Growing investor focus on human rights and social sustainability

Key takeaways

• Private markets investors are increasingly scrutinising human rights and social sustainability.
• Global regulations now require stronger human rights due diligence across investments.
• Human rights risks can drive financial, legal, operational and reputational impacts.
• Strong human rights management can support value creation and attract investment.

Private markets investors are paying closer attention to human rights risks and social sustainability across their portfolios. While forced labour is often the most visible example, business activities can affect human rights in many ways. These include unsafe working conditions, restrictions on freedom of association, discrimination, privacy breaches and environmental degradation.

Human rights impacts are no longer viewed solely as the concern of governments or civil society. Investors now recognise that risks to people can quickly become financial risks for portfolio companies, and they are responding with stronger expectations and more rigorous oversight.

Shifting regulatory landscape across global markets

The last decade has seen extensive work by responsible businesses to understand and manage human rights risks. The UN Guiding Principles on Business and Human Rights (UNGPs) continue to set the standard, requiring companies to identify, assess and address risks to people through risk based due diligence.

These principles are increasingly becoming hard law. In the European Union, the Corporate Sustainability Due Diligence Directive (CSDDD) now mandates human rights due diligence for large companies. Similar legislation exists in France, Germany and Norway. The EU’s Forced Labour Regulation (FLR) will also soon prohibit the import and export of products linked to forced labour at any point in the supply chain. As a result, strong due diligence is becoming a core component of risk management.

Rising investor obligations and portfolio transparency

Regulation is only one driver. Investor expectations are shifting in response to new reporting requirements and market pressure.

Under the EU Corporate Sustainability Reporting Directive (CSRD), large institutional investors must now assess and disclose human rights risks, opportunities and impacts across their portfolios. This includes not only risks that are financially material but impacts that are significant in terms of severity and likelihood.

The EU Taxonomy Regulation also requires investors to show that their investments meet minimum social safeguards. Alignment with human rights standards is a central part of that requirement. In practice, investors must evaluate whether companies have credible human rights due diligence processes in place.

Financial relevance of human rights risks

Private markets investors increasingly view human rights as financially material. There are several reasons for this shift.

Litigation risk is growing. UK companies with overseas operations or suppliers face exposure to claims in the English courts where harms occur abroad. These claims are often more costly and resource intensive to resolve than implementing an effective due diligence framework.

Reputational risk is significant. Companies that fall short on human rights are vulnerable to investigations by journalists, NGOs or unions, leading to negative media coverage, loss of brand trust and declining consumer confidence.

Operational risks cannot be ignored. Labour disputes, supply chain disruptions and forced labour import bans can halt production, delay deliveries or prevent goods entering key markets. Companies that fail to meet human rights expectations may also be excluded from supply chains or lose contract opportunities.

Human rights as a driver of sustainable value

Managing human rights is not only about preventing harm. It can also enhance business value.

Businesses that invest in effective human rights systems tend to have stronger supplier relationships, clearer communication channels and more resilient supply chains. These characteristics help companies respond more effectively to shocks such as extreme weather events, political instability or pandemics.

Consumers increasingly reward companies with credible ethical sourcing practices. Strong human rights performance can improve brand reputation, deepen customer loyalty and strengthen competitive positioning.

Human rights leadership also helps companies attract and retain talent, particularly among younger employees who expect employers to demonstrate purpose and social impact.

How private markets investors are responding

Private markets investors are gradually embedding human rights considerations across the investment lifecycle.

Governance is often the starting point. Investors are establishing clear roles, responsibilities and systems for monitoring human rights performance. During screening, investors assess potential investments for exposure to human rights risks. If an investment proceeds, more detailed due diligence follows, including supply chain mapping and evaluation of risk management capability.

Investment decisions increasingly reflect the outcomes of human rights assessments. Expectations are formalised in action plans and investment agreements, and post investment monitoring is becoming more robust. Many investors now support portfolio companies to strengthen their approach and track progress over time.

What businesses should do to attract investment

Companies seeking to attract capital should start by building or strengthening a risk based human rights due diligence process that fits their operating context. This includes developing a human rights policy, mapping key supply chains, identifying salient human rights risks and prioritising actions to prevent, mitigate and remedy harms.

Perfection is not required. Regulators, investors and corporate customers expect credible progress based on a clear understanding of risks and realistic plans for improvement.

For a fuller explanation of the themes covered in this article, please watch the accompanying video. For tailored advice on human rights risks and how they relate to your business or investments, please contact Kerry Stares or your usual Charles Russell Speechlys adviser.