Human Rights and Financial Institutions – A New Step Forward?

Between the news of wildfires, flooding, continued human rights abuses in corporate supply chains, and of course the ever-growing disdain for all things sustainability over in the US, it can be easy to find oneself disheartened. However, while this bad news is often all that we see and hear, it does not mean that other, positive things aren’t going on at the same time.

It doesn’t mean that we’re not moving forward in some areas, or that there aren’t countless people striving to make our societies and economies fairer, more resilient, and more sustainable. Here at Ethical Investors, we believe it is of vital importance to highlight these people and their work. After all, without reminders that we are in fact moving forward, it can be hard to find the motivation to keep going. 

This month, we want to highlight a development in the world of business and human rights - the launch of a new Human Rights Toolkit for Financial Institutions (which we shall refer to as simply “the toolkit”). This was the outcome of a project between the UNEP FI (or the United Nations Environment Programme Finance Initiative, to give them their full title) and the European Investment Bank, with input from over 40 other civil organisations.

The UNEP FI is a partnership between the United Nations Environment Programme and the global financial sector, and was established to, in their own words, “catalyse action across the financial system to align economies with sustainable development”. In regard to their new toolkit, this has been developed to help financial institutions align their practices with the UN Guiding Principles on Business and Human Rights (UNGPs), a widely recognised international standard.

Why has this been done?

During the launch event for the toolkit, Phil Bloomer, the Chief Executive of the Business and Human Rights Resource Centre (an NGO that was engaged as part of the development process), shared his view regarding the “centrality of human rights in building the public trust in markets and wider society”. He went on to explain that financial institutions “play a central role” in establishing what is expected of companies seeking investments or loans, and in “rewarding forward looking businesses and investors, while raising the cost to laggard companies”.

In essence, as the gatekeepers of capital, financial institutions possess the ability to shape and direct the actions of businesses, and the toolkit represents an opportunity for such institutions to refine their own policies and processes in a manner which is beneficial in terms of human rights. Specifically, they can help to ensure that forward looking businesses can benefit from access to cheaper capital (and therefore potentially gain competitive advantages), while those which fail to adequately address human rights risks in their operations cannot.

How does it work?

The toolkit is divided into four main elements: policy, human rights due diligence, grievance and remedy, and stakeholder engagement. For each element, financial institutions can access guidance to help ensure that their approach is aligned with the UN Guiding Principles on Business and Human Rights.

Sector profiles have also been developed to supplement the human rights due diligence element of the toolkit, in recognition of the shortcomings of a one-size-fits-all approach. These have been based on sector-specific analyses of risks, opportunities, and actions, and have been designed to provide financial institutions with guidance regarding key areas and topics to address when conducting human rights due diligence on companies in different sectors.

It should also be noted that the toolkit was designed to be more than just a regulatory-style “tick-box” exercise. Its creators intend for the toolkit to help financial institutions develop a truly risk-based approach to human rights, and then fully integrate this into their investment and lending decision making processes. The creators also believe that, even if the toolkit is not widely adopted at first, responsible investors need to apply it and prove to others that it works from both a financial and non-financial perspective; they need to challenge the “laggards and nay-sayers”.

If you are interested in knowing more about the toolkit, a summary from the UNEP FI can be found here, and the toolkit itself can be found here.

What does the toolkit mean for investors?

Now, to the crux of the matter – what does this toolkit mean for investors? In terms of what you as an investor need to do, the answer is, quite simply, nothing. However, what it does mean for you and your adviser is that you now have another way to compare potential investment managers and banks.

If you wish to ensure that your money is with a manger and/or bank with policies, due diligence measures, and grievance and remedy mechanisms aligned with the UN Guiding Principles on Business and Human Rights, asking about this toolkit may be a way to do so. By identifying institutions which are using this toolkit, you will have another measure by which to compare managers and banks, and may feel more comfortable knowing that you have been able to make even more informed decisions regarding who it is that looks after your investments.

Conclusion

Going back to our original point regarding good and bad news, we at Ethical Investors hope that by sharing these sorts of developments, you can not only remain assured that your money can indeed be invested responsibly, but also that you can remain hopeful for the future. Yes, there is bad in the world, but there is a whole lot of good, too.

Cameron Barker – Communications and Marketing Lead