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Top asset managers fail to monitor human rights in their investments, says ShareAction

BlackRock headquarters in New York, US. The asset manager was among the top firms that were criticised by ShareAction (Photo: Michael Nagle/Bloomberg)
BlackRock headquarters in New York, US. The asset manager was among the top firms that were criticised by ShareAction (Photo: Michael Nagle/Bloomberg)

Almost two-thirds of the biggest asset managers do not regularly review human rights issues in investments’ supply chains, says non-profit ShareAction, and a fifth only apply social policies to ESG-labelled funds.

A review of 77 of the world’s largest asset managers has revealed that the majority “fail to comprehensively protect human rights”, according to ShareAction, which campaigns for responsible investment.

The non-profit examined 39 managers from Europe, 25 from North America and 13 from the Asia-Pacific region. Eighty-three per cent of them participated in a survey, and ShareAction used publicly available information for those that declined to take part.

Crucially, while more managers had investment policies for social issues last year than they did in 2020, ShareAction found a fifth of managers only applied these policies to their environmental, social and governance-labelled funds. Managers’ exclusion policies regarding social issues were rarely enforced outside their ESG funds, while almost two-thirds of managers did not regularly review companies’ supply chains.

The research also concluded that the world’s top four asset managers – BlackRock, State Street Global Advisors, Vanguard and Fidelity Investments (which it ranked in that order) – were performing poorly on social issues. ShareAction rejected the argument that it was more difficult for larger firms to tackle social issues, highlighting the strong performance on social factors of T. Rowe Price, which manages £1tn in assets.

 

Lack of data defence

The study showed asset managers cited data availability as the biggest hurdle when responding to social issues.

“To some extent, it’s comprehensible why asset managers struggle with integrating social risks into their risk management,” said Alexandra Mihailescu Cichon, executive vice-president of sales and marketing at ESG data company RepRisk. “The lack of an existing and standardised framework is an enormous barrier in the adoption – and overall understanding – of ESG risks in general, and social risks in particular.”

However, she said: “The data does exist; it’s there for private companies, it’s there for supply chains, and it’s there for emerging and frontier markets.”

For example, 47 per cent of companies in RepRisk’s dataset were exposed to “social risk incidents” from 2020 to 2022. The top three issues concerned impacts on communities, occupational health and safety issues and poor employment conditions.

Human rights abuses overlooked

Rules have been established in several jurisdictions to improve asset managers’ transparency on ESG. Social factors feature under the EU’s Sustainable Finance Disclosures Regulation and are also mooted as part of the UK’s Sustainability Disclosure Requirements, still under development.

The US Securities and Exchange Commission is also beefing up its disclosure rules, although these have tended to focus on climate change. The SEC proposed last year that periodic reports should include several climate-related disclosures to help investors, including information on greenhouse gas emissions.

Asset managers in Europe and North America outperformed those in the Asia-Pacific region in terms of including social considerations in their investment policies, ShareAction said. 

While every European asset manager in the survey had a human and labour rights investment policy, less than a quarter had an investment policy regarding sovereign actors deemed to be taking part in human rights violations. This includes investments such as sovereign bonds issued by nations allegedly involved in human rights abuses, and the shares and corporate debt of companies with strong links to these governments.

Some managers are, however, consciously tackling companies’ alleged labour abuses. In March, Rathbones Investment Management pledged to contact 29 FTSE350 companies it believes fail to comply with the UK’s Modern Slavery Act. Rathbones said that last year, it contacted 44 FTSE350 businesses that it said had fallen short of reporting requirements, adding that 41 are now compliant.

Victory Hill Capital Partners head of sustainability Eleanor Fraser-Smith points to UN guiding principles on business and human rights, which were endorsed over a decade ago and include the corporate responsibility to respect human rights. “This due diligence and applying a local human rights lens to investments is not routine [for asset managers],” she told Sustainable Views.

“Life cycle and value chain approaches, and systems thinking, including tipping points, are not routinely considered either. The linkages between biodiversity, climate and community wellbeing and human rights are not well understood, with topics still approached in silos,” Fraser-Smith added. “However, product stewardship and supply chain management is improving, with more focus on chain of custody and ‘as a service’  or circular business models, but we need to see more momentum.”

Lack of cohesion

State Street hit back at ShareAction’s report, with a spokesperson saying the lack of an established and universally accepted definition of ESG – and the precise factors it embodies – had created inconsistencies among asset managers, regulators and investors. 

“Many third-party organisations and advocacy groups weigh in on the debate, each imparting their own unique views of what constitutes ESG and what does not. The lack of cohesion on what constitutes ESG can create a wide variance in rankings, with a firm being lauded by one organisation and discredited by another,” the spokesperson added.

“Unfortunately, instead of providing greater clarity and disclosure, these rankings often add to the confusion surrounding ESG practices and in some cases, help to embolden sceptics. Specifically, ShareAction, in its reports, ranks asset managers based on overall support for proposals.

“Through our years of first-hand experience, we have found that blanket support for proposals is not the best approach to effective asset stewardship, as not every single shareholder proposal warrants 100 per cent support,” the State Street spokesperson concluded.

A BlackRock spokesperson said: “BlackRock provides industry-leading investment solutions to help clients execute on their objectives and choices. Guided by our five stewardship engagement priorities, we hold year round dialogue with public companies to understand how they are positioned to deliver the long-term financial returns on which our clients depend.”

Vanguard and Fidelity Investments have been contacted for comment.



A service from the Financial Times