Investors typically seek stability, be it economic, social or political, when launching operations in a new country or region. Locations that score poorly on peace, justice or strong institutions are likely to feature low on the lists of site-selection processes among investors that put sustainable development at the centre of their operations. Nevertheless, multinational companies (MNCs) have also the power to transform locations by using foreign direct investment (FDI) as a mechanism that promotes peace, justice, strong institutions and the achievement of the UN’s 16th Sustainable Development Goal (SDG).

SDG16 is about promoting peaceful and inclusive societies for sustainable development, providing access to justice for all and building effective, accountable and inclusive institutions at all levels.

Challenges related to SDG16 targets are having a big impact upon the business environment and people’s lives across the world. More specifically, Investment Monitor’s Peace, Justice and Institution Risk Index 2021 reveals that 57% of countries across the world are still considered to be 'high risk', with scores based on conflict deaths, violence against women, representation of women in government and Transparency International's Corruption Perception Index.

Only 15.3% of countries are in the low-risk category, and 27.7%  'medium risk'.

How can FDI help to achieve the SDG16 targets?

Foreign investors can best help to achieve the realisation of the SDG16 targets by the 2030 deadline by respecting human rights throughout their activities in accordance with the UN Guiding Principles on Business and Human Rights and other responsible business frameworks that encourage businesses to conduct human rights due diligence, according to Birgitte Feiring, department director at the Danish Institute for Human Rights.

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“In respect to specific SDG16 targets," she says, "foreign investors should conduct heightened human rights due diligence in conflict-affected areas [for target 16.1 on reducing all forms of violence], refraining from using litigation in investor-state dispute settlement where states take measures to strengthen human rights standards [for target 16.3 on rule of law and accountability], and ensure they engage meaningfully with rights holders and protect the civic space where human rights defenders can operate [for target 16.10]. In addition, investors should have responsible tax practices to ensure that host governments have capacities to deliver on SDG16.”

Indeed, there are several ways that foreign investors and MNCs can contribute to the achievement of SDG16. According to the Danish Institute for Human Rights’ Sustainable Development through Human Rights Due Diligence database, some examples of companies’ actions that could contribute to reaching SDG16 include:

Top FDI hubs score low in human rights

Despite human rights being essential for the achievement of SDG16, a report by risk and strategic consulting company Verisk Maplecroft reveals there are still billions of FDI dollars going to cities with ‘high’ or ‘extreme’ human rights risks.

The report, which examined subnational data to assess the social risk landscape of the world’s 575 cities with a population of more than 1 million, found that the human rights of citizens in 38 of the top 100 locations for FDI, including Shanghai, Beijing, Abu Dhabi, Dubai and Jakarta, are at ‘high’ or ‘extreme’ risk.

More specifically, 33 of the top 100 locations for FDI, representing $71bn of inward investment, are classified as ‘high’ or ‘extreme’ risk in the Cities@Risk Social Index. This index measures risk across three pillars (civil and political rights, labour rights and poverty), and covers human rights issues such as the right to protest, security force abuses, child labour, modern slavery, and health and safety. However, when taking into account only the human right issues, and excluding the poverty indicator, then 38 cities are rated as of 'extreme' risk.

The report states that “this doesn’t mean that organisations investing in these locations will be complicit in any human rights abuses, but it does raise their risk exposure and the chances of reputational, legal and financial damage if violations are linked to their investments, operations or suppliers”.

Izmir and Istanbul present the greatest risk to human rights across the top 100 FDI locations, according to the report, because of their records on labour rights. Beijing is also seen as a city presenting high risk, especially when it comes to civil rights. The report adds that “the commercial hub of Shanghai, which is the eighth-highest recipient of FDI globally at about $8bn, also poses an extreme risk to the civil rights of its citizens and a high risk for labour rights. That picture is similar, if not worse, across other Chinese investment hotspots, including the important manufacturing hub of Guangzhou.”

Among the 100 top FDI locations, Hyderabad, Pune, Mumbai, Izmir and Lagos present the greatest risks when taking into account poverty alongside human rights. The data shows that, together, these five cities attracted 1.15% (or $10bn) of global FDI in 2020.

By investing in locations that score poorly in human rights, investors are inviting numerous challenges and increasing their risk exposure. However, if MNCs embrace environmental, social and governance criteria in the host countries, especially in those rated as risky, then FDI can be a force for good. This could happen by using FDI as a mechanism to not only transmit expertise and transfer technology, but also to embrace corporate social responsibility and promote sustainable development. As a result, this would improve the human rights in the host countries, especially those seen as of high risk, but it would also foster peace, justice and strong institutions, around which SDG16 is built.

This is one of the articles in Investment Monitor’s 'SDG Focus' series. The full list of articles is listed below. 

See also: War and peace and FDI