It’s vital to recognize that in today’s interconnected global economy, human rights violations have become real investment risks—not just ethical concerns. Investors increasingly face financial, legal, and reputational consequences when companies in their portfolios are linked to abuses, including regulatory penalties, consumer backlash, operational disruptions, and stakeholder pressure to divest.

Structural inequality as systemic risk

Human rights represent the minimum threshold for well-being and dignity. Rights like nondiscrimination and equality, rooted in moral principles and international law, are essential for economic, social, and cultural participation. Violations—such as child labor or lack of formal employment—not only expose companies to idiosyncratic risks in the short term but also damage education, health, and future opportunities, deepening inequality and limiting long-term well-being. These issues are interconnected and cyclical, accumulating into financially material risks when systemic inequalities arise.

While human rights due diligence (HRDD) alone cannot eliminate inequality, it provides a crucial foundation for investors to manage material risks by understanding and addressing the complex ways in which business operations affect people’s lives. Despite decades of human rights frameworks, many economic growth strategies (raw material sourcing, outsourcing, working conditions, wage policies) haven’t prioritized equitable benefit distribution. By design or neglect, business decisions have contributed to structural inequality, now embedded in economies and recognized as a systemic risk for investors.

Integrating human rights into investment strategies

To address these risks, investors must integrate human rights into core valuation models and capital allocation. Risks such as labor exploitation, community displacement, or lack of grievance mechanisms can directly affect a company’s cash flows, cost of capital, and long-term growth. For example, allegations of forced labor can lead to fines, supply chain breakdowns, and boycotts, eroding earnings and brand equity. A notable example is the 2023 child labor scandal: A sanitation company was fined $1.5 million for employing over 100 children in hazardous conditions at meatpacking plants. The incident drew intense scrutiny from institutional investors, who demanded accountability and corrective action. The reputational fallout and investor pressure threatened financial performance and raised broader concerns about due diligence in private equity portfolios. This case reflects a growing trend: Investors are holding companies accountable for human rights violations across their value chains. As regulations tighten and stakeholder expectations rise, companies that fail to respect human rights risk losing investor confidence and access to capital.

Investors can adapt valuation models by incorporating scenario analysis for reputational harm, discounting future cash flows for governance weaknesses, or applying risk premiums to companies operating in high-risk regions without adequate due diligence. Capital should be directed toward companies with strong human rights governance, transparent supply chains, and meaningful stakeholder engagement. Human rights therefore become a strategic lens for building resilient, long-term value. Long-term investors must look beyond financial returns in isolation and examine the conditions under which they are generated. Robust HRDD offers a path forward.

Enhanced regulation requires enhanced human rights due diligence

The regulatory landscape is evolving rapidly: Canada’s Fighting Against Forced Labour and Child Labour in Supply Chains Act imposes reporting obligations on a wide range of entities involved in producing, purchasing, or distributing goods. The European Union’s Corporate Sustainability Due Diligence Directive  will require companies—including multinationals—to implement human rights and environmental due diligence and transition plans, mandating supply chain due diligence for one of the world’s largest markets.

The United Nations Human Rights Council’s endorsement of the UN Guiding Principles on Business and Human Rights (UNGPs) in 2011 remains the most authoritative framework for responsible business conduct. The UNGPs affirm that businesses must avoid infringing on human rights and address any negative effects, providing a basis for investors’ due diligence around financially material risks.

These directives put pressure on corporations to fill gaps in business operations and supply chains.

Beyond quantification: qualitative assessment

Investors often lack direct visibility and are being asked to address issues beyond their immediate control. Data gaps remain a challenge. The World Benchmarking Alliance’s Social Transformation Baseline Report found that 78% of the 1,000 most influential companies across 68 countries and 26 industries scored zero on all three HRDD indicators. While 55% of companies publicly commit to respecting human rights, fewer than half demonstrate that commitment through concrete actions, such as implementing HRDD. 

The gap is even wider in global supply chains and private markets. There’s strong interest in measurement, but a common misconception equates measurement solely with quantification. When something can’t be easily quantified, it’s often dismissed as unmeasurable, leading to hesitation and inaction.

Yet, sometimes, a single news article can affect market share—one incident can move markets. Investors can uncover valuable insight by focusing on qualitative indicators, such as governance structures, human rights policies, and supply chain transparency. This requires a shift from traditional financial metrics to a broader, more holistic approach to due diligence.

Human rights risk and impact assessments offer companies and investors a snapshot of how business operations affect people’s lives, serving as the starting point for identifying and implementing mitigation measures. Through these assessments, companies can uncover issues in the workplace (e.g., gender pay gaps), supply chains (e.g., child labor), access to products and services (e.g., financial exclusion), and communities (e.g., forced displacement). It helps businesses understand who’s most affected, and how.

Based on these assessments, due diligence mechanisms should examine how companies prevent and mitigate human rights issues, including integration into procurement, mergers and acquisitions, and capital allocation decisions.

Mitigation measures—whether policies, practices, or both—that directly address identified risks help protect portfolio value, reduce legal, reputational, and financial risks, and prevent deepening inequality.

Even without perfect data, qualitative signals help investors assess a company’s exposure to financial or investment risks and its readiness to manage them. Demand drives supply—even asking the right questions can move the needle, shift conversations, reshape expectations, and foster accountability.

Investors can ask key questions:

• Does the company have a board-level committee overseeing human rights risks?
• Are there clear commitments to international standards like the UNGPs or International Labour Organization conventions?
• Is there evidence of stakeholder engagement, especially with vulnerable or affected communities?
• Has the company conducted human rights risk assessments?
• What disclosures does the company have to mitigate salient human rights risks, such as modern slavery? What controls and risk management processes exist for each salient right?

The UNGPs also emphasize the right to remedy. HRDD requires companies to establish grievance mechanisms accessible to workers and communities. These mechanisms aren’t just tools for remediation but are valuable sources of information about potential human rights impacts. Key questions could include:

• Does the company have a grievance mechanism in place?
• How widely is it used by workers and communities?
• How does the board monitor and respond to concerns raised?

Context-sensitive due diligence

Another major challenge when using HRDD to address inequality is the variation in legal frameworks, enforcement capacity, and norms across geographies. What investors can reasonably ask, expect, or verify in jurisdictions like the United States or the EU—where regulatory transparency and civil society oversight are strong—may not be feasible in parts of Asia, Africa, or Latin America, where enforcement may be weaker, data less accessible, and risks more deeply embedded in supply chains.

For example, a U.S.-based company might be required to disclose workforce demographics or grievance mechanisms, while a supplier in Southeast Asia may operate in a context where such disclosures are not mandated. This disparity doesn’t absolve investors of responsibility—it highlights the need for context-sensitive due diligence.

Investors can adapt by triangulating information from local nongovernmental organizations, labor unions, and media reports. Rather than defaulting to exclusion, they can prioritize engagement, working with companies to build capacity and improve practices. 

Engagement over exclusion

While exclusionary tactics like divestment may seem like a straightforward response to human rights risks, engagement is often a more powerful and constructive tool. Through active dialogue with portfolio companies, investors can push for greater transparency and support the development of stronger human rights practices. Engagement allows investors to build trust, share expectations, and co-create solutions.

This approach not only helps mitigate risk but also unlocks long-term value by fostering resilient, inclusive, and sustainable business models. Engagement is not just a strategy—it’s a responsibility. 

Leaving no one behind: building a people-centered economy

As we enter the second decade of the UNGPs, a step change is needed in how we interpret their three pillars. This shift would move us beyond a narrow focus on harm prevention toward a proactive framework for realizing and fulfilling human rights—a shared opportunity to promote dignity and equity through business as indicated by Jenny Vaughan and Dunstan Allison-Hope from BSR.

A core principle of the UN’s Sustainable Development Goals is to “leave no one behind", with SDG 10 specifically targeting inequality. HRDD supports ethical business practices that, as UN High Commissioner for Human Rights Volker Türk puts it, can “rebuild our economies with an architecture that enhances human rights—and therefore facilitates trust in government, sustainable development, and peace.”

HRDD alone won’t be enough to fully recalibrate inequality, but it’s a critical starting point. Promising initiatives are already under way, such as the framework being developed by the Taskforce on Inequality and Social-related Financial Disclosures (TISFD). HRDD is not only a minimum requirement for building a people-centered economy, but it’s also a powerful tool for investors to better manage material risks. Embedding human rights into investment analysis isn’t just about avoiding harm—it’s about protecting long-term value and aligning capital with sustainable, inclusive growth.