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Supporting Financial Institutions to Implement the Guiding Principles

Beyond their own responsibility to respect human rights, financial institutions can play a critical role in helping to set expectations for virtually every other industry sector.

August 2016

PARTNERS: public and private financial institutions, including individual export credit agencies, development finance institutions and private banks

At Shift, we think that public and private financial institutions play a very important role in driving business respect for human rights. Private sector financial institutions, like commercial and investment banks and insurance companies, have their own responsibility to respect human rights according to the UN Guiding Principles. Public sector financial institutions, like national development finance institutions and export credit agencies, also have to respect human rights in their operations.

Beyond their own responsibility to respect human rights, financial institutions can play a critical role in helping to set expectations for virtually every other industry sector. The breadth of commercial banks’ client relationships means they have connections to a huge amount of business activity going on around the world. And for public financial institutions, their practices can either enhance or undermine states’ own duty to protect human rights.

We're working directly with public and private sector financial institutions and policymakers to build understanding of how the UN Guiding Principles can help financial institutions better manage risks to people arising from the projects and clients that they finance.

For over 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. These approaches have generally been based on the International Finance Corporation’s Performance Standards, which have provided a recognized international reference point at least in the area of project finance.

With the global endorsement of the UN Guiding Principles in 2011 however, leading financial institutions began asking whether and how their existing approaches might need to evolve to meet the expectations of human rights due diligence. In other words, they wanted to understand how the Guiding Principles can help them manage risks to people arising from the projects and clients that they finance.

How to tackle the most severe social (and environmental) risks is the focus of various developments, including the ongoing implementation of the October 2016 Dutch Banking Agreement between leading Dutch commercial banks, civil society stakeholders and the government, the 2018 revision of the Equator Principles, and the OECD Financial Sector Advisory Group’s efforts to develop guidance on responsible business conduct in corporate lending.

At Shift, we are closely engaged in many of these developments. We also have unique experience working directly with public and private sector financial institution partners to understand what needs to change in their policies and practices. Examples of our work with financial institutions include the following:

  • We have worked with national development finance institutions, including CDC (UK), DEG (Germany), FMO (Netherlands) and FinnFund (Finland) to understand the extent to which their existing due diligence policies and practices are aligned with the expectations of the Guiding Principles, including delivering workshops at headquarters and in high risk markets, and supporting their development of guidance notes and tools for their investment managers (also see more on human rights due diligence in high risk circumstances here);

  • We have engaged with export credit agencies at the OECD level to build understanding of high risk screening for human rights impacts, as well as providing tailored support to the Norwegian export credit agency GIEK on its human rights policies and practices, and publishing the first in-depth assessment of an export credit agency’s approach based on our work with the Dutch agency, Atradius DSB;

  • We have provided expert advice to the Equator Principles Association to advance its implementation of the UN Guiding Principles as part of the 2018 revision of the Principles;
  • We are leading an 18 month project for the Finnish government to support the integration of the Guiding Principles into the work of the five main state agencies and programs that provide financing support to Finnish businesses investing abroad;

  • We have worked with private banks including ABN AMRO, Citi, ING and Wells Fargo on the implications of the Guiding Principles for various aspects of their operations, including due diligence in client relationships and disclosure;

  • We are participating as experts in two working groups established as part of the implementation of the Dutch Banking Agreement, one on the role of banks in enabling remedy and one on the potential for banks to take a whole-of-value-chain approach to understand their connections to human rights risks beyond their immediate client relationships;

  • We have supported the independent Peruvian financial regulator to design new regulations for banks, insurers and pension funds in Peru that require heightened due diligence in relation to medium and high risk projects in the extractive sector;

  • We drew on our collaboration with the IFC on the topic of human rights due diligence in high risk contexts under the Performance Standards to inform a public report that has helped influence financial institution practice, including the 2016 revision of the Common Approaches;

  • We have led workshops with institutional investors and pension fund asset managers in Europe, the US and beyond to look at whether their efforts to integrate environmental, social and governance (“ESG”) factors into their investment decision making appropriately prioritize human rights risks.

The kinds of questions that we have explored with these and other financial institutions include:

  • How does human rights due diligence differ from traditional environmental and social due diligence?

  • How can a focus on the severity of impacts on people help prioritize due diligence efforts across large numbers of transactions and relationships?

  • How can different financial institutions use and build leverage to address human rights risks in their portfolios?

  • How can financial institutions incorporate meaningful stakeholder engagement into their decision making processes?

  • What does appropriate transparency look like?

  • What roles can and should financial institutions play in enabling remedy for affected stakeholders?

Interested in learning more? Please contact us.

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