Mobilising financial resources to achieve sustainable development has been a priority for the international community over the last decades. Key actors in the development finance field are Development Financial Institutions (DFIs) which often have mandates to help alleviate poverty and support sustainable development. DFIs financing to the private sector has more than doubled over the last few decades, growing from US$10 billion in 2000, to almost US$70 billion in 2014. Additionally, the private sector is increasingly playing a prominent role in development, not just as a financier, but also as a recipient of development finance, and as an executor of development activities. The 2015 Addis Ababa Agenda makes specific reference to businesses, noting they can apply their creativity and innovation to solving sustainable development challenges, inviting them to engage as partners in the implementation of the sustainable development agenda.
The responsibility to respect human rights also extends to international DFIs – such as the World Bank, International Finance Cooperation, Regional Development Banks and investment funds operated by national governments. As development banks and States increasingly turn to the private sector to meet development objectives, the implications for the business and human rights agenda are significant. John Ruggie, former Special Representative of the UN Secretary General on Business and Human Rights, has stated that “companies’ social development initiatives cannot substitute for measures to address the negative human rights impacts their operations and relationships may have.” He also pointed out that:
“when it comes to the social side of the development picture too many companies are quick to jump to promotional initiatives, skipping the essential starting point of reducing negative impacts on people associated with their own business activities and value chains. Where people’s human rights are not fully respected, their ability to enjoy the fruits of development are much reduced, and the disparities between the poor and most vulnerable and the rest of society only grow”.+ Read more
As highlighted in the UN Guiding Principle on Business and Human Rights, Guiding Principle 4:
“States should take additional steps to protect against human rights abuses by business enterprises that are owned or controlled by the State, or that receive substantial support and services from State agencies such as export credit agencies and official investment insurance or guarantee agencies, including, where appropriate, by requiring human rights due diligence.”
Commentary to Guiding Principle 4 acknowledges that:
“A range of agencies linked formally or informally to the State may provide support and services to business activities. These include export credit agencies, official investment insurance or guarantee agencies, development agencies and development finance institutions. Where these agencies do not explicitly consider the actual and potential adverse impacts on human rights of beneficiary enterprises, they put themselves at risk – in reputational, financial, political and potentially legal terms – for supporting any such harm, and they may add to the human rights challenges faced by the recipient State.
Given these risks, States should encourage and, where appropriate, require human rights due diligence by the agencies themselves and by those business enterprises or projects receiving their support. A requirement for human rights due diligence is most likely to be appropriate where the nature of business operations or operating contexts pose significant risk to human rights”.
(Read more on Human Rights Due Diligence)
“promoting alignment of investment with the Sustainable Development Goals (SDGs) is through encouraging investors to carry out environmental and social due diligence with respect to their investment portfolios as is recommended under the UN Guiding Principles for Business and Human Rights and the OECD Multinational Enterprises Guidelines. Strong due diligence processes can help ensure that negative impacts of investments on society and the environment are avoided, and furthermore that investments are channelled towards projects and companies that behave responsibly and ultimately help achieve the objectives of the SDGs”.
For more than two decades, a growing number of financial institutions have sought to address environmental and social risks connected to their financing through the adoption of risk management approaches. However, according to the Coalition for Human Rights in Development, policies that have been adopted by DFIs do not adequately protect communities’ human rights, although, they can provide them with a powerful tool to demand respect for their human rights.
The World Bank has adopted a series of policies and documents with the intention to regulate issues such as Access to Information (2010), Environmental Assessment (2013), Involuntary Resettlement (2013), Indigenous Peoples (2013) and Safety of Dams (1996) that are connected to projects it finances. Their new Access to Information policy, for example, makes public any information in its possession that is not on a clear list of exception, thus, making much more information available on key decisions made during project development and implementation. Likewise, in 2012 the International Finance Corporation adopted a revised series of standards to help its clients improve their business performance, enhance transparency, engage with the people affected to projects with IFC finance, protect the environment, and achieve greater development impact. Eight Performance Standards were adopted in the following fields: Risk Management, Labour, Resource Efficiency, Community, Land Resettlement, Biodiversity, Indigenous People and Cultural Heritage.
Regional Development Banks have taken steps towards protecting human rights. The Asian Development Bank adopted a Safeguard Policy Statement (2009). The Inter-American Development Bank has adopted policies on Environmental and Safeguards Compliance (2006), Involuntary Resettlement (1998), Gender Equality in Development (2010), Indigenous People (2006) and Access to Information (2010). The African Development Bank has an Integrated Safeguards System Policy Statement (2014) , while the European Investment Bank has also adopted a policy on Transparency (2015), a Statement on Environmental and Social Handbook (2013), a Statement of Environmental and Social Principles and Standards (2009), and a Statement on Corporate Social Responsibility (2005). The New Development Bank (formerly the BRICS Development Bank) has adopted a Policy on Information Disclosure (2017) and an Environment and Social Framework (2016).
The private sector has been applying different reporting schemes in order to provide information to investors and lenders on their Environmental, Social and Governance (ESG) impacts and their management. In addition to that, according to a recent survey by KPMG of more than 5000 companies, three in four companies now publish corporate responsibility reports, with 60 per cent of them including some of that information in their financial reports. However, as noted by the Task Force in 2018, the majority of institutional investors who employ ESG criteria across all regions were not satisfied with the disclosure of ESG metrics provided by companies.
Research also shows that companies managed with a long-term ESG-friendly approach and a clear focus on sustainability perform better financially than those that are not. A study by Harvard and London Business Schools found that a dollar invested in 1993 in a value-weighted portfolio of high sustainability firms would have grown to US$22.60 by 2010, compared with US$15.40 for low sustainability firms, as reported by the Business and Sustainable Development Commission in 2016.
The Task Force has also recognised the need to improve definitions, standards, measurement, and disclosure of ESG impact as well as to introduce greater standardisation in sustainable metrics that are aligned to global standards. Some steps have been taken in that regards. Private-led efforts such as the FSB Task Force on Climate-related Financial Disclosures, as well as efforts led by the UN Global Compact and the Global Reporting Initiative, are helping set the ground for a new wave of standardised sustainability disclosure.
Some civil society organisations have also developed tools so that affected communities can better understand the mechanisms that exist to protect their rights in relation to projects that could have a negative impact on them. Inclusive development designed a Community Guide to the Asian Development Bank Involuntary Resettlement Safeguards as an action resource for people affected by projects funded by the ADB. A similar Guide has been developed for communities affected by projects financed by the IFC, while International Rivers developed an animated resettlement guide video for people affected by Dam Development.
- Inter-agency Task Force on Financing for Development, Financing for Development, Progress and Prospects 2018: https://developmentfinance.un.org/sites/developmentfinance.un.org/files/IATF%20report%202018_AUV_9Mar2018.pdf
- KPMG, The Road Ahead, The KPMG survey of corporate responsibility reporting, 2017: https://home.kpmg.com/content/dam/kpmg/campaigns/csr/pdf/CSR_Reporting_2017.pdf
- International Rivers, Animated Resettlement Guide Video for People Affected by Dam Development, 2017: https://www.internationalrivers.org/resources/animated-resettlement-guide-video-for-people-affected-by-dam-development-13136
- Inclusive Development, A Community Guide to the International Finance Corporation, 2017: http://www.inclusivedevelopment.net/wp-content/uploads/2017/05/Community-Guide-to-the-IFC-Participants-Manual.pdf
- Coalition for Human Rights Defenders in Development, Human Rights Defenders and Private Sector Development Activities, Trends and Challenges, 2017: http://rightsindevelopment.org/wp-content/uploads/2017/10/Defenders_and_Private_Sector_Devt.pdf
- Shift, The Sustainable Development Goals and the Guiding Principles, John Ruggie, 2016: https://www.shiftproject.org/resources/viewpoints/sustainable-development-goals-guiding-principles/
- Business and Sustainable Development Commission, Better Business, Better World, 2016: http://report.businesscommission.org/report
- New Development Bank, Enviromental and Social Framework, 2016: https://www.ndb.int/wp-content/uploads/2017/02/ndb-environment-social-framework-20160330.pdf
- European Investment Bank, Transparency Policy, 2015: http://www.eib.org/attachments/strategies/eib_group_transparency_policy_en.pdf
- Addis Ababa Action Agenda, 2015: https://sustainabledevelopment.un.org/index.php?page=view&type=400&nr=2051&menu=35
- African Development Bank, Integrated Safeguards System Policy Statement and Operational Safeguards, 2014: https://www.afdb.org/en/documents/document/afdbs-integrated-safeguards-system-policy-statement-and-operational-safeguards-34993/