At a time when the world is facing a ‘polycrisis’ of economic uncertainty, climate change and growing illiberalism, investors need stability and predictability more than ever – just as the civic space and freedoms that underpin and facilitate that stability need the support of investors. Investors should consider their investment decisions in a broader context that is integrated with the global and local challenges in which they are stakeholders, and grounded in a recognition that support for the rule of law and civic freedoms is in the common interest.
But making the link between the shrinking of civic space and the impact on investors’ long-term cash flows, returns and strategies will be a continuing challenge. While instances of investor action in support of civil society space can be cited, progress should be measured not by a few positive examples but by investor actions across the spectrum. On this basis, more work needs to be done to raise investor awareness and mainstream consideration of the rule of law, accountable governance and civic freedoms into investors’ activities, as opposed to the current somewhat patchy, siloed and superficial approaches to ‘E’, ‘S’ and ‘G’.
It would be naive to expect that such a change will happen overnight or without serious resistance from some (often influential) shareholders who continue to focus almost entirely on short-term financial gain. But, while consideration of human rights and civic freedoms may seem new or niche to some, investors’ increased focus on them is a growing trend that is not going away. The raft of new regulation and standards on sustainability, together with pressures from younger generations, employees and civil society, will only increase pressures on investors and companies to live up to their responsibilities as geopolitical stakeholders with increasing power and leverage in the global governance ecosystem.
The following recommendations emerged from conversations with a range of investors and stakeholders.
For investors
- Strengthen human rights due diligence to include assessment of risks to the rule of law, accountable governance and civic space in the investment environment, especially in areas where civic space is restricted. The human rights due diligence methodology adopted by the Swedish AP2 pension fund provides a useful model;
- Engage portfolio companies on those risks to civic freedoms and space that are most pressing, particularly in sectors and countries with significant exposure. Shareholders should file/co-file resolutions where there are concerns around civic freedoms, or at least vote favourably via proxy on resolutions filed by others;
- Urge index providers to add political and social risk more explicitly and consistently into decisions on inclusion;
- Participate in dialogue and partnership with other stakeholders, including joining multi-stakeholder initiatives and coalitions, and be open to constructive challenge from civil society organizations; and
- Develop a public statement opposing the use by companies of SLAPPs to silence critics and degrade civic freedoms.
For regulators
- Push for the application of ‘double materiality’ standards that enable investors to account for both the ‘inside out’ and ‘outside in’ aspects of their relationship with society in their risk assessments, and not just financial materiality;
- Support the development of harmonized standards, both by referring to the UN Guiding Principles on Business and Human Rights in national and supranational laws and by coordinating with other stakeholders, with a view to working towards a more coherent regime at the global level;
- Help investors to plug data gaps by referring to civic space and human rights defenders in human rights due diligence laws, and by mandating meaningful stakeholder engagement; and
- Encourage investors to take account of well-reputed data sources from NGOs that benchmark human rights, including restrictions on civic freedoms.
For civil society organizations
- Increase investor awareness of these issues through collaboration and training. Investor training on ESG and sustainability should include not only human rights issues but also the broader underpinnings of the rule of law, civic space and accountable governance;
- Account for investor priorities and methodology when engaging investors on threats to civic space, to help find ways to bridge the language and culture gaps between civil society and some investors; and
- Intensify work attuning private investors to the link between open societies and stable investment, as private investors typically lag behind public funds in awareness and efforts on human rights, including civic freedoms.
