Map company exposure and risks in terms of their: Prioritise companies within high-risk sectorsġ. Map sector exposure and risks (including value chains)ģ. Prioritise companies headquartered in, and / or with operations in high-risk countriesġ. Map country exposure and risks (including value chains)ģ. The prioritisation framework introduces three types of risk identification analysis that could inform company prioritisation: (i) country (ii) sector (iii) company (see Figure 3).įigure 3: Three ways to identify and prioritise companies’ human rights risksġ. Investors should take a similar approach to the UNGPs in evaluating severity i.e., “judged by their scale, 4 scope 5 and irremediability 6”. Prioritisation frameworkĪs outlined in the UNGPs, the severity of actual and potential human rights outcomes is a deciding factor in company prioritisation. See Appendix: Asset owner questions for investment managers. Asset owners who outsource some or all of their investment management should also set clear expectations to their asset managers in terms of how human rights risks are identified and prioritised, and ensure that they monitor risk exposure and actions to address issues via regular information from their fund managers. This guide applies to both asset owners and asset managers who assess human rights risks in their investment portfolios. While it is beyond the scope of this guide, investors should also be able to: (a) respond to emerging human rights impacts identified in their portfolio, for example, via controversies alerts and (b) to assess potential risk profiles of new securities by considering the trading frequency and volumes across their investment strategies. Acknowledging that data availability is imperfect and that inconsistencies exist 3 between environmental, social and governance (ESG) ratings from data providers, it is vital that investors take a methodological approach when assessing human rights risks to ensure that the most salient risks are identified. (i.e., “post-investment proactive due diligence” in Figure 2). This guide provides a systematic framework to support equity and corporate debt investors to identify and prioritise human rights risks. Guiding Principle 24: Where it is necessary to prioritise actions to address actual and potential adverse human rights impacts, business enterprises should first seek to prevent and mitigate those that are most severe or where delayed response would make them irremediable. This is explained in the UN Guiding Principles (UNGPs): Prioritisation is typically important for investors with highly diversified investment portfolios. In carrying out due diligence, investors should, where necessary, prioritise companies with the most severe actual and potential adverse human rights outcomes (herein also referred to as ‘risk identification and prioritisation’). Post-investment, investors should take both proactive and reactive actions to identify negative human rights outcomes associated with their investments. Pre-investment, assessing negative human rights outcomes should be a central part of understanding new securities’ risk profiles.
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