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By Kate Turner, Global Head of Responsible Investment, First Sentier Investors and Chair of the Armed Conflict subgroup of RIAA Human Rights Working Group.

 

 

 

 

The Responsible Investment Association Australasia (RIAA) Human Rights Working Group, in collaboration with international experts, has developed a comprehensive toolkit to empower investors and companies in safeguarding human rights and mitigating risks associated with armed conflict.

 

The Russia-Ukraine conflict, with its severe economic and humanitarian consequences, came as a shock to many companies and investors when the invasion escalated in 2022, despite the fact that there had been ongoing conflict between the two nations since 2014. It highlighted the need to manage the complex financial and moral dilemmas of armed conflict in real time.

 

Download a copy of the Investor Toolkit on human rights & armed conflict: Managing human rights impacts and international humanitarian law implications before, during and after armed conflicts arise here.

 

Some companies and investors were caught on the back foot, assessing their exposures to both countries and hastily complying with sanctions to make exits from Russian assets. Others found they had money trapped by sanctions.

 

Even for those who didn’t have investments with direct exposure to this conflict zone, a lesson that investors can take away from the Russia-Ukraine conflict is the need to plan ahead. Armed conflict is unpredictable and can escalate quickly, rapidly increasing risks related to human rights or the application of international humanitarian law (IHL).  Also known as ‘the law of war’, IHL is a set of laws specific to the conduct of armed conflict and is triggered when a conflict begins.

 

The need for tools to address the human rights and IHL implications of armed conflict spurred the development of a toolkit by RIAA to help investors better understand how to identify and manage these risks.

 

Min Wah Voon, RIAA’s Head of Working Groups, says, “This was one of the top-voted issues for our Human Rights Working Group and our toolkit has successfully filled a market gap, with over 750 downloads within its first week of launch.”

 

A nuanced understanding of armed conflict

 

While one of the most visible, the Russia-Ukraine conflict is far from the only armed conflict. The Geneva Academy is currently monitoring more than 110 armed conflicts globally. The sheer scale and pervasiveness of armed conflict emphasises that investors and companies should be aware of the heightened human rights risks it entails, as well as their obligations under IHL.

 

Armed conflict is complex and requires a nuanced understanding, as different rules apply in different contexts. Although there is no common definition for a ‘conflict-affected area’, the two types of armed conflict defined by international humanitarian law offers a good starting point. It recognises:

 

• International armed conflict involving the use of force between states or military occupation of one state by another, such as in the case of Russia and Ukraine; or
• Non-international armed conflict or civil war, occurring within a single state’s borders. This is usually protracted armed violence between government authorities and organised armed groups, or between organised armed groups, such as in Syria.

 

Regardless of the type of conflict, it is seldom predictable, and the costs are devastating – loss of life, displacement, and grave violations of human rights.

 

Investors can play an important role in upholding human rights by extending their thinking to consider and address the realities and risks associated with an investee company’s links to a conflict zone, whether directly, or through its value chain.

 

Why is human rights and armed conflict an investment issue?

 

Recent history tells us that uncertainty and geopolitical tensions spills into investment markets. At a base level, failure to manage human rights risks in company operations and its supply chains poses regulatory, financial, legal and reputational risks. When armed conflict escalates or breaks out, these risks are heightened.

 

Companies with operations or supply chains in conflict-affected areas are therefore at greater risk of facing significant business disruption and associated costs if they cause, contribute to, or are directly linked to human rights violations. This may include criminal and civil liability associated with breaches of international human rights law and international humanitarian law.

 

The bottom line is that in many cases, there can be a direct earnings-related risk to companies, including loss of revenue and litigation, and reputational impacts. Therefore, a proactive approach makes sense from a financial perspective, as well as a moral one.

 

Getting in front of the issue

 

It can be challenging to identify human rights risks associated with armed conflict given it is a fluid and complex phenomenon. Rather than divestment, or responding when a conflict becomes present or escalates, investors have an opportunity to mitigate latent risks before conflict breaks out.

 

The Armed Conflict subgroup of the RIAA Human Rights Working Group, has developed an ‘Investor Toolkit on Human Rights and Armed Conflict’ to provide guidance on how investors can engage with companies. It was developed by investors for investors, with input from international humanitarian law and human rights experts.

 

The toolkit is a comprehensive guide that will help investors identify and prioritise actual and potential adverse human rights and international humanitarian law impacts of armed conflict in their investment portfolios, before, during and after a conflict. It also provides a framework for engaging with companies on how to address and remedy impacts where they may occur.

 

The role of responsible investors

 

Unfortunately, the widespread nature of armed conflict creates economic and humanitarian risks that investors cannot ignore.

 

Responsible investors are able to play a role in identifying, managing and mitigating these risks by engaging with companies.

 

Collaboration will be critical for investors to encourage best practice for companies, manage their own investment risks, and contribute to protecting the human rights of those affected by conflict and its far-reaching impacts.