Incorporating Human Rights into Investment Strategies: 2020 Non-Financial Rating of the 27 EU Member States and United Kingdom

The International federation for Human Rights is pleased to present the new version of its bi-annual report on the non- financial rating of the European Union (EU) Member States and United Kingdom.

How can investors use their leverage to support and promote responsible state practices? How should states rank when it comes to non-financial information? What indicators should be used?

ESG (Environment, Social and Governance) criteria are becoming increasingly important for many investors. The development and study of these criteria has focused primarily on the performance of business enterprises. However, investment portfolios are not only made up of private equity, but of sovereign bond markets too.

During 2020, the European Union has debated whether the 2021-27 budget and its COVID recovery plan should be linked to governments’ adherence to the rule of law. Similarly, institutional investors should also consider how to link their own investments on sovereign bonds to non-financial performance of States. FIDH has persistently highlighted this crucial area of interest for investment purposes. On the framework of its work with La Banque Postale Assent Management on the ethical mutual fund “SRI Human Rights fund”, FIDH has been publishing every two years a non-financial rating of EU member states. The objective of these bi-annual studies has been to establish a methodology and classification system that allow investors to take into account how states are fulfilling their obligations to respect, protect and fulfill human rights in their investment decisions.

In total, twelve human rights and one environmental criterion were selected as indicators of states’ performance in these areas.
I. Gender equality and women’s rights
II. Non-discrimination
III. Rights of migrants and refugees
IV. Good governance
V. Social cohesion/economic and social rights
VI. Judicial system
VII. Freedom of expression and right to information
VIII. Labour rights
IX. International justice and human rights promotion
X. Overseas development assistance/financial contributions to UN
XI. Arms control
XII. Promoting corporate social responsibility at home and abroad
XIII. Environmental Management

It is acknowledged that these criteria do not cover all ESG issues. Indeed, choosing human rights indicators is a particularly difficult challenge given the lack of comparable qualitative and quantitative data. This is especially true for certain systemic human rights issues, such as socio-economic inequalities, gender discrimination or racism. Moreover, the edition of this year’s report is marked by the Covid 19 pandemic. The research for this edition was initiated in a pre-Covid-19 era and is being published at a critical moment, when EU States and UK are starting vaccination of the population, in the midst of an aggressive “third wave” of the virus, and the EU puts in motion its new ambitious recovery plan through the Recovery and Resilience Facility. FIDH hopes that through its methodology, data and identification of data deficits, this study will contribute to the development of indicators for States’ ESG performance and it will serve as the starting point for a wider (and necessary) debate between different stakeholders.

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