ISSUE 43: THE ROLE OF THE FINANCIAL SECTOR IN RESPECTING HUMAN RIGHTS
As we celebrate the 10-year anniversary of the adoption of the United Nations Guiding Principles on Business and Human Rights (UNGPs), we have been inspired by the “UNGPS 10+ Project” to reflect on the role of the financial sector to ensure respect for human rights. The financial sector, and in particular investors, play an important role in today’s economy and as a result have significant leverage over the requirements and conditions, they set for themselves and their investments.
On its own, the potential human rights impacts caused by a financial institution may be limited to labor issues and the treatment of its employees. Nevertheless, the UNGPs and subsequent guidance documents have highlighted that “contributions” or “linkage” to adverse human rights impacts were part of the scope of the Principles and should therefore be addressed:
- In 2017, the UN Office of the High Commissioner for Human Rights (OHCHR) issued a guidance to clarify the responsibilities of the financial sector with regards to human rights impacts and highlighted that “a bank can contribute to an adverse impact through its own activities (actions or omissions)—either directly alongside other entities, or through some outside entity, such as a client“.
- In 2014, OHCHR issued a guidance tool for financial institutions to integrate human rights considerations into their activities.
- More recently, last year’s Equator Principles version 4 included requirements along with a Guidance Note for financial institutions to take into consideration human rights before financing developments.
With the help of these initiatives, the financial sector is becoming a leader in safeguarding respect for human rights by imposing environmental and social due diligence according to international standards for the projects they plan to invest in. This has helped companies ensure they examine their social and environmental risks and records, and engage with their stakeholders to foresee and avoid or mitigate potential human rights impacts. It also includes analysis of potential risks for corruption or conflict exacerbation. By doing this, the financial sector has been at the forefront of the implementation of the UNGPs, which are voluntary principles without an enforceable mechanism.
As we look forward to the next 10 years of progress under the UNGPs , there is much work to be done to build the commitment and capacity to respect and protect human rights. Financial institutions have a critical role to play in leading this progress through enhanced due diligence, education, investment in enterprises and programs that promote human rights, and supporting capacity building for governments to protect those rights.
At Acorn International, we regularly perform independent environmental and social due diligence assessments and serve as IESC for our clients in the financial sector. In a time when information is so readily and easily available, there is a huge reputational risk associated with financing projects that may lead to human rights violation. We strive to help our clients ensure they are aware of the potential impacts of their investments and work with them and their clients to put systems in place to avoid or mitigate such impacts.
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