Of course, the transition to renewable energy also presents opportunities to improve economic and social outcomes. Related technological innovations can help communities adapt better to weather events, while creating clean energy jobs and opening new avenues for economic development. But the transition is bumpy—particularly in emerging markets where the vulnerability of fossil fuel industry workers might be greater—and investors should be aware of the risks.
Climate Change and Human Rights Risks: Real-World Examples
To put human rights risks from climate change into context, consider two real-world case studies, one related to physical risk and the other to transition risk.
Case Study: Super Typhoon Haiyan
Super Typhoon Haiyan killed 6,300 people and displaced 4.4 million others when it struck the Philippines in November 2013. The hardest-hit region, the Eastern Visayas, was one of the country’s poorest, and its people were among the most susceptible to human trafficking.
The super typhoon forced tens of thousands of residents to flee devastated areas, with many heading to the capital city of Manila. In the wake of the storm, reports of human trafficking surged, with 54% of surveyed villages reporting children working in dangerous conditions and 39% of villages reporting a spike in the number of child-labor cases.
Case Study: Extracting Cobalt for Renewable Energy
Cobalt is an important mineral used in lithium-ion batteries, which power the renewable-energy industry. But serious human rights violations have been reported in cobalt mining. It’s estimated that at least 35,000 children are working in cobalt mines worldwide. These mines frequently operate illegally, and miners are exposed to toxic dust, which can lead to hard-metal lung disease.
Companies that use modern slavery—either directly or indirectly—in renewable-energy supply chains could face legal consequences, including fines, penalties or lawsuits. In 2019, a US class-action lawsuit was filed against five major technology companies, alleging they knowingly benefited from the use of child labor in their cobalt supply chains. Beyond litigation risks, increased regulatory scrutiny can bring more stringent supply chain reporting requirements and audits, with severe penalties for non-compliant firms.
A Game Plan for Investors to Identify Risks
The relationship between climate change and human rights risks can be opaque. Given the high stakes, we believe that investors should take a systematic approach to identifying climate-related modern slavery risks and ensure that their due diligence includes:
- Identifying whether a company’s most labor-intensive operations are located in regions susceptible to slow- and sudden-onset climate-related events
- Assessing how companies located in high-risk regions account for labor considerations, such as the risk of large-scale migration following sudden-onset climate-related events, or the risk of forced labor in renewable energy supply chains
- Understanding how companies located in high-risk regions conduct human rights due diligence to identify modern slavery risks, and how firms work to reduce those risks
- Exploring how companies engage and collaborate with employees, suppliers, customers and affected communities to assess and address the impact of decarbonization plans
Climate change can have complex, far-reaching human rights repercussions beyond its environmental impact. We believe that these risks can and should be an integral component of investors’ fundamental research. With awareness and tools that include relevant frameworks and supplementary metrics, investors can improve risk assessments and make better-informed capital allocation decisions.
The authors would like to thank Roxanne Low, ESG Analyst with AB’s Responsible Investing team, for her invaluable contributions.