The finance and banking sector plays a vital role in the world’s economy. For example, the world gross domestic product is valued at $79 trillion. (2017 figures, IMF), while the value of shares trading on stock exchanges is $78.2 trillion, almost equating the total amount of goods and services provided around the world. These numbers demonstrate that the finance and banking sector can exert substantial influence over the global economy, including on aspects related to human rights.
Finance and banking institutions can contribute both directly and indirectly to adverse human rights impacts. Examples of direct impacts include: a pension fund investing in a food and beverage company that systematically buys produce from farms using child labour; the management of assets belonging to a corporate or individual client involved in human rights abuses; or investing in a company that buys or uses prospected minerals in countries undergoing conflict. Financial instruments may also cause human rights violations indirectly by lending money to agricultural companies involved in land grabs and funding infrastructure projects that displace indigenous populations. (UN Working Group on the issue of human rights and transnational corporations and other business enterprises).
An informal group of bank representatives called the “Thun Group of Banks” has published two discussion papers on their interpretation of the UN Guiding Principles and what they mean for banks in practice. While these voluntary efforts have been applauded, their 2017 discussion paper on UN Guiding Principles 13 and 17 in a corporate and investment banking context has been criticised for misconstruing the central Guiding Principle regarding the corporate responsibility to respect human rights (Comments by Professor John Ruggie) by asserting that banks, by definition, do not contribute to harm except through their own activities, such as employment practices.
In 2019, the OECD published key considerations for banks implementing the OECD Guidelines for Multinational Enterprises. The paper is called Due Diligence for Responsible Corporate Lending and Securities Underwriting and explains what due diligence for responsible business conduct entails. It also provides practical considerations for banks at each step of the due diligence process.+ Read more
Guiding Principle 13 states that the responsibility to respect human rights requires that business enterprises:
(a) Avoid causing or contributing to adverse human rights impacts through their own activities, and address such impacts when they occur;
(b) Seek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or services by their business relationships, even if they have not contributed to those impacts”.
This implies three categories of business involvement in adverse human rights impacts: a) through a business’s own activities, b) by contributing to harm caused by a third party, and c) where a business ‘neither causes nor contributes but its operations, products or services are directly linked through its business relationships to the harm’. The Thun Group’s position collapses a priori the first two, which fails to recognise that banks can be faced with situations reflecting all three types of business involvement highlighted by the GP.
The responsibility to respect human rights also extends to international development finance organisations such as the World Bank, International Finance Cooperation (IFC), European Bank for Reconstruction and Development (EBRD), European Investment bank (EIB), and investment funds operated by national governments (see Development finance institutions).
Publications such as the OECD’s Responsible Business Conduct for Institutional Investors and Scope and Application of ‘Business Relationships’ in the Financial Sector Under the OECD Guidelines for Multinational Enterprises, OHCHR response to BankTrack and the Equator Principles offer guidance on how financial institutions can integrate human rights into their business strategies. Guidance is also offered by NGOs such as BankTrack and BankWatch that monitor the activities of banks and funds. Multi-stakeholder initiatives such as the Dutch Banking Sector Agreement can also be an important source of learning for banks committed to improving their performance with respect to human rights due diligence.
The operations of the finance and banking sector relate to the Means of Implementation (SDG 17) of the SDGs. These are a mix of enablers of financial resources to support the implementation of all SDGs. Together they provide a framework, or toolbox, that is needed if the SDGs are to be realised by 2030. They also relate to SDG targets 8.10 on strengthen “the capacity of domestic financial institutions to encourage and expand access to banking, insurance and financial services for all” as well as SDG target 16.6 on developing “effective, accountable and transparent institutions at all levels”.
Mobilisation of “adequate and well-directed” financing is identified as one of the 10 commitment areas outlined in response to the identified need to “do more, and faster” to achieve the SDGs in the 2019 Political Declaration of the High-Level Political Forum (HLPF). In particular the Declaration highlights that to “close the financing gap for the Sustainable Development Goals, Governments, the private sector and other stakeholders need to increase the level of ambition in domestic, public and private resource mobilization, strengthen the enabling environment for sustainable investments and deliver on commitments to international development cooperation.” The UN Conference on Trade and Development (UNCTAD) has estimated that at current rates, there is an annual financing gap of around US$2.5 trillion if the SDGs are to be achieved.
Given that the SDGs are grounded in human rights, due diligence for responsible business conduct in this context is critical.