This tool is designed to assist in identifying potential human rights risks arising from the activities of corporate customers/clients. These may impact on a financial institution which is lending to the company or providing other forms of financial support or advice. It does not explore how a financial institution should decide on the acceptability of identified risks; this is an issue for each lender to define in the context of its own policy framework and applying its own risk management process. Successful risk management in relation to human rights will need a clear process embedded in governance mechanisms, clear rules for decision making and effective compliance and control functions.
The ‘Protect, Respect and Remedy’ Framework’s Guiding Principles set out helpful advice on due diligence. The Principles suggest an inclusive approach, incorporating human rights due diligence in broader risk management systems, provided that risks to rights-holders are fully considered. Key elements of human rights due diligence are:
This section sets out some of the factors which a financial institution may take into account in assessing and managing human rights risk:
The Key Issues and Sectors sections of this tool identify issues and risk factors, and Resources section points towards sources of further information for areas of particular concern. The questions in the Key Issues and Questions section focus on significant issues, but may not be easy to answer. However, raising these questions, and encouraging clients to consider them, will of itself both raise awareness and highlight those issues of most relevance and concern.
Financial Institutions may periodically consider how much influence they have in a particular situation - how significant is their relationship to the client, what relationship do they have with other key stakeholders (including governments), how close are the human rights issues to the client’s core business? In some circumstances, financial institutions may be able to exercise leverage due to constructive relationships with governments and trade bodies, or their international status and profile. It is particularly important to review this issue since the relationship between the financial institution and the client may vary over the course of the relationship.
Financial institutions may consider the potential for a human rights concern to impact on their organisation and its reputation. Some issues, sectors or geographies have a high public/media profile, while others may not be financially material to an institution. This profile too will change over time, so it is important to be aware of current public and political concerns. Complicity in crimes against humanity, war crimes and the most egregious abuses carry the most significant legal and reputational risks, and financial institutions should be aware of the possible consequences of decisions in such circumstances.
Financial institutions should be aware of the responsibilities of others (particularly governments) in addressing human rights abuses. They may choose to engage directly with governments or other stakeholders where this is appropriate. The aim would be to mitigate material human rights risks.
The direct legal responsibility of a financial institution in relation to human rights abuses may be limited, but public expectation (including NGOs, shareholders and the media) may lead to pressure for action. Financial institutions may be encouraged to raise clients’ awareness of human rights abuses and, in some cases, to address these issues directly. Financial institutions may wish to consider how this may impact their licence to operate, although for some banks and in some markets the impact may be limited.
SMEs may not operate to the same standards as larger companies - for example, they may not have written policies in place. Expectations of SMEs should reflect what it is realistic for them to achieve, while recognising that human rights issues may be as significant for them as for larger companies. SMEs providing goods or services to other companies may be required to address human rights issues in their own business and supply chain as part of the tendering process.
Financial institutions dealing with clients which are wholly or part government-owned may consider the potential for association with human rights issues/controversies concerning the state and the potential for state influence to impact the relationship or transaction.
It may be appropriate to exercise enhanced due diligence when undertaking relationships or transactions with state owned enterprises or agencies which may be associated with human rights abuses.
