Why investors are increasingly focused on human rights: what companies need to know

Managing human rights risks in business operations and supply chains has been an important part of the practice of responsible business for well over a decade. In 2011, the UN Guiding Principles on Business and Human Rights (UNGPs) set what is still the benchmark for best practice: requiring companies to know and show their impacts on people by carrying out risk-based due diligence and taking steps to mitigate, prevent and remedy adverse impacts as appropriate.

Many of the core principles of the UNGPs have since crystallised into hard law. In the EU, the Corporate Sustainability Due Diligence Directive (CSDDD) mandates human rights due diligence by large companies, as do national laws in a growing number of countries, including France, Germany and Norway. There is also a new law on the books – the EU Forced Labour Regulation (EU FLR) – that once in force will prevent the import or sale within the EU of goods made with forced labour. While the FLR does not mandate human rights due diligence, it is implicit in the regulation that good due diligence is the most effective way to mitigate the business continuity risk of goods (tainted with forced labour) being detained, confiscated or destroyed by relevant Member State authorities.

In the UK, human rights due diligence is not yet a regulatory requirement for companies; however, the UK government has recently released new statutory guidance on the Modern Slavery Act 2015 that significantly raises the bar on what a good modern slavery statement looks like under s54.

Law and regulation are not the only drivers of corporate behaviour in this space however – investors are paying increasing attention to human rights risks as they make decisions about where to invest and how they manage their investment portfolios. In this Insight, we look at why investor focus on human rights is growing, review some real-world examples and make practical recommendations for companies on how to prepare and keep pace with investor requirements in this area.

Why investor focus on human rights is growing

Law and regulation are driving investors to disclose more about human rights-related issues

Large institutional investors are now subject to new laws and regulations that require them to collect and disclose more information about human rights-related issues.

Many large investors based in or doing business in the EU, for example, will be within the scope of the Corporate Sustainability Reporting Directive (CSRD), which requires extensive disclosures of data about the sustainability—including human rights-related—risks and opportunities and impacts that are “material” for the investor or material for its value chain, including its investees. Under the CSRD, risks and opportunities are material if they are financially material whereas whether impacts are material is assessed by reference to their severity and likelihood. In practice, in relation to human rights, this means that large investors within scope of CSRD will have to take a view on the human-rights related risks, opportunities and impacts that are material to companies on their balance sheet and will increasingly ask for data to support their materiality assessment and associated disclosures.^[1]  

Larger investors may also be within scope of the EU Taxonomy Regulation (the Taxonomy)^[2], which requires them to report annually on the proportion of their investments that are “Taxonomy aligned”. To be aligned, an investment must make a substantial contribution to at least one of the Taxonomy's six environmental objectives (such as climate change mitigation), do no significant harm to any of the other environmental objectives, and meet minimum social safeguards. To meet minimum social safeguards, the economic activity underlying the investment must be carried out in line with international best practice on human rights due diligence. A recent report by the Platform on Sustainable Finance, an advisory body to the EU Commission, identified two key indicators of non-compliance with the Taxonomy’s minimum social safeguards: (i) a company not establishing adequate human rights due diligence processes; and (ii) there being clear indications that the company does not adequately implement human rights due diligence resulting in adverse human rights impacts. In practice therefore, to report on their Taxonomy-alignment, investors need to assess the underlying activities of companies on their balance sheet to determine whether they have robust and effective human rights due diligence policies and processes in line with best practice.

Human rights-related issues threaten corporate value and investor returns

There is a growing understanding among investors of all shapes and sizes that human rights risks have the potential to hit the corporate bottom line – and therefore their return on investment – very significantly. This recognition of the effect that people-related risks can have on a company’s financials is reflected in the recent formation of the Taskforce on Inequality and Social-related Financial Disclosures (TISFD), charged with developing a corporate reporting framework for social risks similar to that of the Task Force on Climate-related Financial Disclosures (TCFD), now a widely used and accepted baseline. Some of these risks are explored below.

Litigation risk

In the UK, a recent line of cases points toward a material increase in litigation risk for UK-headquartered companies in connection with adverse impacts on people overseas, whether they occurred in their own group operations or are caused by an upstream supplier. These cases highlight the potential for civil liability for companies that do not carefully evaluate people-related risks in their value chains, especially for those operating in sectors that are high risk for adverse human-rights impacts or jurisdictions where labour standards are lower or not rigorously enforced – with all the significant costs and drain on management time that dealing with litigation (or threatened litigation) entails.

Reputational risk

As consumers and the public have become more socially conscious, as well as vocal on social media, companies that neglect human rights-related risks face backlash that can negatively affect their market position, brand trust and profitability, including as the result of consumer boycotts. Labour-related abuses are increasingly coming to light through the work of investigative journalists and NGOs – a very high-profile example of which is the Sunday Times investigation alleging exploitative working practices in Boohoo’s UK-based supply chain, leading to its largest shareholder selling almost all of its stock.

Operational risk

Adverse labour-related impacts within a company’s operations or supply chain can cause significant issues with business continuity. This may take the form of skilled labour flight or of industrial action, as we saw in 2024 when Starbucks baristas went on strike to highlight alleged unfair labour practices and demand increased pay. It might also take the form of goods suspected of association with forced labour being detained, confiscated and/or destroyed under one of a growing number of forced labour import/export bans ( the EU FLR is referenced above).

Commercial risk

Given that large companies are increasingly required by law and regulation to make human rights-related disclosures and/or to carry out human rights due diligence or are doing so on a voluntary basis, they are increasingly seeking information from, or imposing certain requirements on, companies in their supply chain as a condition of doing business. It follows that companies that are unable to meet these requirements will miss out on business or have business delayed in the time it takes to bring their processes, policies and procedures up to the required standard.

Tackling human rights-related issues is a value creation strategy

Beyond risk-mitigation, investors are increasingly conscious that tackling human rights issues at the portfolio and asset level can be a value creation strategy.

Increased business and supply chain resilience

Companies that are putting the right policies and processes in place to spot and mitigate risks to people in their operations and value chain are likely to be more resilient generally. Such processes are likely to involve a company taking steps to map its supply chain below Tier 1 (i.e., to know more about who supplies it) and to build two-way, regular channels of communication with suppliers and trusted, long-term supplier relationships. These are the sorts of supply chain dynamics that not only help to manage risks to people in the supply chain, but also build resilience to shocks, including extreme weather, civil unrest and pandemic, among others. Clients of our firm that have invested in proportionate, risk based human rights due diligence in this way reported returning to business as usual much more quickly than their competitors after the first COVID19 lockdown.

Enhanced brand reputation

Strong and transparent human rights credentials are increasingly resonating with customers and can lead to the fostering of consumer loyalty. Therefore, companies with a better people-focused profile may benefit from increased market share, higher price points and therefore increased revenue. A survey commissioned by OpenText found that nearly nine in 10 (88%) consumers responding to the survey said they prioritise buying from companies that have ethical sourcing strategies in place. 

Better workforce engagement

Companies that have a focus on people including human rights are often better positioned to attract next gen talent. The Deloitte Gen Z and Millennial Survey 2025 found that, when asked about their career goals and the factors that cause them to change employers, Gen Z and Millennial employees are looking for a balance of money, making a meaningful contribution to society and wellbeing – two out of three factors being related to responsible business. Similarly, such companies can foster enhanced employee morale, as employees who feel their organisation aligns with their values can feel more engaged, productive and less likely to leave. A Harvard Business School Online study found that nearly 90% of executives believe a strong sense of collective purpose within their organisation drives employee satisfaction.

Examples in the investment world

Influential investors are raising their sustainability expectations, including related to human rights, for every company in which they invest.

For example, Norges Bank Investment Management (NBIM) now requires companies to comply with the UNGPs, have policies to ensure respect for human rights and engage meaningfully with potentially affected groups. More specifically, it requires its portfolio companies to conduct regular human rights due diligence, to integrate salient human rights issues into risk management and to provide for or cooperate in remediation of adverse human rights impacts that they have caused or contributed to.

Another example is the Church Commissioners, which introduced a new investment criteria in relation to human rights abuses and social inequality. Their approach is intended to be proactive in nature, whereby it sets expectations of companies on human rights aligned with the UNGPs, and integrates those expectations into its voting so that all investee companies are encouraged to identify and prevent impacts before they happen. It also has a policy systematically to vote against companies that do not meet their human rights expectations.

What this means for companies

For all the reasons described above, companies will increasingly feel the heat from investors to understand and get on top of the human rights risks in their operations and value chain. This may require some investment of time and resource, but it is likely ultimately to be a more cost-effective approach than waiting for human rights issues to materialise, with all the costly consequences and negative impacts on the business that follow.

Therefore, companies should bear in mind:

• Companies can start by engaging in constructive dialogue with key investors (and other key corporate partners) about their expectations on human rights and the types of data and information they are likely to require.
• Governance is key – human rights issues should be on the agenda of the board as well as incorporated into the company risk register, with clear structures in place for oversight and accountability.
• Building on dialogue with its investors and corporate stakeholders, a company will need to prepare to evidence how it is managing its human rights risks by implementing suitable policies and procedures and carrying out appropriate, risk-based human rights due diligence. This will likely require (among other things) mapping the company’s supply chain, carrying out regular risk assessments for human rights harms and engaging where appropriate with suppliers and workers in the supply chain to identify, prevent and address issues.
• The expectation is not that companies eliminate human rights issues entirely, but rather that they can show they are taking a thoughtful, risk-based approach to identifying, preventing and addressing human rights risks and are aiming for continuous improvement.

For further guidance and tailored advice on anything discussed in this briefing, please get in touch with kerry.stares@crsblaw.com or with your usual Charles Russell Speechlys contact.

^[1] The scope of the CSRD and the complexity of its disclosure requirements are currently under review by EU lawmakers. It may be the case, as has been proposed by the European Commission (EC), that smaller companies within a value chain may be shielded from being asked more extensive disclosures for the purposes of reporting of sustainability information under the CSRD. Specifically, the proposal is that companies within scope of the CSRD will be limited from seeking information from companies in their value chain with fewer than 1,000 employees, where that information goes beyond what is contained in the voluntary standard for SMEs (“VSME”) developed by the European Financial Reporting Advisory Group (EFRAG) (see more on the Omnibus here).

^[2] As with the CSRD, the Taxonomy Regulation is currently subject to amendment proposals by EU lawmakers under the Omnibus. The EC’s proposal is that Taxonomy Regulation reporting remains applicable only for the largest companies, whereas other companies can opt in.