Corporate reporting on human rights is “skeletal, if it is reported at all” and in the absence of that data it’s really hard for institutional investors to make informed decisions, according to KPMG’s partner, human rights and social impact, Meg Brodie.
Brodie’s role at KPMG is to take human rights commitments and then transform them into practical commercial actions or solutions.
She specialises in responses to complex issues such as modern slavery as well as managing the firm’s Global Business & Human Rights Network giving her a unique insight into cross-jurisdiction engagements.
It is telling that someone like her is still very concerned about human rights reporting by companies particularly given the spotlight that has been shone on the issue in recent years.
The importance of transparency
She did admit that she has seen little evidence of deliberate obscuration at the moment but industry is definitely in need of a catch up in terms of data provision and the desire to be transparent.
Until we see that, she said, it makes it very hard for people making the calls on investment decisions.
Brodie maintained she was seeing pockets of what she would describe as genuine efforts to improve ESG reporting but what we needed to see was deliberate and focused efforts.
“One of the things I’ve found a lot is that the conversation four years ago was very ‘close hold’, so there wasn’t the desire to really talk much about what you were doing when it came to social impact and human rights… because the Australian context was so nascent,” she said.
“It’s always that question ‘I don’t want to be behind, but I’m not ready to lead’. That’s the most common positioning we see.”
She maintained elected officials must also participate in human rights discussions. As an international citizen that has made commitments on the world stage, Australia should apply those undertakings to every facet of life which included the superannuation sector.
Portfolio risk
KPMG Australia and the Responsible Investment Association Australasia (RIAA) recently launched its Human rights and climate change: a guide for institutional investors, which was designed to highlight the human rights impacts of climate change and the fact that institutional investors should consider those impacts when addressing climate change risk in their portfolios.
The research concluded that “risk to people” equalled “risk to business” and that investors were still prioritising environmental impacts over harm to people when addressing climate change.
Brodie was concerned that this indicated we were seeing a siloing of information.
“We may talk about the environmental bit, and then we may talk about a number of other social indicators but we won’t look at the way they actually influence and intersect with one another, which would ultimately give a much more nuanced view of risk,” she said.
Accelerating, but not fast enough
Brodie said the pandemic had had a significant effect at least on the social impact conversation, and that had fostered an evolution in action, but the pace of change still needed to accelerate.
“You have to have people in-house who understand these issues in order to move more quickly, it can’t just be externalized,” she said.
But more importantly than speed of change for Brodie is the fact that the change effected is long-term and sustained.
“I prefer to see… change that’s cultural, that’s organizational, than everyone next week coming out with their ‘tick and flick’ because I don’t think that will change anything,” she said.
Heart of the issue
With regard Australian super funds which have a legal obligation to maximise the financial benefit for members, Brodie pointed out that they also have a legal obligation to prevent harm to people but the intersection between profit and purpose needn’t be antithetical.
“When you are investing in complex geographies… there is an opportunity to think about what the leverage is to add some conditionality to the investment,” she said. “[But] having a human rights conversation in some contexts is becoming increasingly difficult [and] a major focus is how do we act when [Australia is] such a small part of the puzzle?”
“So you might not say ‘no’ [to an investment], but it [possibly] should be a ‘yes, but’. It shouldn’t be unqualified when you know that harm is taking place.
“Black and white conversations about any geography should be avoided. What we are fundamentally talking about… [is] to ask the nuanced question, what does it mean for us to either enter into, or to be continuing [to invest] and what can we do with our influence at this juncture?
“Can an investor in making a decision in 2022 change the landscape of a difficult or challenging geography because of the choice that they make about a single investment? No. But they can have a conversation about what are some of the controls they are going to put in place for this class of investment or this geography they’re investing in.”
Reassessing risk
What would Brodie say to Australian super fund CIOs about this issue?
“Reassess the subject of your risk matrix,” she said. “When we talk about risk, the focus of that risk is almost always the organization, that’s appropriate, that’s a chief risk officer’s role and the role of the executive and therefore the board.”
“Applying a human rights lens to that question of risk enables you to ask what’s the risk of harm to people as a result of the decision I’m about to make. And if you are making that decision on behalf of Australians because of the influence and control you have over funds that’s an important [factor in] how you understand non-financial risk and how you translate that as far as financial risk is concerned.”
