Incorporating human & labour rights risk into investment decisions

New Study Says Mainstream Investors are Assessing Labor and Human Rights Sustainability Risks for the First Time

Boston (25 September 2008) – Mainstream investors for the first time are beginning to assess labor and human rights factors as a way of increasing returns and lowering risk, according to a study released today by Harvard Law School’s Labor and Worklife Program (LWP). “Incorporating Human and Labor Rights Risk into Investment Decisions” says a growing number of institutional investors and global lenders are widening conventional investment decision-making to incorporate assessments of the long-term sustainability risks posed by corporate labor and human rights practices. Pioneers in the field include leading European and U.S. pension funds as well as financial firms such as Goldman Sachs, RiskMetrics, and Mercer.

Their efforts are part of a broader movement in the investment world to include corporate environmental, social, and governance (ESG) behavior into portfolio and lending decisions. In contrast to socially responsible investing, which promotes moral values, the aim of ESG analysis is to achieve conventional investment goals such as boosting portfolio returns and reducing risk.

The paper points out that an investment analysis of labor and human rights poses some of the most difficult challenges in the emerging ESG field. A major problem is the lack of objective, quantitative data about corporate activities in these areas. One of the paper’s conclusions is that asset owners and managers can obtain useful data from the global supply-chain factory monitoring regimes designed to verify the labor codes of conduct issued by many multinationals. To do so, investors could adopt the shareholder engagement practices institutional investors frequently use to address environmental and governance risks.

The study was written by Aaron Bernstein, a Wertheim Fellow and Senior Research Associate at the Program. The paper was done for the LWP’s Pensions and Capital Stewardship Project, whose activities include working with leading pension funds, investment management and consulting firms, scholars and researchers, and others on investment and corporate governance issues. (Bernstein also serves as editor at large of Directorship magazine and Global Proxy Watch, its weekly corporate governance newsletter for institutional investors. He was an editor and writer at BusinessWeek magazine for the preceding 23 years.). The paper is part of a broader Project initiative to develop metrics by which pension funds and other investors can assess the ‘S’ in ESG. The initiative addresses labor and human rights as well as human capital factors such as employee turnover, compensation systems, and workforce skills.

The paper also is available on the Labor and Worklife Program’s website at:

http://www.law.harvard.edu/programs/lwp/pensions/publications/occasiona…

For more information contact :

Aaron Bernstein at abernstein@law.harvard.edu  or

Project Director Larry Beeferman at lwb@law.harvard.edu ..

 

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