Why human rights due diligence is important for investment decisions

Would you invest in a company that pays no attention to human rights due diligence in its growth and business model development? It cannot be denied that in the past (and in some cases still today) large-scale investments have been made in companies that derive the success of their business model precisely from the fact that practices that violate human rights are part of their value creation.
However, we are currently at a turning point where investment decisions are increasingly based on the human rights compliance of entities. The relevance of human rights for companies is continuously increasing, as the expectation of responsible behavior in the business world is growing.
With the increasing legalization of corporate responsibility and heightened interest from customers, business partners, the media, consumers, employees and civil society, it is becoming ever more important for companies to address the issue of human rights.
This means that human rights due diligence is also becoming increasingly important for investments, regardless of whether they are investments in start-ups, established companies, joint ventures or investments for the purpose of reorganization or restructuring. Regulation in this area is still in its infancy, but we can already see the relevant aspects in many regulations, e.g. in the Europe-wide supply chain laws, in the discussion about a “social taxonomy” or in the EU Critical Raw Materials Act. In complex value chains in particular, there is a distance between the companies responsible for marketing a product or service to the outside world and the people involved in the production, transportation, sale or consumption of their products and services.
This makes it difficult to understand the impact of one’s own company on these people and their rights. At the moment, public interest in human rights due diligence is still mainly focused on large, globally active companies with strong brands.
However, these issues are also increasingly affecting SMEs – initially as part of affected supply chains, but increasingly also as direct addressees of corresponding requirements in the future. By taking a proactive approach to due diligence, companies can not only fulfill their social responsibility, but also achieve long-term success and have a positive impact on society and the environment:

• • They are preparing for increasing legal requirements and future regulatory measures,

• • minimize operational risks in difficult contexts,

• • strengthen their relationships with suppliers,

• • work to fulfill the requirements of their customers in the best possible way and

• • strengthen their creditworthiness

Companies that already see human rights as an important factor in their economic success will set themselves apart from the competition.
A commitment to human rights and sustainability can also improve customer service and product quality management and strengthen employee satisfaction and loyalty to the company. This means that a company’s approach to human rights risks is now a key factor in the investment decisions of third parties, e.g. banks, funds, etc. A proactive due diligence process thus enables companies to become attractive to potential investors and reduces the risk of investors having to help finance an unexpectedly necessary reorientation in the area of human rights. Image: Adapted from https://mr-sorgfalt.de/de/einstieg/ / UN Global Compact Learning Platform for Swiss SMEs, Working Paper 1, 2008