April 21, 2022
Authors
We live at a time in which both people and the planet face severe and often interconnected threats: the world’s richest 1 percent now has more than twice as much wealth as 6.9 billion people. Nearly 80 million children are subjected to hazardous work, considered a contemporary form of slavery. We are in the middle of the sixth mass extinction in terms of biodiversity and face catastrophic food and water shortages, as well as displaced populations due to conflict and climate change.
We are at a turning point—an inflection point—for the future we want. Is it a future of rising inequality, discrimination, climate crisis, pandemics, closed borders, and conflict? Or is it a path of resilience, inclusion, justice, peace, and prosperity?
If we are to achieve the latter, responsible business, including finance, must be part of the solution. By fueling economies, the financial services industry—from asset owners and managers to private equity, venture capital, and banks—has unique leverage to drive systemic change in the global economy so that people’s lives and the health of the planet are at the center.
The unanimous endorsement of the UN Guiding Principles on Business and Human Rights (UNGPs) by governments in 2011 clarified that all companies, including financial institutions (FIs), have a responsibility to respect human rights. The UNGPs provide a responsible business conduct framework that helps companies ground their operations in respect for human rights and guides them in practices to advance human rights internally and across value chains. For example, the UNGPs lay out the human rights due diligence process, which is essential for businesses to identify, prevent, mitigate, and account for how they address negative human rights impacts.
Since their adoption, BSR has witnessed growing recognition among FIs of the importance of the UNGPs for managing their human rights footprint. However, translating commitments into transformative action remains a challenge. In 2021, the UN Working Group on Business and Human Rights (UNWG) found that while there has been progress in implementing the UNGPs, the financial services industry is lagging behind other industries.
A decade after the adoption of the UNGPs, the UNWG released the UNGPs 10+ Roadmap for the Next Decade of Business and Human Rights (UNGPs 10+ Roadmap) in an effort to scale business action on human rights. The Roadmap makes an urgent call to action for FIs to raise their ambitions and pace on human rights—or else efforts to advance sustainable business will be hampered in the decade ahead. It stresses that human rights are central to the ESG agenda—the momentous growth of which is an opportunity to scale progress on human rights across the global economy.
While the growth of ESG has been a valuable development in efforts to advance responsible business, the ESG movement has notable blind spots and opportunities to improve, particularly in how it addresses social topics. A wave of legislative developments across Europe and beyond reflect this, with mandatory human rights due diligence regulations trending and requirements for financial industry disclosure of human rights risk management emerging.
The time for human rights-respecting finance is now. In our report, "Human Rights Roadmap for Transforming Finance," BSR elaborates on the call to action set out in the UNGPs 10+ Roadmap for FIs, highlighting key areas where progress is needed to tackle global challenges and contribute to new systems grounded in respect for human rights.
The Call to Action
BSR makes the following recommendations that FIs can adopt to integrate human rights into financial activities.
- Adapt Core Business Activities to Respect Human Rights. Adopt robust human rights policies in alignment with the UNGPs, and embed these commitments in FI business models, corporate governance, and business strategies. FIs should also challenge financial and business practices that are inconsistent with human rights and publicly disclose how they manage salient human rights risks.
- Drive Respect for Human Rights in Financial Markets. Conducting human rights due diligence prior to deal-making, lending, or investing and on an ongoing basis once a business relationship is established is essential. This involves assessing how business decisions impact people, not just business, and using leverage to embed human rights policies and processes among clients and portfolio companies.
- Use the UNGPs as a Compass for Meeting Global Challenges. By conducting human rights due diligence, FIs can better address challenges such as the just transition and digital transformation. FIs should also engage in multi-stakeholder platforms and collective action to tackle systemic challenges, such as societal inequality and weak regulatory environments that encourage a race to the bottom among FIs and other companies.
- Engage and Partner with People Affected by Finance. Stakeholder engagement is vital, and FIs should be innovative in their efforts, considering with whom to engage and how best to engage. FIs should be prepared to engage with critical voices in good faith and should assess client and portfolio companies’ policies and practices regarding stakeholder engagement, using leverage as needed to promote meaningful engagement.
- Enable Access to Remedy for Victims. FIs are expected to adopt or participate in effective grievance mechanisms that provide a channel for stakeholders to report concerns and adverse impacts connected to their activities and portfolios. Complaints should be viewed not simply as a source of reputational risk to be managed, but as a source of learning that is essential for improved performance, accountability, and social license to operate.
By addressing these priority areas, the financial services industry can take a leading role in seizing the transformative power of the UNGPs. While these steps will not happen overnight, they represent some of the crucial building blocks to meet stakeholder demands and expectations, avert serious human rights risks, and achieve a more just and sustainable global economy in time for the UNGPs’ 20th anniversary.
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