​Disruptive and destructive weather events over the past few years have demonstrated the severity of climate change impacts, from crop-destroying rainstorms in Sub-Saharan Africa to heat domes in western Canada. As climate impacts and public pressure to take action increase, institutional investors have begun integrating climate risks into their asset allocation models and investment decisions. Climate change impacts are also profoundly human in nature. Beyond the personal challenges and tragedies people face due to climate change, the impacts on people will result in socio-economic disruptions due to the rise and fall of climate impacted sectors and projects.

How are human rights impacted by climate change?

Climate change impacts extend beyond the physical and regulatory environments. Climate change affects human rights, including the rights to life, food, water, housing, health, and work. The increased severity of storms will displace people from their homes drought and heat will make it more difficult for farmers to work their fields and turn a profit warming and acidifying oceans will disrupt marine life, impacting a key source of protein and livelihoods workers in carbon-intensive industries will lose their jobs. Unfortunately, the most vulnerable groups tend to also be the most impacted by climate change because of their more tenuous living and working situations.

How do climate impacts on people create risks for investors?

Market risks: Impacts to human rights inevitably result in impacts to markets, companies and investors, resulting in a range of economic and investment risks. Particularly relevant to institutional investors are the systemic risks that could manifest at a commodity, sector or regional scale, such as reductions in agricultural productivity, increased illicit activities as established industries are disrupted, or changes in demand for climate-impacted products. As an example, agricultural labour productivity in India may have already declined by 10% as a result of global warming.1

Climate, human rights and economic impact

Legal risksBoth climate and human rights litigation are growing fields. A successful case against an oil major for historical emissions included wording in the judgment about human rights and the "duty of care" the company owed to a nation's citizens impacted by climate change. Costs related to legal risks are passed on to investors through various means such as reduced profitability and future cash flow. While direct litigation against investors is not as common, the potential exists. Recently, a major financial institution entered a mediated process through an OECD National Contact Point related to its historical emissions and environmental impacts and subsequently agreed to align its lending portfolio with the Paris Agreement and set and publish intermediate goals.

Most climate-related judgments and settlements have resulted in the defendant committing to climate action, such as setting meaningful emissions reductions targets.2 While it can be challenging to assign blame for any specific climate impact due to the diffuse nature of emissions, the science of attribution is advancing. Investors who are not meaningfully incorporating climate change risk into their investment strategies may be exposing themselves to increased litigation risk.

Regulatory risk: The rise of human rights on the investor and corporate sustainability agenda is partly driven by regulatory developments. The UK, France, California and Australia have passed modern slavery and supply chain due diligence acts, and the EU is planning a mandatory human rights and due diligence law, likely forthcoming in 2022. Companies – and investors – will be expected to establish a human rights policy, conduct due diligence of activities and investments, and establish systems and measures to avoid and address negative impacts.

Disclosure and reputational risk: Disclosure expectations continue to grow, with securities regulators planning to implement requirements in line with the Taskforce for Climate-related Financial Disclosures (TCFD). Additionally, in response to a growing number of lawsuits related to insufficient disclosure of climate-related risks, organizations are enhancing their climate capabilities and related disclosure plans. With new regulatory ESG mandates expected to become effective later this year, companies and investors will face more legal and reputational risk as well as additional scrutiny from overinflating their climate actions (i.e. greenwashing).

How climate change could impact human rights and create business risk, and how companies can respond

Climate change impacts Impact on human rights Risks to business How companies can respond
Flooding, storm surges, severe storms, mudslides

Right to adequate housing:

  • Displacement, cost and time involved in rebuilding or repairs
  • Increased housing and insurance costs
  • Presence and availability of workforce
  • Increased insurance costs
  • Supporting access to resilient housing and insurance for priority workforce
  • Climate-adapted insurance policies
Drought and heat

Right to work:

  • Increased heat reducing feasible working hours
  • Reduced agricultural yields resulting in economic hardship
  • Supply chain disruption
  • Increased cost of inputs
  • Support farmers' access to climate-friendly and labour-reducing technologies and techniques
Ocean warming and acidification

Right to work, right to food:

  • Decreased fish catch resulting in food insecurity and economic hardship
  • Changes in diet impacting health
  • Shifts in market supply, cost and demand
  • Invest in climate adapted aquaculture and sustainable fisheries
  • Support for climate impacted fishing communities to adapt and transition
Market shift from carbon-based to renewable energy

Right to work:

  • Under or unemployment for workers in carbon-intense industries
  • Social disruption in communities and regions reliant on carbon-intense industries
  • Labour attraction and retention
  • Transition or retirement support (e.g. skills training)
Increased demand for conflict minerals

No slavery, right to work:

  • Illicit extraction sites involving forced labour and unsafe working conditions
  • Reputational risk
  • Legal risk
  • Implement supply chain due diligence and certification
  • Change source of supply
Increased pollution, allergens, and pathogens

Right to health:

  • Disease, allergies and asthma, heat-related deaths
  • Labour disruptions and availability
  • Assess and reduce contributions to disease factors (e.g. air pollution)

For an-depth review of how climate change-related human impacts on human rights are relevant to institutional investors: KPMG's Human Rights and Climate Change: A Guide for Institutional Investors

Taking responsibility and action

There are significant actions investors can take to limit further climate change impacts and support the mitigation of existing climate change impacts through their investee companies.

What can and should institutional investors do?

  • Commit to aligning with science-based emission reduction targets to reduce current and future impacts
  • Identify opportunities to reduce emissions through "green" investments
  • Develop strong human rights assessment and management practices
  • Integrate human rights into climate change scenarios, risk assessments, asset allocation frameworks and investment decisions, considering systemic and operational-level risks
  • Establish a strong stewardship practice to ensure investee companies align with climate and human rights policies and practices
  • Provide quality disclosures on the management of climate-related risks, impacts and opportunities, including those tied to human rights

1 Climate Change Knowledge Portal, 2021
2 "58% of recorded climate cases resulted in some form of climate action, such as improved policies, new climate commitments, or investment toward climate mitigation" Source: Climate Change Litigation: The Case For Better Disclosure And Targets, S&P Global Ratings, Oct 6, 2021

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