Report: Most ESG funds not safeguarding against human rights abuses

Stock image: A worker in the cocoa supply chain

That is a headline finding from a new report from ShareAction, exploring the extent to which asset management giants are really focusing on the ‘S’ in ESG. It covers 77 firms collectively managing more than $77trn of assets. The firms are not named in the report.

ShareAction found that just five of these firms were excluding investments in companies linked to human rights abuses across every fund in their portfolios.

Moreover, ShareAction found that a handful of firms still lack any kind of investment policy. This was the case for five of the 77 firms assessed, all of which were based in the North America or Asia-Pacific regions.

At the other 72 firms, most of the commitments made were no more ambitious than those set out through international UN and OECD conventions on topics such as child labour and slavery.

When it came to ESG funds specifically, 43% of the asset managers either confirmed that they were excluding investments in these companies. The majority either said this was not the case, or did not reply.

Most of the asset managers excluding human rights abusers from ESG funds were headquartered in Europe. Nonetheless, the majority of European asset managers still lack a dedicated social policy covering all portfolios.

“Many people will be shocked to hear that asset managers are not using the full set of policies at their disposal to tackle human rights abuses across the entirety of their portfolios,” said ShareAction’s head of financial sector research.

The report calls on asset managers to “step up” and broaden their consideration of investee companies’ impacts on human and labour rights, as well as public health.

Public health was found to be a common blind spot for asset managers. Even those with statements covering issues such as slavery and weapons, more often than not, were willing to invest in companies providing gambling services, alcohol, tobacco and unhealthy foods and drinks. Weak governance was also found around excluding companies actively working against global drives to improve medical care and housing quality.

Four in ten of the asset managers surveyed admitted that they are not asking companies to disclose their social impacts, including public health.