climate action in its project the Inevitable Policy Response, which has looked across asset classes and forecast the impacts for businesses, markets and investors.
Ms Reynolds added that a concern for her as an Australian, is the movement of people through the Pacific as their homes are set to go underwater.
“We are going to see climate refugees. We’re already starting to see it, but it’s going to become a much bigger problem if we don’t deal with climate change,” she said.
“How we currently deal in Australia with refugees, it’s not exactly a great situation for anybody to be in. So what’s going to happen with those issues?”
Sarah Simpkins
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].
