Private Equity and human rights management: building portfolio company maturity

11 March 2025

Private equity funds can have a significant influence on human rights and environmental management practices. But working with the portfolio to increase maturity in the management of human rights can prove challenging.

twentyfifty Account Director David Bezagu explains how a simple approach, including a cross-portfolio risk assessment, can help ESG teams and portfolio companies to identify priorities, ensure legislative compliance, and build confidence when explaining a chosen approach to respecting human rights.

The topic of human rights comes up from time to time in the private equity community. Recently it was Private Equity International (PEI) magazine which dedicated its cover to the topic, with a well-researched article that echoed some of twentyfifty’s findings from working with leading private equity funds. Private equity-owned companies employ more than 10 million people in Europe and in the US across thousands of companies, the large majority of which are SMEs.

The influence that private equity funds can have over the adoption of good human rights and environmental management practices is therefore significant. And the benefits of investing in sound human rights due diligence in their portfolios have become more obvious in the past couple of years, following some reputational and operational issues faced by various funds.

HRDD: Post-investment challenges

The PEI article mentions that 8 out of 10 PE investors have already implemented measures on HRDD or are planning to do so, which is encouraging. It highlights that the pre-investment due diligence is usually the most mature area, which is also our experience, with some basic questions often included in due diligence questionnaire.

On-the-ground assessments rooted in robust impact assessment methodologies have been a great way to complement the desktop research for ‘higher-risk’ companies and assets.

Post-investment due diligence is where it can be challenging, both for the ESG team of the fund and for portfolio companies – ‘portcos’. ESG teams are asked to cover an ever-increasing scope of topics.

One portfolio can span medtech, manufacturing, enterprise resource planning (ERPs) and consumer good companies, with very different value chains and potential risks, from labour rights to responsible AI.

This makes it challenging to know which companies within the portfolio to prioritise for engagement and ‘what good looks like’ on human rights across many different sectors.

The size of portcos also means that resources and awareness of good practices on human rights can be low and the limited leverage over their larger business partners (e.g large suppliers) to mitigate human rights risks can be discouraging.

Where to start: a cross-portfolio risk assessment

At twentyfifty, our experience working with leading PE funds has been to strive for simple but robust approach, that helps build maturity of portcos over time and the ESG team in parallel.  

A basic cross-portfolio risk assessment is a good place to start.

Even if comparing portcos in manufacturing and tech or infrastructure can feel like comparing apples and oranges, we can differentiate them based on simple risk drivers and criteria such as their geographical footprint and business model.

Once we’ve identified a priority group of portcos, a simple gap assessment will give those companies a good idea of their 5 to 10 priorities to better manage their human rights risks.

By using an assessment framework aligned with go-to frameworks such as the UNGPs, OECD Due Diligence Guidance and legal obligations (e.g EU CSDDD; EU Deforestation Act) portcos will gain reassurance that the exercise ensures their alignment with multiple frameworks at once and give them a head start to comply with legislations.  

Building ESG and portco confidence

A lot of our work at twentyfifty is helping ESG teams and portcos feel confident in their approach and be able to explain their choices to other stakeholders such as incoming investors, NGOs or business partners.

The broad requirements around respecting human rights and the sometimes aspirational framework and language in this space can be paralysing. Some SMEs for instance will be able to make progress in some areas, whereas in others their progress in mitigating risks might be limited by unresponsive, much larger business partners.

Explaining their approach and the efforts made in good faith in to identify and manage their human rights risks is key. 

Respected human rights = resilient business

Whilst interrogating certain transaction practices (an example regarding Red Lobster and TGI Fridays here) might be another topic for discussion for the industry, our work with leading funds committed to building strong and sustainable businesses has shown that good human rights practices can be successfully embedded within portfolios.

We look forward to supporting the industry further.

Are you exploring how to manage human rights in the Private Equity sector? Contact us and we’ll put you in touch with our expert team. info@twentyfifty.co.uk