Human rights in business

In ESG, the “S” is being overlooked

Nicoletta Centofanti (pictured), general manager of the Luxembourg Sustainable Finance Initiative, moderated the webinar about the “S” in “ESG”. Archive photo: Romain Gamba / Maison Moderne

Nicoletta Centofanti (pictured), general manager of the Luxembourg Sustainable Finance Initiative, moderated the webinar about the “S” in “ESG”. Archive photo: Romain Gamba / Maison Moderne

ESG may be maturing as a concept, with increased public pressure and more regulation. But the “S” in “ESG” isn’t as developed as the others, say the speakers at a recent webinar.

As ESG continues to enjoy prominence either (sometimes) as a buzzword or (other times) as the denotement of a large-scale pivot towards more ethical business practices, it may be that not all of the concepts within it--the environmental, the social and the governance--are maturing at the same rate.

Indeed, at a recent webinar held by the Luxembourg Sustainable Finance Initiative (together with the University of Luxembourg), experts concluded that the “S”--which addresses human rights as well as good social practices--is underdeveloped and overlooked compared to the “E” and the “G”.


This was the answer that Joana Pedro, social lead at the United Nations Environment Program Finance Initiative (UNEP FI), gave to the question: “Are human rights currently addressed in a systematic way among the institutional investor community?”

“We’re not quite there yet,” agrees Dorothée Baumann-Pauly, director of the Geneva Center for Business and Human Rights.

Some institutions have perhaps made progress on the human rights front, says Pedro, but the sector lacks cohesion as a whole. She suggests that old habits of risk analysis might be part of the reason why.

Baumann-Pauly comments that financial institutions have a culture of donating money to causes, which, while potentially generous, doesn’t equate to a holistically positive social practice. “They, for a long time, understood their role as socially responsible actors in this way [i.e. as benefactors].” What’s missing, however, is a deeper link between the “S” and the core business: “Very few are truly integrating human rights into their own operations,” she says, “into the way they make money.”

Measuring the “S”

For Baumann-Pauly, measuring the social side of ESG is an area in need of major improvement. She cites a 2017 study (by the NYU Stern School of Business) that found that the vast majority of “S” indicators are designed not to asses a company’s actual human rights performance, but rather, merely, its efforts. “We concluded that the ‘S’ indicators currently measure what’s convenient, but not what matters most.”

Such an emphasis on efforts rather than results will, naturally, distort the final picture of what a company is truly doing for/about human rights. “I’m actually quite uncomfortable with companies referring to their ‘business human rights journey’,” adds Baumann-Pauly later in the webinar, pointing out that, without a clearly defined destination, the “journey” is sort of impossible to measure.

It also seems that this problem must be addressed from the top down, i.e. via regulation. Indeed, based on two surveys (respectively from 2020 and 2022, done with Luxembourg For Finance), it is “crystal clear” that regulation is the main driver for companies to engage with human rights, says Baumann-Pauly.


Some companies, says Baumann-Pauly, actually want more regulation--or at least clearer regulation--in this area. She reports that, in their reasoning: “Only if we have metrics that are measurable… [will we] have a level playing field.”

For others, the regulations are a burden, a task to be completed and for which expertise might even be missing. “Financial institutions surprise me, in that they wonder about the process and the reporting,” says the director, explaining that this approach--of ticking the boxes of an imposed regulation--is not ideal. “If you… put the reporting first and retrofit it to what you should be doing, that’s much harder.”

Addressing your operations more profoundly is the better way to go: “Once you integrate human rights into your core business operations, investment and lending, then the reporting flows naturally. It’s sort of an easy exercise, then.”

“It’s a lens you have to add to your everyday business decisions,” she adds, speaking about human rights principles. “As this happens, the reporting eventually will become very easy.”

Amanda Zillig, human rights lead at ING, reports that addressing the “S” has moved from a “nice-to-have” to a “must-have.” She says that a skills gap may remain for financial institutions, however, and that there is a need for training sessions and an understanding of human right principles. “Not only for people who work directly in the bank on the topic, but for anyone with a potential link to human rights. [For example,] relationship managers that deal with clients need to be empowered with information and knowledge to understand the potential risks.”


It’s a question of perspective, argues Pedro: the financial sector is currently entrenched in a habit of assessing risk as it relates to the organisation. A truly human rights-based approach, she continues, would look at risks for people, for communities and for the planet. “It’s not so much about risk for the business, but risk to where the business is operating through their loans,” she says. Not only a bank’s HQ, in other words.

“We’ve been speaking about this for a long time,” she comments, “so it’s nothing new. But it’s still not, I think, in the core of a lot of financial institutions.”

Taking this holistic approach further, the webinar speakers also discussed how interrelated each part of “ESG” is and why, if institutions don’t engage fully with all three, they won’t get the best results for themselves or their investors. For instance, Baumann-Pauly says that her research is currently focused on how climate strategies rely on a strong human rights foundation. “Instead of just looking at the conservation of trees and animals,” she says, speaking about conservation work in the Amazon rainforest, “I highlight how critical it is to include the people who live in the forest. If we manage to set the right economic incentives, these people can play the role of the guardians of the forest and protect their own habitat.”

Pedro also discusses how interrelated environmental and social factors are. “We are speaking about a transition [in reaction to the climate crisis], but we need to speak about the just transition… and we speak about biodiversity, but that influences indigenous people, that influences local populations, that influences us…”

For Baumann-Pauly, the conversation is much too focused on the language within the regulations and guiding principles, jargon like “process” or “human rights due diligence”.

“I’m most interested in eventually telling an impact story,” she says. “A story where actual workers and communities benefited.”