Incorporating human rights into investment strategies: 2018 Non-Financial Rating of the 28 EU Member States

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FIDH is happy to release the English version of its study "EU Member States under the Spotlight” and to encourage investors in sovereign bond markets to invest in human rights-respecting states.

On what criteria should investment decisions be made? How should states rank when it comes to non-financial information? What indicators should be used? The objective of the present study is to establish a methodology and classification system that will allow investors to take into account how states are fulfilling their obligations to respect, protect and promote human rights in their decisions, both at home and abroad.

The methodology elaborated by FIDH is based on qualitative and quantitative criteria that are comparable between countries. FIDH’s approach is rooted in international law and aims to stimulate discussion between states, investors and civil society.

The study ranks the 28 EU Member States on the basis of 67 human rights and 15 environmental indicators, with the aim that responsible investors act on this assessment in order to encourage states to improve their human rights performance.

FIDH analysed the following indicators:
- Equality between men and women and women’s rights
- Non-discrimination
- Corruption and governance
- Social cohesion/ economic and social rights
- Judicial system
- Freedom of expression and right to information
- Labour rights
- International justice and human rights promotion
- Overseas development assistance/ financial contributions to the UN
- Arms control
- Promoting corporate responsibility at home and abroad
- Environmental exposure
- Environmental management

For many investors, extra-financial considerations are now an essential element of decision-making. ESG (environmental, social and governance) criteria are increasingly integrated into decision-making processes for investment or divestment in companies. FIDH’s study subjects the issuers of state bonds, central to portfolio management, to a rigorous evaluation of human rights commitments.

Concern to support responsible business practices has focused primarily on the performance of business enterprises. Little attention has been paid to the non-financial performance of sovereign states. FIDH has persistently highlighted this crucial area of interest for investment purposes.

This study is realized as part of the activities of Libertés & Solidarité, the ethical investment fund created in 2001. Libertés & Solidarité is unique among socially responsible investment funds in France, it allows private and institutional investors to combine both ethics and solidarity, through the inclusion of human rights criteria in stock selection, and a profit-sharing mechanism between FIDH and subscribers.

The ranking of the EU Member States enables La Banque Postale Asset Management (LBPAM), manager of Libertés & Solidarité, to select bond issuers among the 15 best-rated countries with regard to human rights. Countries ranked from 1 to 5 represent at least 50% of the bond portfolio of the fund. Countries ranked 6 to 10 represent 0 to 50%, countries ranked 11 to 15 make up a maximum of 20%.

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