A study by consultancy Verisk Maplecroft has found that some 40% of the world’s top 100 destinations for foreign direct investment (FDI) are at “high” or “extreme” risk for human rights abuses, highlighting concerns for investors in emerging markets like Turkey and China.

Using fDi Markets and its analysis of the world’s 575 cities with a population of more than one million, Verisk Maplecroft has found that out of the top 100 FDI destinations in 2020, 38 cities — including Shanghai, Beijing, Abu Dhabi, Dubai and Jakarta — are at high or extreme risk for human rights abuses against citizens or workers. 

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Out of the top 100 FDI locations, the study finds that Izmir and Istanbul in Turkey “pose the greatest risk to human rights”. "While this might seem surprising, their performance on labour rights is especially dire, with the exploitation of refugees and migrants a major problem that should be noted by firms with manufacturing supply chains there," the study reads. 

Indirect risks

Sam Haynes, head of risk analytics at Verisk Maplecroft, estimates that human rights abuses probably sit at the bottom of investors’ risk perceptions as they can be indirect.

“If you’re investing in a big infrastructure project, on the face of it that’s great: that [project] generates benefits for the local community and creates jobs. But if there were land clearances as a result of that, or protests that were put down harshly, there’s an association there with that investment,” he says.

Mr Haynes adds that this is a “murky area” with countries and investors trying to hide the exploitation of workers in a variety of different ways, but this is something that businesses should be aware of because it is an increasing area of scrutiny for investors and consumers alike.

Following its study on environmental risk to cities, the Cities@Risk Social Index measures risk across civil and political rights, labour rights and poverty. 

Mogadishu, Somalia, comes out as the worst performing city globally overall, while Pyongyang, North Korea, is deemed to have the world’s highest levels of state oppression and the worst labour rights. 

Its Cities@Risk Social Index deems 33 cities of the top 100 FDI city destinations as high or extreme risk, with the number jumping to 38 when poverty is excluded.

Brics markets 

Mr Haynes notes that with the added component of FDI data in the study, the study paints a less rosy picture for certain emerging markets.

“It’s the countries in the middle — like the Brics (Brazil, Russia, India, China, and South Africa) markets — that are the really interesting ones, particularly for investors because they don’t invest in Mogadishu, but they do invest in Turkey, China and Brazil.”

After Izmir and Istanbul, Beijing comes in third, posing the “highest risk for civil rights”, according to Verisk Maplecroft, with Shanghai also posing an “extreme risk to the civil rights of citizens and a high risk of labour rights”.

Among 10 major economies with a large manufacturing output, the study considers 248 out of 250 major cities to have high or extreme risk for labour rights. Cities in Pakistan and India, alongside Dhaka in Bangladesh and Urumqi in western China, make up the top 20. 

London, by contrast, had the biggest share of global FDI in 2020, according to fDi Markets, but ranks in the top 25 of cities with the best human rights records.

Verisk Maplecroft’s study points out that 75% of the cities assessed sit within the two highest risk categories.

In spite of the recent push by companies to shorten supply chains, which might mitigate such risks, Mr Haynes maintains that “these issues are everywhere”. 

“They’re less prevalent, but they [exist] in developed countries as well,” he says, adding that “the principle of nearshoring does not guarantee that you’ve removed risks from your supply chain”.