Institutional investors aren't paying enough attention to whether portfolio companies are actively working to protect human rights, focusing their engagement efforts this year on reducing carbon emissions, industry sources said.
Acute social issues such as human trafficking as well as gender and income inequality have played second fiddle to environmental and governance issues during annual meetings this year, they added.
More aggressive engagement efforts are needed from investors because many corporations still do not disclose or openly ignore due diligence on human rights issues at their portfolio companies' operations and supply chains, sources added.
According to the London-based Corporate Human Rights Benchmark Ltd., an initiative lead by institutional asset owners, asset managers and civil society organizations that monitors human rights performance of 200 large, publicly listed corporations worldwide, some 49% of these monitored corporations neglected human rights abuses in 2019.
These corporations scored zero in how they perform human rights due diligence, while less than 10% of all 200 companies received higher than a 50% score.
"Our problem remains that the United Nations' Guiding Principles on Business and Human Rights are largely being ignored in practice," said Steve Waygood, London-based chief responsible investment officer at Aviva Investors and chairman of the Corporate Human Rights Benchmark in a telephone interview.
In 2011, the United Nations' members implemented a human rights framework outlining obligations on how international businesses are expected to respect and protect fundamental freedoms and human rights.
But nine years on, "Human rights risks are not priced into the market. You can be the most profitable company out there and not respect human rights," said Daniel Neale, program director of the Corporate Human Rights Benchmark, London, in a telephone interview.
Still, some three-quarters of companies in extracting, agriculture and apparel industries that were assessed under the 2019 criteria showed some improvement since the benchmark's launch in 2017. On average, companies in these sectors scored 31% in 2019, up from 18% in 2017, CHRB's study, published Nov. 15, showed.
But Mr. Waygood noted: "There could be companies which are doing badly but we don't know about it" because they are not disclosing their practices.
He said the main challenge for investors is how they can evaluate potential effects on a company's bottom line if a portfolio company's human rights policy is not disclosed to investors.
"It's a market failure," Mr. Waygood said, if there are salient human rights issues at the company and investors are not taking action.
Aviva Investors raised the issue of human rights abuses with 37 companies during annual general meetings in 2019 due to concern about their CHRB performance.
However, the U.K.-based investor is an isolated player in that it integrates human rights into engagement policy to such a degree, sources said