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 the protection, or lack thereof, of 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.”+ 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 the last two, which fails to recognise that each relation implies different responsibilities for banks, including in relation to providing remedy.
The responsibility to respect human rights also extends to international development financing 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. Consequently, the IFC Performance Standards on Environmental and Social Sustainability to ensure that they comply with the corporate responsibility set out in the UNGPs in 2011.
The importance of engaging in stakeholder dialogue when financing projects has been reiterated when two European development banks exited the controversial Agua Zarca dam project on the Gualcaque river in Honduras, amid local and international tension stemming from allegations that they did not adequately consult the indigenous Lenca people. The dam is considered sacred by the Lenca people, and a number of protestors, including 2015 Goldman prize recipient Berta Caceres, were killed. The ensuing hostility and human rights abuse demonstrates why it is important that banking and financial institutions actively and regularly consider the human rights implications resulting from their direct and indirect activities.
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, and the Equator Principles III 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.
- D. Kinley, Artful Dodgers: Banks and their Human Rights Responsibilities (March 1, 2017).
- OECD, Scope and application of ‘business relationships’ in the financial sector under the OECD Guidelines for Multinational Enterprises
- OECD, Responsible Business Conduct for Institutional Investors explains the application of the OECD Guidelines for Multinational Enterprises in the context of institutional investors. The paper highlights key considerations for institutional investors in carrying out due diligence that will help to identify and respond to environmental and social risks.
- OHCHR response to request from BankTrack for advice regarding the application of the UN Guiding Principles on Business and Human Rights in the context of the banking sector
- OHCHR response to request from SOMO and OECD Watch for advice, 2013