Why human rights and environmental due diligence matters for investors

Investors want and need a clear view of companies’ human rights and environmental risks. HREDD provides a risk-based framework to identify, prevent, and address these risks across corporate operations and supply chains.

A February 2025 Staff paper of the International Sustainability Standards Board (ISSB), based on 300 interviews across 158 investor organizations, found that “investors of all types and in all jurisdictions expressed strong interest in information about human capital-related risks and opportunities, which they increasingly consider in their investment decisions.” [1] This interest is driven by the need to manage risk and improve returns.
Additionally, the EU Corporate Sustainability Due Diligence Directive (CSDDD), formally approved in April 2024, responded to growing demand for harmonized HREDD disclosure requirements across the EU. In February 2025, the European Commission introduced the Omnibus I Package to improve the EU’s “competitiveness and unleash growth”[2] by narrowing the CSDDD’s definition of “chain of activities.”

While the debate over the Omnibus proposal is still unfolding, investors remain bound by their fiduciary duty to assess financial materiality—and increasingly recognize that a failure to put in place an appropriate human rights and environmental human rights risk management system is a material risk affecting returns. Investors have the power through active stewardship, the standards they endorse, and the rights they exercise on behalf of their shareholders (for example, by voting against directors) to hold corporations accountable for failing to undertake robust due diligence, mitigate risks to people and the environment, and remedy harms. However, most investors are not well equipped to evaluate the quality of portfolio companies’ HREDD, which is essential to grasping a portfolio’s true risk exposure. The tools on this website aim to meet this investor need.

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[1] Charlotte Lush, “Analysis of Evidence of Investor Interest in Human Capital-Related Information,” International Sustainability Standards Board, February 2025, https://www.ifrs.org/content/dam/ifrs/meetings/2025/february/issb/ap4b-analysis-evidence-investor-interest.pdf.
[2] “Q&A on simplification omnibus I and II,” Text, European Commission - European Commission, accessed May 22, 2025, https://ec.europa.eu/commission/presscorner/detail/bg/qanda_25_615.

What is human rights due diligence?* 

​​HREDD is a dynamic, ongoing process whereby companies must identify, prevent, mitigate, account for and, where appropriate, remediate any potential or actual adverse human rights impacts in their supply chain. The concept of HREDD is enshrined in the United Nations Guiding Principles for Business and Human Rights (UNGPs) and guidance from the Organization for Economic Cooperation and Development (OECD). 

The overriding objective of HREDD is to prevent adverse impacts from occurring. While HREDD certainly contemplates and emphasizes the importance of providing remedy to adversely impacted stakeholders/rights-holders if an actual adverse impact does occur, the emphasis is on prevention to avoid the adverse impact in the first place.
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HREDD is first and foremost a forward-looking, risk management regime. It does not expect perfection, it expects continuous improvement and best efforts to prevent harm and provide remedy if a harm occurs. To be effective at preventing adverse human rights and environmental impacts, HREDD processes and measures must be designed to proactively and responsively manage human rights risks to prevent them from escalating into actual adverse impacts. 

Overall, with HREDD, the inquiry does not stop at the question, “Are there any human rights risks in your supply chain?” because there almost always are such risks. Rather, HREDD goes on to ask: “What are the companies involved doing, in an on-going, dynamic fashion, to mitigate identified risks to prevent them from graduating into harm?” And, if prevention is unsuccessful and/or something bad happens, HREDD asks: “What are the companies involved doing to remedy the situation to ensure the adverse impact stops and that the victim(s) are restored to the position they were in prior to the impact?”

Examples of mandatory human rights and environmental due diligence (HREDD) laws and sustainability disclosure laws already enacted include:

• The Corporate Sustainability Reporting Directive, in force since January 2023
• The Norwegian Supply Chain Transparency Act, in force since July 2022 
• The French Duty of Vigilance Law, in force since March 2017

*As stated in Investor Guidance on Responsible Contracting.