Research 
Paper
Investors and 
the ESG blind spot
Upholding civic freedoms 
as part of geopolitical 
corporate responsibility
Harriet Moynihan
International Law 
Programme  
July 2023

Chatham House, the Royal Institute of International  
Affairs, is a world-leading policy institute based in London. 
Our mission is to help governments and societies build 
a sustainably secure, prosperous and just world.

Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
1  Chatham House
Summary
	
— With responsible business, sustainable finance and environmental, social 
and governance (ESG) issues all gaining traction, institutional investors are now 
recognized alongside multinational corporations as ‘geopolitical stakeholders’. 
But investor appreciation of the building blocks that underpin a resilient political 
and financial environment – the rule of law, accountable governance, civic space 
and civic freedoms – is still limited.
	
— Business and civil society both benefit from strong civic institutions (including 
an independent judiciary and media), the rule of law and the civic freedoms 
of expression, association and assembly. These elements of accountability are 
all critical to stable, profitable and sustainable business environments in which 
companies thrive and economies prosper.
	
— Civic space has been shrinking around the world in democratic and autocratic 
countries alike for some time. For investors and companies, which face growing 
public expectations that they should act responsibly, and which have increasing 
influence over global affairs, the reduction of civic space presents not only 
political but also legal, ethical, reputational and financial risks.
	
— Currently, there are several barriers to investor support for civic freedoms, 
including short-term decision-making; political sensitivities in relationships 
among investors, companies and host governments; the difficulty of measuring 
and integrating civic space issues into traditional investor methodology; 
and insufficient internal governance to support attention to these issues.
	
— Awareness among investors of the materiality of civic freedoms will take time 
to grow as forms of measurement and engagement are refined. In the meantime, 
positive trends include emerging scrutiny of civic space issues by some large 
institutional investors and companies; increasing regulation mandating corporate 
human rights due diligence; and a new generation that cares more about social 
values and is quick to mobilize in support online.
	
— For investors to demonstrate geopolitical corporate responsibility and match 
their rhetoric on social purpose with action, there needs to be a shift in both 
culture and process. By undertaking more comprehensive human rights 
due diligence and by increasing engagement with civil society stakeholders, 
investors and companies would be better able to identify and mitigate risks 
relating to civic space.

2  Chatham House
Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
Introduction
Until the last decade, ‘corporate social responsibility’ was mostly a ‘tick-box’ 
exercise for investors, many of whom followed the doctrine of Milton Friedman 
that a company’s social responsibility is to maximize profits and returns to its 
shareholders. But, there has been a gradual shift in attitude and practice amid 
rising societal expectations of business – whether on carbon emissions, worker 
safety or diversity.1 Recent events such as the emergence of the Black Lives Matter 
movement, the COVID-19 pandemic and Russia’s invasion of Ukraine have all 
forced business to recognize and grapple with the links between values, reputation 
and profitability.
Business and civil society operate in, and benefit from, a shared space defined by the 
rule of law and the civic freedoms of expression, association and assembly that are 
essential to the realization of all human rights, to good governance and accountable 
institutions.2 A healthy ‘civil society space’ is one in which public decision-making 
is transparent, and in which non-governmental organizations (NGOs), human rights 
defenders, the judiciary and the media can operate independently to scrutinize 
government and corporate power. These elements of accountability are all critical 
to stable, profitable and sustainable business environments in which companies 
thrive and economies prosper. Progress on issues such as fair wages, equality and 
combatting corruption is intimately linked to full respect for the rule of law and civic 
freedoms, in which shareholders and all stakeholders should recognize a shared 
interest. Yet, the crucial relationship between investors and civic freedoms remains 
a relative blind spot.3
Investors therefore need to adopt a more comprehensive approach to environmental, 
social and governance (ESG) issues that recognizes the importance of the rule 
of law, strong civic institutions and civil society space to business. This wider 
focus is even more important and urgent at a time when civic freedoms are under 
threat around the world, and when investors are becoming increasingly influential 
as geopolitical stakeholders.
The ecosystem of global governance is expanding and rebalancing to reflect 
the inclusion of a much wider range of stakeholders, including business.4 The last 
decade has seen an evolution towards ‘stakeholder geopolitics’,5 with business both 
facing increasing expectations of action and exerting increasing influence. A 2022 
survey conducted in 14 countries with 14,000 respondents found that 77 per cent 
of respondents saw improving societal issues as a primary business function, 
and 59 per cent regarded addressing geopolitics as a top priority for business.6
1 Mayer, C., Strine Jr., L. and Winter, J. (2020), ‘50 years later, Milton Friedman’s shareholder doctrine is dead’, 
Fortune, 13 September 2020, https://fortune.com/2020/09/13/milton-friedman-anniversary-business-purpose.
2 Freeman, B. (2018), Shared Space under Pressure: Business Support for Civic Freedoms and Human Rights 
Defenders, Business & Human Rights Resource Centre and International Service for Human Rights, 
https://media.business-humanrights.org/media/documents/fdfe07e3d812cfcfed4235fbbf820a3d77599b13.pdf.
3 Nangle, T. (2023), ‘A trillion-dollar blind spot for asset managers’, Financial Times, 13 January 2023, 
https://www.ft.com/content/92e9ab44-a852-4c96-86e6-3b10f796e858.
4 Chatham House (2021), Reflections on building more inclusive global governance: Ten insights into emerging 
practice, Synthesis Paper, London: Royal Institute of International Affairs, https://www.chathamhouse.org/ 
2021/04/reflections-building-more-inclusive-global-governance.
5 Brende, B. (2023), ‘Why it’s time for the dawn of stakeholder geopolitics’, Foreign Affairs, 16 January 2023, 
https://www.foreignaffairs.com/world/dawn-stakeholder-geopolitics.
6 Edelman (2022), 2022 Edelman Trust Barometer Special Report: The Geopolitical Business, report, May 2022, 
https://www.edelman.com/trust/2022-trust-barometer/special-report-geopolitical-business.

Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
3  Chatham House
The Sustainable Development Goal (SDG) 16 Business Framework, launched 
by the UN Global Compact in 2021, encourages businesses to embrace 
‘transformational governance’ by supporting peace, justice and strong institutions, 
strengthening multilateralism and ‘reimagining the social contract’.7 Investors have 
joined companies at the forefront of discussion and action on global issues, and have 
launched initiatives with the UN to tackle climate change (for example, through 
the Glasgow Financial Alliance for Net Zero).8
The last five years have seen a huge increase in investor engagement with ESG 
issues, with asset managers globally expected to increase ESG-related assets under 
management to $33.9 trillion by 2026, up from $18.4 trillion in 2021.9 But investor 
approaches to these issues are in practice often siloed and fragmented. Even as the 
‘S’ in ESG has gained traction and momentum, investors usually focus on a subset 
of niche social topics such as child labour, forced labour and modern slavery, 
as well as diversity, equity and inclusion, rather than situating these issues within 
a broader framework, in which the rule of law, accountable governance and civic 
freedoms form the crucial underpinning.
This research paper analyses three issues in particular: (i) the case for investors 
to adopt a more comprehensive approach to their business activities, one that 
considers civic freedoms as a fundamental part of a stable and sustainable business 
environment; (ii) barriers to investor engagement in achieving this; and (iii) positive 
trends and opportunities for investors to explore in this area. The paper then 
concludes with recommendations for further action on the part of investors, 
regulators and civil society organizations.
For the purposes of this paper, the term ‘investors’ covers asset owners and 
managers in relation to public equity and debt, sovereign wealth funds and private 
equity. Each type of investor will have different ways of exerting influence, different 
degrees of leverage, and will face different constraints in their ability to engage 
on ESG issues. But all have a common stake in the underpinnings of the rule 
of law, accountable governance and civic freedoms.
Why investors should apply a wider lens 
to their business activities
Investors have factored political risk into their operations for years, and most 
understand the importance of good governance to their operational and financial 
performance. Human rights have also been a concern to socially responsible 
and faith-based investors for decades. But many mainstream investors do not 
acknowledge or fully appreciate the connection between civic freedoms and 
the sustainability and profitability of the broader business environment.
7 The UN Global Compact (2021), ‘The Sustainable Development Goal 16 Business Framework: 
Inspiring Transformational Governance’, https://sdg16.unglobalcompact.org.
8 Glasgow Financial Alliance for Net Zero (undated), ‘About Us’, https://www.gfanzero.com/about.
9 PWC (2022), ESG-focused institutional investment seen soaring 84% to US$trillion in 2026, making up 21.5% 
of assets under management: PwC report, 10 October 2022, https://www.pwc.com/gx/en/news-room/press-releases/ 
2022/awm-revolution-2022-report.html.

4  Chatham House
Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
Corrosion of civic freedoms can have a direct effect on the predictability, 
transparency and stability of the business environment, particularly over the 
medium to long term. The weakening of political and civic institutions often results 
in democratic backsliding, raising the level of financial risk.10 For example, when 
a government diminishes the powers or independence of the judiciary in a host 
market, it can shake confidence in the rule of law and may reduce or even deny 
the availability of effective dispute resolution mechanisms.
Shrinking civic space also creates an ‘information black box’ for companies 
and investors alike, reducing transparency and, with it, the ability to assess risks 
that may be disruptive to business.11 When illiberal governments restrict access 
to online services or disrupt networks, as increasingly happens during protests 
or elections around the world, business and civil society both suffer. Over the long 
term, an open society with checks on government power is more likely to enable 
both expression and stability for sustainable capital than a closed society that 
restricts these freedoms and the flow of information.12
Given this essential connection between business and open societies, and the 
fact that investors are being asked to take a more active role in geopolitics, recent 
trends in politics around the world should be a source of concern to investors. 
Growing illiberalism, populism and polarization have elevated political risk for 
businesses, including in democracies such as Hungary, India, Israel and Poland. Civic 
space has shrunk considerably over the last decade,13 with media freedom declining 
in a record number of countries.14 An increasing number of governments worldwide 
are cracking down on the ability of NGOs to operate and placing online freedom 
of expression under threat through internet shutdowns and the use of surveillance.15 
These trends are part of a broader pattern involving democratic regression and 
authoritarian resurgence.16
10 Mosley, L. (2023, forthcoming), ‘The Financial and Economic Dangers of Democratic Backsliding’, paper 
prepared for the Capital and Constitution Project, co-sponsored by the Brookings Institution and the States 
United Democracy Center.
11 ABN Amro, APG, ING, Robeco and Morningstar Sustainalytics (2023), No news is bad news: Exploring how financial 
institutions can strengthen human rights risk assessment of business activities in areas where civic space is restricted, 
https://assetmanagement.apg.nl/media/gqndx5gl/no-news-is-bad-news-publication.pdf.
12 Freeman, B., Moynihan, H. and Alves Pinto, T. (2021), The Role of the Private Sector in Protecting Civic Space, 
Synthesis Paper, London: Royal Institute of International Affairs, https://www.chathamhouse.org/2021/02/
role-private-sector-protecting-civic-space.
13 CIVICUS Monitor (2022), People Power under Attack, 16 March 2023, https://monitor.civicus.org.
14 Holmes, O. (2023), ‘Media freedom in dire state in record number of countries, report finds’, Guardian, 3 May 2023, 
https://www.theguardian.com/media/2023/may/03/media-freedom-in-dire-state-in-record-number-of-countries-
report-finds.
15 Shahbaz, A., Funk, A. and Vesteinsson, K. (2022), Countering an Authoritarian Overhaul of the Internet, report, 
Washington, DC: Freedom House, https://freedomhouse.org/report/freedom-net/2022/countering-authoritarian- 
overhaul-internet.
16 V-Dem Institute (2022), Autocratization changing nature: Democracy Report 2022, Gothenburg: V-Dem Institute, 
https://v-dem.net/media/publications/dr_2022.pdf.
When illiberal governments restrict access to online 
services or disrupt networks, as increasingly happens 
during protests or elections around the world, 
business and civil society both suffer.

Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
5  Chatham House
A recent example illustrates the strong link between shrinking civic space and 
business risk, with investors acting in response. In December 2022, the Israeli 
government announced proposals to curb the powers of the judiciary by limiting 
the Supreme Court’s power to exercise judicial review, granting the government 
control over judicial appointments, and limiting the authority of its legal advisers. 
This initiative not only triggered months of mass protests, but also compelled some 
venture capital funds to move their money out of Israel due to concerns that the 
reforms would harm both democracy and the country’s economy. In a reflection 
of how tightening civic space can damage financial prospects, a recent report 
suggests that £20 billion in capital has been taken out of Israel since the current 
government took office in December 2022.17 In April 2023, the credit rating agency 
Moody’s cited deterioration of governance in its decision to downgrade Israel’s 
credit outlook, affecting both the Israeli government (because funding government 
borrowing is more expensive with a worse credit rating) and Israeli domestic 
business (which derives its credit rating from the sovereign rating).18 The IMF has 
since warned that continued uncertainty could significantly slow Israel’s economy.19
Focusing on the ‘inside out’
The relationship between investors and civic freedoms has two aspects. On the one 
hand, there is the impact of civic freedoms in a host country on an investor’s return 
on investment (‘the outside in’), and on the other, the impact of the investor’s 
activities on the civic space of the host country (‘the inside out’).
When it comes to the ‘outside in’, most investors now see mitigating systemic risks 
as part of risk management, which will improve the overall return of the markets. 
This represents a move away from ‘modern portfolio theory’, which focuses on how 
to create portfolios from capital markets without taking account of global societal 
risks.20 There is also growing recognition by investors of the relationship between 
strong institutions, the rule of law and civic space and their return on investment. 
SDG 16 (Peace, Justice and Strong Institutions) is directly relevant to civic space, 
with Target 16.10 committing UN member states to ‘ensure public information 
and protect fundamental freedoms’. In response to a 2020 survey, 84 per cent 
of investors and ratings agencies stated that business reporting on SDG 16 is ‘very 
relevant’ and would provide greater insight into the factors central to a business’s 
ability to succeed.21 Investors recognize the benefits of markets that feature civil 
society organizations because the latter encourage greater transparency, expanding 
information resources beyond those channels that are controlled.
17 McKernan, B. (2023), ‘March of the unicorns: Israel’s tech sector rebels against Netanyahu’s power grab’, 
Guardian, 9 March 2023, https://www.theguardian.com/world/2023/mar/09/israel-tech-sector-rebels-against- 
netanyahu-power-grab.
18 Wrobel, S. (2023), ‘Risk-taking government’: Moody’s explains fears behind credit outlook downgrade’, 
Times of Israel, 18 April 2023, https://www.timesofisrael.com/moodys-warns-of-risks-to-judicial-independence- 
economic-and-social-stability.
19 Wrobel, S. (2023), ‘IMF says uncertainty over judicial overhaul poses ‘risks’ to Israeli economy’, Times of Israel, 
11 May 2023, https://www.timesofisrael.com/imf-says-uncertainty-over-judicial-overhaul-poses-risks- 
to-israeli-economy.
20 Lukomnik, J. and Hawley, J. (2021), Moving Beyond Modern Portfolio Theory: Investing that Matters, 
Abingdon: Routledge.
21 swisspeace, engageability and the PeaceNexus Foundation (2020), Strengthening Corporate Reporting 
on Sustainable Development Goal 16 Peace, Justice and Strong Institutions: Practice Paper, November 2020, p. 5, 
https://peacenexus.org/wp-content/uploads/2020/11/Practice-Paper_Corporate-Reporting-on-SDG16_Nov2020.pdf.

6  Chatham House
Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
The ‘inside out’ aspect of investors’ relationship with their host environment 
is reflected in the UN Guiding Principles on Business and Human Rights.22 Adopted 
by the UN Human Rights Council in 2011, these principles compel companies and 
investors not to cause or contribute to adverse human rights impacts through their 
business operations or relationships, and to carry out due diligence to identify, 
prevent and mitigate those impacts. This corporate responsibility applies not only 
to investments in countries, but also to investments in companies that may contribute 
to undermining civic space and human rights, sometimes acting in concert with 
a host government. But the ‘inside out’ aspect currently gets much less attention 
from investors than the ‘outside in’. In practice, there are many businesses that 
thrive in exploitative environments (at least in the short term) and are willing 
to engage with, and operate in, countries with illiberal or authoritarian regimes. 
Given their potential and, at times, demonstrable political and economic clout, 
investors may exacerbate inequality, human rights abuses and the shrinking of civic 
space when they turn a blind eye to civic freedoms and invest in countries with 
repressive governments.
The importance of the ‘inside out’ aspect has, however, come into sharper focus 
as the boundaries between corporate responsibility and geopolitics blur.23 There 
are now growing expectations from the public, employees and civil society that 
business should address geopolitical issues beyond active conflicts,24 rather than 
be passive bystanders, and should do so in alignment with international human 
rights standards. Besides the economic and reputational incentives to support 
civic space, there are also discretionary opportunities for investors to go beyond 
mere legal compliance and be proactive,25 acting as responsible stakeholders 
that recognize the stake they share in, and the benefits they have gained from, 
the international rules-based order. This ‘geopolitical corporate responsibility’26 
applies not only to multinational corporations but also to institutional investors, 
who share similar commercial and reputational stakes as they too become 
enmeshed in geopolitical crises.
22 United Nations (2011), Guiding Principles on Business and Human Rights: Implementing the United Nations 
“Protect, Respect and Remedy” Framework, https://www.ohchr.org/sites/default/files/documents/publications/
guidingprinciplesbusinesshr_en.pdf.
23 Bologna Institute for Policy Research and John Hopkins School of Advanced International Studies (2023), 
‘Multinational corporations in the vortex of geopolitical ethics and material pressures’: lecture by Bennett Freeman, 
Associate Fellow, International Law Programme, Chatham House, 16 February 2023, https://bipr.jhu.edu/events/ 
4697-Multinational-Corporation-in-the-Vortex-of-ESG-and-Geopolitical-Pressures.cfm.
24 Edelman (2022), 2022 Edelman Trust Barometer Special Report: The Geopolitical Business.
25 Freeman (2018), Shared Space under Pressure.
26 Freeman, B. (2022), ‘Geopolitical corporate responsibility can drive change’, Chatham House Expert Comment, 
26 July 2022, https://www.chathamhouse.org/2022/07/geopolitical-corporate-responsibility-can-drive-change.
Given their potential and, at times, demonstrable 
political and economic clout, investors may 
exacerbate inequality, human rights abuses and 
the shrinking of civic space when they invest 
in countries with repressive governments.

Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
7  Chatham House
In the technology sector, for example, risks to people and to investments are 
rapidly converging, particularly in the development of AI. Investors have a unique 
and highly influential role to play in determining whether the behaviour of tech 
companies is responsible and respects human rights, especially as regulation – 
which would usually play a safeguarding role – is struggling to keep up with the pace 
of technological development.27 For example, spurred by concerns about generative 
AI such as ChatGPT – including threats to privacy, democracy and even humanity – 
some large institutional investors, including Aviva, Fidelity International and Legal 
& General Investment Management, are starting to put pressure on technology 
companies to strengthen their due diligence and safeguards in relation to the 
human rights risks of AI.28
Barriers and opportunities for broadening investor engagement
But despite the emerging case for corporate responsibility at the geopolitical level, 
many investors lack a broader perspective that takes into account threats to civic 
space and freedoms. Part of the problem is that investors and the human rights 
community speak somewhat different languages: some investors will not even 
be familiar with the term ‘civil society space’ and, for those that are, the term 
can be perceived as political, sensitive or vague. Erosion of civic institutions and 
the shrinking of civil society space are not typically considered as systemic risks 
that may affect long-term cash flows and projected profits. The ESG and broader 
sustainability framework, with its language of ‘just transition’, ‘societal resilience’ 
and ‘equity’, is more accessible to some investors. Yet, the issue of restricted civil 
society space is critical, and directly related, to issues around equity and just 
transition, including in the current discussions about loss and damage in the 
context of climate change.29 Widening the discourse to include civic freedoms 
should have some resonance with investors because of the convergence of values 
and interests, and stakeholder pressures and expectations, that exist around the 
rule of law and civic freedoms as the essential underpinnings for predictable, 
sustainable and profitable returns.
Even for those investors that appreciate and acknowledge the connection between 
civic freedoms and the resilience and profitability of their own operations, there are 
numerous barriers to investors factoring these issues into their decision-making. 
These include a lack of incentives to encourage an approach that goes beyond pure 
credit risk; an absence of criteria and metrics to factor these wider issues into their 
operations; and a lack of strategic vision, backed up with appropriate governance 
structures to enable investors to engage purposefully and effectively on these issues.
Lack of incentives to look beyond credit risk
The primary focus of an investor’s business model is the return on investment. 
This model encourages short-term thinking that focuses only on the ‘outside in’ 
and does not factor in the broader impacts of deteriorating civil society space. 
27 OHCHR (2021), Rights-respecting investment in technology companies: A B-Tech Briefing, briefing, January 2021, 
https://www.ohchr.org/sites/default/files/Documents/Issues/Business/B-Tech/B-Tech-Briefing-Investment.pdf.
28 Bryan, K. (2023), ‘Asset managers pressure tech companies over possible AI misuse’, Financial Times, 19 June 2023, 
https://www.ft.com/content/a6926bb3-5615-4b93-95a8-77db943c7cf1.
29 See, for example, Pettengell, C. (2022), ‘What happened at COP 27?’, Bond, 22 November 2022,  
https://www.bond.org.uk/news/2022/11/what-happened-at-cop27.

8  Chatham House
Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
Currently, investors will take account of, and react to, major political risks such 
as changes of government, significant legislative reforms and military control. 
But their investment decisions are not typically sensitive to other, sometimes more 
subtle, changes in a political environment that can also be detrimental to financial 
stability, such as new legislation that makes it harder for NGOs to operate; 
government clampdowns on independent media; and the arrest of human rights 
defenders. For example, in March 2022, JP Morgan reacted to Russia’s invasion 
of Ukraine the previous month, a violation of international law that also elevated 
financial and geopolitical risks, by excluding both Russia and Belarus from its fixed 
income indexes. But as index providers – which offer a basket, or ‘index’, of funds 
for investment and decide which funds to include – grade countries by focusing 
only on the likelihood that they will default on their debt, they tend to overlook 
more systemic issues that may affect a country’s financial stability, including 
the erosion of civic institutions and the shrinking of civic space.
Foreign investors such as Blackrock have been increasingly active in China’s large 
bond market in recent years, despite both the imposition in 2020 of the National 
Security Law in Hong Kong, which has been interpreted broadly as a means to clamp 
down on those protesting against the government, and China’s treatment of the 
Muslim Uyghur population in Xinjiang province, which an unofficial UK-based 
tribunal has held constituted genocide.30 In terms of credit rating, China currently 
has a good score of A+ on sovereign write-up with S&P Global, because, while 
the ratings agencies acknowledge issues such as corruption, the policy outcomes 
in terms of growth and fiscal position have been generally good.
Even for those investors that have concerns about deterioration of the rule of law 
and civic space in a host market, legal and operational factors may disincentivize 
engagement on these issues – or at least make it more difficult. The position of HSBC 
in Hong Kong exemplifies some of the conflicting values and interests that investors 
and companies may have to deal with in politically sensitive situations. In 2020, 
Aviva Investors – the holder of shares worth nearly £800 million in HSBC and 
Standard Chartered – expressed unease at the decision of these two banks to support 
the National Security Law. Aviva stated that it expected ‘both companies to confirm 
that they will also speak out publicly if there are future abuses of democratic 
freedoms connected to this law’.31 In the case of HSBC, Hong Kong is its largest 
market, where it employs approximately 30,000 people, and the bank must 
comply with local law to be able to operate there. At the same time, HSBC and 
other banks have faced criticism not only from human rights groups but also from 
UK ministers and parliamentarians.32 A 2023 inquiry by the All-Party Parliamentary 
Group on Hong Kong concluded that ‘British banks such as HSBC Bank PLC have 
been complicit in supressing the human rights of Hongkongers, by proactively 
supporting the National Security Law.’33
30 Wintour, P. (2021), ‘Uyghurs subjected to genocide by China, unofficial UK tribunal finds’, Guardian, 
9 December 2021, https://www.theguardian.com/world/2021/dec/09/uyghurs-subjected-to-genocide-by-china- 
unofficial-uk-tribunal-finds.
31 Bray, C. (2020), ‘Aviva Investors Rebukes HSBC, Standard Chartered over Decision to Support Hong Kong National 
Security Law’, South China Morning Post, 10 June 2020, www.scmp.com/business/banking-finance/article/3088392/
aviva-investors-rebukes-hsbc-standard-chartered-over.
32 Reuters (2020), ‘Don’t sacrifice Hong Kong for a banker’s bonus, UK tells HSBC’, 1 July 2020,  
https://www.reuters.com/article/hongkong-protests-britain-banks-idINKBN2425VY.
33 All-Party Parliamentary Group on Hong Kong (2023), Inquiry into British Banks operating in Hong Kong,  
report, February 2023, https://www.hkinquiry.org/banking-report, p. 15.

Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
9  Chatham House
Privately, many investors and companies are increasingly concerned about 
the closing of civic space in Hong Kong. Until recently, Hong Kong was home 
to strong civil society organizations, which provided useful alternative sources 
of information on listed companies, otherwise covered only superficially by 
mainstream media outlets. But these alternative sources are steadily disappearing. 
The rule of law and the independence of Hong Kong’s judiciary – historically 
pivotal to the territory’s appeal to the international business community due 
to the transparency and predictability that they provide – are now under threat.
With the shrinking of civic space through the repressive implementation of the 
National Security Law has come a marked increase in business risk. A March 2023 
report by the Atlantic Council detailed how Hong Kong’s diminishing political 
independence and ‘fractured foundations’ – including the targeting of independent 
media, pro-democracy politicians and publishers of books and films – are negatively 
affecting the business sector.34 Threats to journalism have resulted in a lack of 
the information needed for the operation of financial markets, as well as risks 
to the accessibility of broader information flows necessary in a modern economy 
such as reporting on economic data and corporate financial results.35 The National 
Security Law also poses data security risks for financial services providers, 
including risks to intellectual property, online speech and the privacy of customer 
information.36 Coupled with the disappearance of leading Chinese entrepreneurs 
(including, most recently, tech CEO Bao Fan in February 2023), the closing of civic 
space is leading some investors to move their money out of not only Hong Kong 
but also mainland China.37
Regulatory pressure
A convergence of pressure points is incentivizing investors to undertake a more 
thorough assessment of the environments in which they operate. One major factor 
is the accelerating regulation of human rights, ESG and sustainability issues across 
many countries and stock exchanges, along with the degree of specificity required 
in related disclosure regimes. Increasingly, governments are enacting regulation 
to focus investors and companies on a company’s impact on the world at large, 
and to provide checks on corporate power and routes for accountability by requiring 
business to carry out due diligence on the human rights implications of their 
operations. In the last few years, several countries have adopted laws mandating 
human rights and environmental due diligence, including Germany, the Netherlands 
and Norway. Australia, Canada, Denmark, France, Japan, Switzerland, the US and 
the UK have also all passed or proposed laws on human rights due diligence, 
supply-chain transparency or modern slavery.38
34 Wright, L. (2023), ‘Fractured foundations: Assessing risks to Hong Kong’s business environment’, Atlantic Council, 
7 March 2023, https://www.atlanticcouncil.org/in-depth-research-reports/report/fractured-foundations- 
assessing-risks-to-hong-kongs-business-environment.
35 Ibid.
36 Ibid.
37 Sender, H. (2023), ‘The cloud over China’s entrepreneurs raises capital flight risk’, Financial Times, 27 March 2023, 
https://www.ft.com/content/d5346367-c623-4348-a0b8-1cb4fea55706.
38 See the Business & Human Rights Resource Centre’s mandatory human rights due diligence portal, which 
collects news on all national and regional developments: https://www.business-humanrights.org/en/big-issues/
mandatory-due-diligence.

10  Chatham House
Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
In the EU, the concept of ‘double materiality’ – which refers to how information 
disclosed by a company can be material in terms of its implications for both the 
company’s financial value and its impact on the world – has been incorporated 
into the regulatory framework for sustainability reporting. This ensures that both 
the ‘inside out’ and ‘outside in’ aspects of a business’s relationship with society are 
factored into EU sustainability standards and disclosure requirements. Since March 
2021, EU rules have required fund managers to disclose how they account for the 
ESG impacts of their investments. The EU’s forthcoming Corporate Sustainability 
Due Diligence Directive will impose obligations on in-scope companies to establish 
a human rights due diligence plan and monitoring mechanism. On 1 June 2023, 
the European Parliament approved the directive and confirmed that financial 
institutions will be covered by the rules (a position which also requires confirmation 
from the European Council).39 Where relevant, the directive will require investors 
to engage in efforts to either minimize the extent of adverse impacts by investee 
companies or to bring such impacts to an end. The draft directive seeks to hold 
in-scope financial institutions accountable both through administrative supervision 
(member states must designate an authority to supervise and impose effective, 
proportionate and dissuasive sanctions, including fines and compliance orders) 
and the establishment of a link to corporate civil liability for damages.40
While the exact requirements of the legislation above may vary, all are grounded 
in the international human rights standards set out in the UN Guiding Principles 
on Business and Human Rights and the OECD Guidelines for Multinational 
Enterprises,41 which provides a degree of regulatory coherence. These standards 
can be useful for both companies and investors in providing legal cover from host 
country government requests – for example, to pay bribes or be complicit in human 
rights abuses. In addition, just as there has been a sharp rise in litigation seeking 
to hold companies to account for their behaviour on environmental issues in the 
last five years,42 as human rights due diligence regulation becomes entrenched, 
we can also expect to see increasing strategic litigation that seeks to hold 
businesses and investors to account for their human rights policies, including 
in relation to civic freedoms.
Sanctions are also forcing investors and companies to pay closer attention to civic 
freedoms and to their position of responsibility in the broader geopolitical ecosystem. 
In Belarus, where the government has aggressively clamped down on peaceful 
protestors, EU sanctions imposed in June 2021 prevent European investors from 
buying or trading any new Belarusian bonds. Many Swiss banks have Russian clients, 
but such relationships pose a growing financial and reputational risk, especially 
after the imposition by the Swiss government of sanctions on Russian assets in the 
39 Gambetta, G. (2023), ‘Landmark sustainability due diligence directive passes European Parliament vote’,  
Responsible Investor, 1 June 2023, https://www.responsible-investor.com/landmark-sustainability-due-diligence- 
directive-passes-european-parliament-vote.
40 European Commission (2022), ‘Corporate sustainability due diligence: fostering sustainability in corporate 
governance and management systems’, https://commission.europa.eu/business-economy-euro/doing-business-
eu/corporate-sustainability-due-diligence_en.
41 OECD (2011), OECD Guidelines for Multinational Enterprises, Paris: OECD Publishing, https://www.oecd.org/
daf/inv/mne/48004323.pdf.
42 Guruparan, K. and Moynihan, H. (2021), Climate change and human rights-based strategic litigation, Chatham 
House Briefing Paper, 11 November 2021, https://www.chathamhouse.org/2021/11/climate-change-and-human- 
rights-based-strategic-litigation.

Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
11  Chatham House
wake of the invasion of Ukraine.43 As part of the Summit for Democracy hosted 
by the US government in March 2023, both governments and tech investors came 
under pressure to prioritize human rights due diligence on spyware technology,44 
which has been used around the world to target activists and journalists. 
In parallel, US president Joe Biden issued an executive order prohibiting 
the use of commercial spyware.45
Collaboration with civil society organizations
As a result of sustained advocacy and engagement by the Investor Alliance 
for Human Rights (IAHR),46 some institutional investors have taken a joint stand 
in response to threats to human rights, including civic freedoms. For example, 
in December 2021, a group of 30 investors joined international calls for the 
full restoration of the democratic transition in Sudan with respect to the rule 
of law, accountable governance and civic freedoms, following the October 2021 
military-led coup.47 In May 2023, the IAHR, together with the EIRIS Conflict Risk 
Network and the Heartland Initiative, issued a press release in response to the 
escalating violence between military factions in Sudan, stating that ‘the restoration 
of the political transition towards an inclusive, civilian, democratic government 
underpinned by respect for fundamental rights and freedoms is essential to a stable 
and prosperous Sudan with a thriving civil society and economy’.48
Collective investor statements have had a tangible impact on corporate engagement 
on the civic freedoms of expression, association and assembly in several cases 
in recent years. Examples include shareholders of Amazon supporting a resolution 
on freedom of association,49 and investors in Starbucks approving a bid to review 
the company’s principles of freedom of association.50 Shareholder pressure also 
pushed Apple into publishing a human rights policy that committed to respecting 
freedom of information and expression, after years of criticism of the company 
for its acquiescence in Chinese government demands to limit freedom of expression 
(for example, by deleting over 600 virtual private networks from its App Store).51
43 Jones, S. (2022), ‘Long shadow of Russian money raises tricky questions for Swiss bankers’, Financial Times, 
20 June 2022, https://www.ft.com/content/2c7128d0-b5fc-4d1b-bf95-49a886e28d17.
44 Business & Human Rights Resource Centre (2023), ‘Governments and tech investors under pressure to act 
on unlawful and arbitrary use of spyware’, press release, 24 March 2023, https://www.business-humanrights.org/ 
en/from-us/media-centre/governments-and-tech-investors-under-pressure-to-act-on-unlawful-and-arbitrary- 
use-of-spyware.
45 The White House (2023), ‘Executive Order on Prohibition on Use by the United States Government 
of Commercial Spyware that Poses Risks to National Security’, 27 March 2023, https://www.whitehouse.gov/
briefing-room/presidential-actions/2023/03/27/executive-order-on-prohibition-on-use-by-the-united-states- 
government-of-commercial-spyware-that-poses-risks-to-national-security.
46 The IAHR is a collective action platform for responsible investment grounded in the international human 
rights framework that works with over 220 institutional investors. See IAHR (undated), ‘Who We Are’,  
https://investorsforhumanrights.org/about.
47 EIRIS Conflict Risk Network, Investor Alliance for Human Rights and Business & Human Rights Resource 
Centre (2021), ‘Leading investors support democratic transition in Sudan’, press release, 8 December 2021, 
https://eiriscrn.net/wp-content/uploads/2021/12/Press-Release-Sudan-Investor-Statement.pdf.
48 IAHR (2023), ‘Joint Statement on the Situation in Sudan’, press release, 5 May 2023, https://investorsfor 
humanrights.org/news/joint-statement-situation-sudan.
49 SHARE (2022), ‘Shareholders deliver rebuke to Amazon for practices called “waste of time and money”; 
support resolution on freedom of association’, 30 May 2022, https://www.prnewswire.com/news-releases/
shareholders-deliver-rebuke-to-amazon-for-practices-called-waste-of-time-and-money-support-resolution- 
on-freedom-of-association-301557364.html.
50 Geraldo, R. (2023), ‘Starbucks investors approve bid to review labor practices’, Seattle Times, 4 April 2023, 
https://www.seattletimes.com/business/starbucks/starbucks-investors-approve-bid-to-review-labor-practices.
51 McGee, P. (2020), ‘Apple commits to freedom of speech after criticism of China censorship’, Financial Times, 
4 September 2020, https://www.ft.com/content/a88f5d3d-0102-4616-8b3f-cb0661ba305d.

12  Chatham House
Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
Engagement on civic freedoms varies significantly according to the type of investor. 
Faith-based investors, those able to take a longer-term view and public markets 
with greater disclosure obligations are more likely to be responsive than private 
markets, which are not required to make disclosures. Public-facing institutional 
investors, such as pension funds, increasingly factor risks to human rights and civil 
society space into their decision-making. For example, in 2021, a group of Danish 
asset managers sold all their Belarus government debt on human rights grounds 
and excluded 45 countries, including China, Saudi Arabia and Venezuela, due 
to demands from members that human rights should be a priority.52 Germany’s 
Union Investment also divested from Belarusian funds and declined to buy 
Tajikistan’s bonds due to human rights abuses.53
However, when public funds divest, private capital will sometimes buy the assets, 
which can simply make the underlying problem less visible, rather than addressing 
it. There is also a growing trend for large pension funds to invest in private equity 
funds, which lag behind larger institutional investors on attention to human rights, 
including civic freedoms. For example, private equity and venture capital firms play 
an important role in funding the technology sector, but often without due regard 
for the impact their funding may have on civic freedoms. Amnesty International’s 
2021 report Risky Business: How Leading Venture Capital Firms Ignore Human Rights 
When Investing in Technology highlighted that eight out of 10 venture capital firms 
showed no evidence that they check whether their investments could be linked 
to human rights abuses.54 Silicon Valley investors avoided Saudi Arabia after 
the murder of Saudi journalist and dissident Jamal Khashoggi in 2018, but now 
leading venture capital firms are again accepting substantial investments from 
Saudi Arabia’s Public Investment Fund.55
In the last few years, civil society organizations have strengthened their engagement 
with venture capital and private equity firms to increase awareness of human 
rights and civic freedoms and help guide private investors on how to meet their 
responsibilities. For example, the UN Principles for Responsible Investment (PRI), 
which encourages collaborative engagement by investors on human rights and civic 
space issues, has recently focused on how to improve human rights due diligence 
in private markets.56
It is becoming increasingly risky – legally, reputationally and financially – for 
investors to focus solely on short-term profits – or profits plus ‘tick-box’ ESG and 
sustainability efforts – as opposed to adopting a broader and longer view informed 
by human rights due diligence that extends to civic freedoms and wider geopolitical 
risks. This applies equally to private investors. For example, private equity firm 
Novalpina Capital was involved in financing the Israeli company NSO Group, 
52 Fletcher, L. and Stubbington, T. (2021), ‘ESG investing: funds weigh sovereign debt profits against human 
rights’, Financial Times, 13 July 2021, https://www.ft.com/content/bd2e752e-5afa-424a-af7e-433963dd7c34.
53 Ibid.
54 Amnesty International (2021), Risky Business, How Leading Venture Capital Firms Ignore Human Rights 
When Investing In Technology, report, July 2021, https://www.amnestyusa.org/wp-content/uploads/2021/07/
Risky-Business-How-Leading-VC-Firms-Ignore-Human-Rights-When-investing-in-Tech-Final-1.pdf.
55 Guyer, J. (2023), ‘How Saudi money returned to Silicon Valley’, Vox, 1 May 2023, https://www.vox.com/
technology/2023/5/1/23702451/silicon-valley-saudi-money-khashoggi.
56 PRI (2022), Human Rights in Private Markets: Identifying and Assessing Negative Human Rights Outcomes, 
https://www.unpri.org/human-rights/human-rights-in-private-markets-identifying-and-assessing-negative- 
human-rights-outcomes/10371.article.

Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
13  Chatham House
maker of ‘Pegasus’ spyware. In July 2021, a group of media organizations revealed 
how Pegasus was being used by certain governments to spy on journalists around 
the world, as well as targeting leading politicians and activists in several countries. 
The US responded in November 2021 by sanctioning NSO Group, since when the 
company’s value has become almost worthless to its private equity backers.57
Other pressure points
Pressure on investors to think more proactively about the societies with which 
they interact is also growing from the public and from within organizations – 
both employees and business leaders. Demographics are an important factor in this 
evolving landscape. Recent data suggests that millennial investors care more than 
older generations about social issues.58 Among Gen Z (usually defined as those 
currently aged between 18–25), trust in government and media is fading, but that 
cohort believes that big institutions have the responsibility to act and that businesses 
need to improve.59 Gen Z is 92 per cent more likely to protest than older 
generations,60 and can do so more quickly, visibly and extensively, using social 
media and the internet to mobilize around social issues, including civic freedoms. 
Investment firms with explicit social purpose are more likely to attract talent from 
some universities. Younger generations are also more likely to seek jobs elsewhere 
if their employer does not align with their personal views and values, regardless 
of whether these issues are part of their employer’s core business.61
Some large and well-known investors are showing leadership in this area. 
For example, in 2023, Dutch bank ABN Amro convened other financial institutions 
to work with the Business & Human Rights Resource Centre (a leading civil society 
organization focusing on business and human rights) on a report that explored 
how financial institutions can strengthen human rights risk assessment of business 
activities in areas where civic space is restricted.62 Norway’s sovereign wealth fund, 
Norges Bank Investment Management (NBIM) – the world’s largest single investor, 
with assets under management in excess of $1 trillion – has a Council on Ethics, 
which recommends exclusion of companies from investment if they raise concerns 
about human rights or civic space. For example, in the past year, NBIM has placed 
Polish energy company Polski Koncern Naftowy Orlen SA under observation over 
57 Wiggins, K. (2022), ‘NSO Group deemed ‘valueless’ to private equity backers’, Financial Times, 11 April 2022, 
https://www.ft.com/content/24584247-0fd4-4826-bcac-f726ad17af58.
58 Tett, G. (2021), ‘Millennial Philanthropy May Forever Change Finance’, Financial Times, 6 May 2021,  
https://www.ft.com/content/bb84572b-89bc-4cc3-9d0c-5e6121b04191.
59 Oliver Wyman Forum and The News Movement (2023), What business needs to know about the generation 
changing everything: A-Gen-Z-Report, https://www.oliverwymanforum.com/content/dam/oliver-wyman/
ow-forum/template-scripts/a-gen-z/pdf/A-Gen-Z-Report.pdf, p. 9.
60 Ibid., p. 46
61 Ibid., p. 51.
62 ABN Amro et al. (2023), No news is bad news.
Pressure on investors to think more proactively about 
the societies with which they interact is also growing 
from the public and from within organizations – 
both employees and business leaders.

14  Chatham House
Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
concerns that it was responsible for human rights violations via its ownership 
of dozens of Polish media outlets, with the company being accused of increasing 
government power over the media in that country.63 NBIM also excluded an Israeli 
software company over concerns that customers of its surveillance products 
have been accused of serious human rights violations and two Thai companies 
for activities that provide the Myanmar armed forces with significant revenue 
that could be used to finance human rights abuses.64
It is striking, however, that most of the positive examples of engagement come 
from Europe and the UK, where both the international human rights law framework 
is well entrenched (including through EU and UK law, and the Council of Europe’s 
European Convention on Human Rights, supervised by the European Court 
of Human Rights) and ESG investing is more mature. ESG investing continues 
to grow in Asia,65 but a backlash from the political right in the US (with the support 
of the oil and gas lobby) has mobilized politicians in 24 Republican-controlled states 
to agitate against the concept. President Biden recently issued his first veto to block 
a Republican attempt to overturn a federal Department of Labor rule allowing 
investment managers to consider ESG risks in their investment decisions.66
Lack of metrics
Another barrier to investor engagement is that these broader issues are not easy 
for investors to measure or quantify, or at least not in a way that fits neatly into 
their standard methodologies. Conversely, ESG ratings have been designed to suit 
investors’ way of working – which include the use of numbers, standards and metrics 
to help them assess and quantify risk. In the last five years, the rapidly evolving ESG 
landscape has produced a proliferation of standards, standards bodies, data analytics 
and assessment scores to assist investors in their analysis of ‘E’, ‘S’ and ‘G’ issues.
But while these developments have produced more information for investors, 
they have also resulted in a wide variety of metrics, methodologies and approaches 
that are not globally coherent,67 leading to a crowded and complex environment. 
The ESG framework faces growing criticism for inconsistent criteria and metrics, 
the conflation of distinct issues, and misleading portfolio construction and fund 
marketing. Bodies such as the International Sustainability Standards Board (ISSB) 
are making significant efforts to improve the quality and consistency of the ESG 
data landscape.68 In June 2023, the ISSB launched the International Financial 
63 Notes from Poland (2023), ‘Norway wealth fund puts Polish state oil firm “under observation for serious 
human rights violations”’, 23 February 2023, https://notesfrompoland.com/2023/02/23/norway-wealth-fund- 
puts-polish-state-oil-firm-under-observation-for-serious-human-rights-violations; NBIM (2023), ‘Decision on  
observation’, press release, 22 February 2023, https://www.nbim.no/en/the-fund/news-list/2023/decision- 
on-observation.
64 Kalia, S. (2022), ‘Norway sovereign wealth fund drops Thai, Israeli firms on rights concerns’, Reuters, 
16 December 2022, https://www.reuters.com/business/sustainable-business/norway-sovereign-wealth- 
fund-excludes-firms-it-says-may-contribute-rights-2022-12-15.
65 Accenture (2022), The Rise of ESG Investing in Asia, report, https://www.accenture.com/content/dam/accenture/
final/industry/capital-markets/document/Accenture-Wealth-Management-Asia-ESG-Investing-Good-to-Grow.pdf.
66 The White House (2023), ‘Statement by President Joe Biden on his veto of HJ Resolution 39’, 16 May 2023, 
https://www.whitehouse.gov/briefing-room/statements-releases/2023/05/16/statement-from-president-joe- 
biden-on-his-veto-of-h-j-res-39.
67 Boffo, R. and Patalano, R. (2020), ESG Investing: Practices, Progress and Challenges, report, Paris: OECD 
Publishing, https://search.oecd.org/finance/ESG-Investing-Practices-Progress-Challenges.pdf.
68 See also efforts by the UK’s Financial Reporting Council (2021), ‘FRC Statement of Intent on Environmental, 
Social and Governance Challenges’, https://www.frc.org.uk/getattachment/691f28fa-4af4-49d7-a4f5-49ad7a 
2db532/FRC-LAB-ESG-Paper_2021.pdf.

Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
15  Chatham House
Reporting Standards’ (IFRS) Sustainability Disclosure Standards, with the aim 
of creating a global baseline of high-quality sustainability information for investors, 
and thus a more coherent approach to sustainability reporting worldwide. This 
represents an important step forward. At the same time, the ISSB’s approach focuses 
solely on sustainability-related impacts material to the company (i.e. the ‘outside in’ 
or ‘single materiality’). This approach differs from that of the EU in its development 
of standards through the European Financial Reporting Advisory Group, which 
require double materiality (as noted above).69 Efforts to improve sustainability 
disclosures also need to ensure that what is deemed to fall within the ‘S’ in ESG, 
or under the social aspect of the ‘sustainability’ umbrella, goes beyond an important 
but narrow subset of issues, such as supply-chain transparency, modern slavery 
and workers’ rights, to also take into account the health of civic freedoms and 
the rule of law.
Current ESG and sustainability ratings systems are not designed to pick up broader, 
and often more insidious, risks to civic freedoms that are nevertheless material 
to investors. These can include diminishing flows of information and declining 
predictability following, for example, a government crackdown on media freedom 
or the targeting of human rights defenders. ESG ratings can even be detrimental, 
insofar as they may suggest that a company is compliant on ‘E’ or ‘S’ issues when 
it is not.70 A recent study by Inclusive Development International found that many 
ESG funds were investing in companies linked to entities with egregious human 
rights records, including the Myanmar military.71 That study also argued that 
index providers like S&P, FTSE Russell and MSCI – which have significant leverage 
as gatekeepers to trillions of dollars of sustainable capital – use flawed ratings 
to create ESG indexes, contributing to increasing misalignment between ESG 
practices and respect for human rights, including civic freedoms.72
Plugging the information gap
Investors need to assess and measure both the way in which the openness of 
a host country may affect their return on investment, and the wider impact of their 
own investment activities on the rule of law and civic space. For investors in listed 
equities, responsible stewardship should involve detailed testing and monitoring 
of company commitments against both internal information and externally sourced 
data that specifically identify human rights risks in the host country. The Corporate 
Human Rights Benchmark provides useful analysis of the track record of companies 
on freedom of association and freedom of assembly, alongside other human rights, 
and the civil society organization Ranking Digital Rights evaluates and ranks 
69 European Commission Newsroom (2022), ‘Political agreement on Corporate Sustainability Reporting Directive 
will improve the way firms report sustainability information’, article, 26 July 2022, https://ec.europa.eu/newsroom/ 
fisma/items/754701/en.
70 See, for example, Inman, P. (2023), ‘Green investment funds pushing money into fossil fuel firms, research 
finds’, Guardian, 2 May 2023, https://www.theguardian.com/business/2023/may/02/green-investment-funds- 
pushing-money-into-fossil-fuel-firms-research-finds.
71 Pred, D. and Bugalski, N. (2022), ‘Why ESG investing is bad for human rights – and what we can do about 
it’, Business & Human Rights Resource Centre, 21 March 2022, https://www.business-humanrights.org/en/
blog/why-esg-investing-is-bad-for-human-rights-what-we-can-do-about-it/#:~:text=That's%20because%20
ratings%20firms%20amalgamate,commitment%20or%20gender%20equity%20policy.
72 Muñoz Quick, P. (2022), ‘Bridging the human rights gap in ESG investing’, BSR, 14 April 2022,  
https://www.bsr.org/en/blog/bridging-the-human-rights-gap-in-esg.

16  Chatham House
Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
digital companies in relation to online freedom of expression, information and 
privacy. The rapid changes in the regulation of corporate disclosures described 
in this paper will also help plug some data gaps for investors.
Investors in government debt and index providers featuring country funds need 
specific data on the country concerned. There is now a wealth of such information 
available to investors, but current human rights due diligence efforts often overlook 
civic space issues. As part of their evaluation of risks to human rights and society, 
investors should have regard to well-reputed data sources on the state of civic 
freedoms in each country, such as Freedom House, the Varieties of Democracy 
Institute (V-Dem) and CIVICUS Monitor. Social media analysis on controversies, 
discussions with affected stakeholders and country reports by certain governments 
are also important sources of information on the state of civic freedoms and rule 
of law in a particular country.
Data are typically less available and less reliable in authoritarian or politically 
turbulent societies, precisely because of the shrinking of civil society in those 
countries. In such countries, human rights defenders have a particularly significant 
role as the ‘canary in the coalmine’, alerting investors and companies to the situation 
on the ground. Platforms such as the IAHR and PRI can help investors by highlighting 
reports from human rights defenders and exploring practical ways to strengthen 
risk assessments in areas where civic space is restricted.
The PRI cites as a model of best practice Sweden’s Andra AP-Fonden (AP2) 
pension fund, which has developed a country framework to systematically identify 
any financial, operational or human-rights-related reasons not to invest in certain 
countries. This framework involves AP2 using third-party quantitative analysis 
of multiple datasets to screen all countries for human rights violations to identify 
those ranked lowest for protecting human rights. The data draw on many sources 
recommended by the PRI,73 as well as on press articles and information from 
country-specific non-governmental organizations. For each country flagged, 
a deeper qualitative analysis is carried out to better understand the human rights 
situation. This step often entails discussions with experts at think-tanks, specialized 
data providers and political analysts.74 This methodology has the advantage 
of being scalable over time by other investors.
Implementation of such systems takes time and resources, but increasing support 
is available to investors from civil society organizations. Over the longer term, 
the additional time and resources devoted to proper due diligence will lead to lower 
financial and legal risks, as well as the reputational benefits of being considered 
a responsible stakeholder.
Difficult dilemmas require strong governance
Even with more useful and comprehensive data in place, making the link between 
investment and shrinking civic space can be difficult, not least because it touches 
on host government discretion over social and political issues. Investors may not 
73 See Step 2 (‘Due Diligence’) in PRI (2022), ‘Human rights in sovereign debt’, 12 January 2022,  
https://www.unpri.org/sovereign-debt/human-rights-in-sovereign-debt-the-role-of-investors/9151.article.
74 PRI (2023), ‘Case Study: AP2: Country-level framework to assess human rights’, 24 January 2023,  
https://www.unpri.org/human-rights/ap2-country-level-framework-to-assess-human-rights/11064.article.

Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
17  Chatham House
want to risk their position in a particular market by taking a public stance on civic 
freedoms, which can appear more politically contentious than, for example, carbon 
emissions. Investors will also be conscious of the need to work with different 
political systems and values, and to comply with local law.
Insofar as investors can exert leverage, they will sometimes need to make trade-offs 
or difficult choices about whether to speak up, divest or try to influence change 
in other ways. While divestment can be appropriate in some circumstances, it can 
increase political tensions, as well as involve the loss of influence in the company 
or country concerned. In January 2022, for example, Total Energies and Chevron 
withdrew from the Yadana offshore gas project in Myanmar due to the human 
rights situation and the deteriorating rule of law. But many companies remain 
in that country, with some arguing that pulling out would do more harm than 
good to communities on the ground, because exiting takes investment out 
of the local economy.75
In response to the Russian invasion of Ukraine in February 2022, many investors 
and companies withdrew from Russia, some at huge financial cost. In June 
2022, a group of 59 investors issued a statement condemning Russia’s invasion 
and calling on companies with business relationships in Belarus, Russia and 
Ukraine to align their operations with the UN Guiding Principles on Business and 
Human Rights.76 However, as of February 2023, 1,717 international companies 
were still operating in Russia, while only 644 companies had committed to fully 
withdraw from the country.77 B4Ukraine, a worldwide coalition of civil society 
organizations, has appealed to those companies still present in Russia to terminate 
or suspend their business operations and relationships in light of Russia’s violations 
of international law, and to carry out due diligence on exiting responsibly.78 
But in practice, many entities trying to sell Russian assets have been obstructed 
by new Russian legislation that makes such deals subject to Kremlin approval.79
In some cases, investors may be prepared to make public statements about 
threats to civic freedoms, especially if acting in alliance with others. For example, 
some major institutional investors and banks joined a coalition of business leaders 
to call publicly for the peaceful transfer of power after the 2020 US presidential 
75 Reed, J. (2022), ‘Stay or go: the dilemma for multinationals in Myanmar’, Financial Times, 25 January 2022, 
https://www.ft.com/content/f8f9ba4e-296c-4c44-bd3a-343b55837695.
76 Heartland Initiative (2022), ‘Investor Statement on the Crisis in Ukraine’, press release, 5 June 2022,  
https://www.heartland-initiative.org/investor-statement-on-the-crisis-in-ukraine.
77 B4Ukraine (2023), Unfinished Business: International business exits from Russia since the beginning of the full-scale 
invasion of Ukraine, report, 14 February 2023, https://b4ukraine.org/pdf/B4Ukraine_Unfinished_Business.pdf.
78 Business & Human Rights Resource Centre (2022), ‘Coalition of CSOs calls on companies operating in Russia 
to terminate or suspend operations immediately’, 21 July 2022, https://www.business-humanrights.org/en/
latest-news/b4ukraine-declaration-on-russian-invasion-of-ukraine.
79 Walker, O. (2023), ‘Western banks struggle to exit Russia and Putin intervention’, Financial Times, 16 January 2023, 
https://www.ft.com/content/98f91997-db83-4a23-8497-9348c7e7247f.
In some cases, investors may be prepared to make 
public statements about threats to civic freedoms, 
especially if acting in alliance with others.

18  Chatham House
Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
election.80 In 2019, major Dutch institutional investors appealed to Shell to bring 
pressure on Brunei Darussalam over a proposed law mandating the death penalty 
for homosexuality. Leading investment banks such as JP Morgan also boycotted 
hotels owned by the Sultan of Brunei;81 the legislation was eventually abandoned. 
But supporting civic freedoms does not always have to mean stark choices or overt 
public messaging. In some cases, investors and companies can exert influence 
discreetly. Private negotiations may enable organizations to continue operations 
while balancing civic values and business interests.
While investor engagement on civic freedoms will sometimes be complex and 
challenging, there will also be more straightforward situations. For example, 
all investors should pay close attention to direct or indirect efforts by companies 
to stifle opposition to their operations through ‘strategic lawsuits against public 
participation’ (SLAPPs) and other tactics used to silence NGOs and human rights 
defenders. In 2021, the IAHR coordinated an investor statement on SLAPPs, 
in which 44 institutions with combined assets of more than $270 billion called 
on companies to take broad, systemic action to protect human rights defenders, 
and immediate action to ensure that they do not use or support SLAPPs against 
individuals, organizations, or communities peacefully promoting or protecting 
human rights and the environment.82
To navigate the dilemmas involved in being a responsible geopolitical stakeholder, 
corporate and investment CEOs and directors need strong public policy judgement, 
the ability to take a long-term view and to balance stakeholder expectations against 
the reactions of host governments they may be compelled to challenge. From 
a governance perspective, it is important that those working on sustainability and 
ESG issues include the rule of law and civic space in their analysis of both human 
rights and geopolitical risks, and that they report to senior leadership on these 
issues. Investors should also join reputable industry bodies and collaborate with 
civil society organizations that can help investors to identify and navigate the 
dilemmas and risks posed by shrinking civic space.
In this respect, the ABN Amro-led report cited earlier in this paper recommended 
the development of working groups that bring together financial institutions, 
ESG data providers, academics and civil society organizations to regularly discuss 
human rights concerns in various geographies with civic space restrictions.83 
Platforms such as the PRI, IAHR and the Business Network on Civic Freedoms 
and Human Rights Defenders, as well as independent think-tanks such as Chatham 
House, are well placed to promote greater cooperation and trust among investors 
and other stakeholders through multi-stakeholder dialogue, which can also help 
reduce the risk of different actors talking past each other.
80 Moynihan, H. and Freeman, B. (2020), ‘Corporate Big Beasts Stick Their Necks Out For Democracy’, Chatham 
House Expert Comment, 16 December 2020, https://www.chathamhouse.org/2020/12/corporate-big-beasts-stick- 
their-necks-out-democracy.
81 Morris, S. and Vandevelde, M. (2019), ‘JP Morgan bans staff from Brunei-owned hotels over gay law’, 
Financial Times, 29 April 2019, https://www.ft.com/content/b0365536-69ca-11e9-80c7-60ee53e6681d.
82 IAHR (2021), ‘Investor Statement on SLAPPs’, press release, 11 June 2021, https://investorsforhumanrights.org/
investor-statement-strategic-lawsuits-against-public-participation.
83 ABN Amro et al. (2023), No news is bad news.

Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
19  Chatham House
Conclusion and recommendations
At a time when the world is facing a ‘polycrisis’ of economic uncertainty, 
climate change and growing illiberalism, investors need stability and predictability 
more than ever – just as the civic space and freedoms that underpin and facilitate 
that stability need the support of investors. Investors should consider their 
investment decisions in a broader context that is integrated with the global and 
local challenges in which they are stakeholders, and grounded in a recognition 
that support for the rule of law and civic freedoms is in the common interest.
But making the link between the shrinking of civic space and the impact on investors’ 
long-term cash flows, returns and strategies will be a continuing challenge. While 
instances of investor action in support of civil society space can be cited, progress 
should be measured not by a few positive examples but by investor actions across 
the spectrum. On this basis, more work needs to be done to raise investor awareness 
and mainstream consideration of the rule of law, accountable governance and civic 
freedoms into investors’ activities, as opposed to the current somewhat patchy, 
siloed and superficial approaches to ‘E’, ‘S’ and ‘G’.
It would be naive to expect that such a change will happen overnight or without 
serious resistance from some (often influential) shareholders who continue to focus 
almost entirely on short-term financial gain. But, while consideration of human 
rights and civic freedoms may seem new or niche to some, investors’ increased 
focus on them is a growing trend that is not going away.84 The raft of new regulation 
and standards on sustainability, together with pressures from younger generations, 
employees and civil society, will only increase pressures on investors and companies 
to live up to their responsibilities as geopolitical stakeholders with increasing power 
and leverage in the global governance ecosystem.
The following recommendations emerged from conversations with a range 
of investors and stakeholders.
For investors
	
— Strengthen human rights due diligence to include assessment of risks to the rule 
of law, accountable governance and civic space in the investment environment, 
especially in areas where civic space is restricted. The human rights due diligence 
methodology adopted by the Swedish AP2 pension fund (see p. 16) provides 
a useful model;
	
— Engage portfolio companies on those risks to civic freedoms and space that are 
most pressing, particularly in sectors and countries with significant exposure. 
Shareholders should file/co-file resolutions where there are concerns around 
civic freedoms, or at least vote favourably via proxy on resolutions filed by others;
	
— Urge index providers to add political and social risk more explicitly and 
consistently into decisions on inclusion;
84 Kenway, N. (2022), ‘Reflecting on a year in ESG… and predictions for 2023’, ESG Clarity, https://esgclarity.com/
reflecting-on-a-year-in-esg-and-predictions-for-2023.

20  Chatham House
Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
	
— Participate in dialogue and partnership with other stakeholders, including 
joining multi-stakeholder initiatives and coalitions, and be open to constructive 
challenge from civil society organizations; and
	
— Develop a public statement opposing the use by companies of SLAPPs to silence 
critics and degrade civic freedoms.
For regulators
	
— Push for the application of ‘double materiality’ standards that enable investors 
to account for both the ‘inside out’ and ‘outside in’ aspects of their relationship 
with society in their risk assessments, and not just financial materiality;
	
— Support the development of harmonized standards, both by referring 
to the UN Guiding Principles on Business and Human Rights in national and 
supranational laws and by coordinating with other stakeholders, with a view 
to working towards a more coherent regime at the global level;
	
— Help investors to plug data gaps by referring to civic space and human rights 
defenders in human rights due diligence laws, and by mandating meaningful 
stakeholder engagement; and
	
— Encourage investors to take account of well-reputed data sources from NGOs 
that benchmark human rights, including restrictions on civic freedoms.
For civil society organizations
	
— Increase investor awareness of these issues through collaboration and training. 
Investor training on ESG and sustainability should include not only human 
rights issues but also the broader underpinnings of the rule of law, civic space 
and accountable governance;
	
— Account for investor priorities and methodology when engaging investors 
on threats to civic space, to help find ways to bridge the language and culture 
gaps between civil society and some investors; and
	
— Intensify work attuning private investors to the link between open societies 
and stable investment, as private investors typically lag behind public funds 
in awareness and efforts on human rights, including civic freedoms.

Investors and the ESG blind spot
Upholding civic freedoms as part of geopolitical corporate responsibility
21  Chatham House
About the author
Harriet Moynihan is an associate fellow in the Chatham House International Law 
Programme. Her research focuses on business and human rights, the application 
of international law to cyberspace, and the role of international human rights 
law in internet governance. Harriet has a master’s degree in international human 
rights law from the University of Oxford and was a visiting fellow at the Bonavero 
Institute of Human Rights and Mansfield College, University of Oxford, in 2019.
Prior to joining Chatham House, Harriet was a legal adviser at the UK Foreign 
& Commonwealth Office, where she advised on a wide range of public 
international law issues and represented the UK on legal issues in bilateral and 
international forums. Before that, Harriet was a competition lawyer at Clifford 
Chance LLP, where she worked in the firm’s London and Singapore offices.
Acknowledgments
Sincere thanks to Bennett Freeman, associate fellow in the International Law 
Programme and former senior vice president at Calvert Investments, for his 
invaluable comments, guidance and support in drafting this paper.
The paper builds on Chatham House’s 2021 project on ‘Private Sector Support 
for Civil Society Space’, and draws on insights from an expert panel event hosted 
by Chatham House on 16 November 2021.85 It also draws on interviews with 
a range of investors and civil society space advocates; desk research; and literature 
review. Many thanks to the participants at the November meeting for their valuable 
insights and to the interviewees who gave generously of their time.
Finally, thanks are also due to Rashmin Sagoo, Creon Butler, Rebecca 
DeWinter-Schmitt, John James, Anthony Chisnall, Alice La Trobe Weston, 
James Hand and the anonymous peer reviewer for their helpful comments 
on the paper, and to Chris Matthews for editing.
The views expressed in this publication are the sole responsibility of the author.
85 Moynihan, H., Freeman, B., Shastry, V., Tett, G. and Zandvliet, R. (2021), ‘How can the investor community 
address the ‘S’ in ESG? – the role of social purpose values’, webinar, 16 November 2021, London: Royal Institute 
of International Affairs, https://www.chathamhouse.org/events/all/research-event/how-can-investor-community- 
address-s-esg-role-social-purpose-values.

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Copyright © The Royal Institute of International Affairs, 2023
Cover image: Demonstrators rally against the Israeli government’s plan to overhaul the judicial system, 
Tel Aviv, Israel, 27 May 2023.
Photo credit: Copyright © Jack Guez/AFP/Getty Images
ISBN 9781 78413 577 5 
DOI 10.55317/9781784135775
Cite this paper: Moynihan, H. (2023), Investors and the ESG blind spot: Upholding civic freedoms as part 
of geopolitical corporate responsibility, Research Paper, London: Royal Institute of International Affairs,  
https://doi.org/10.55317/9781784135775.
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