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:
The 'Protect, Respect and Remedy' Guiding Principles set out helpful advice on due diligence. They suggest an inclusive approach, incorporating human rights due diligence in broader risk management systems, provided that risks to rights-holders are fully considered.
It is likely that some rights may be more relevant — this will depend on location, clients or products. If significant impacts are identified, then an enhanced process may be needed - for example, if the project is in a conflict zone or the client operates in a sector which has significant human rights issues.
The Thun Group suggests two criteria can be used to prioritise human rights impacts: first, the impact on the rights-holders themselves (including severity and the number of affected people) and second, the bank's connection to these adverse impacts.
This may include NGOs and civil organisations representing local communities, trade unions, community and religious leaders.
This will require:
This needs to take into account how much leverage a financial institution has in each case. Appropriate steps to prevent human rights abuses need to be taken. If human rights have already been violated, then remediation will be necessary. This means reversing or stopping the violations.
This enables the institution to learn from its experiences and to keep stakeholders informed about actions.
Other areas of this tool help to identify risk factors:
Financial institutions should consider how much influence they have in a particular situation:
It is important to keep this issue under review, since the relationship between the financial institution and the client may vary over time.
Financial institutions should consider the potential for a human rights concern to impact on their organisation and its reputation:
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) to mitigate material human rights risks. Dialogue can be a key tool in addressing human rights impacts arising from clients' actions.
The direct legal responsibility of a financial institution in relation to human rights abuses may be limited, but public expectation (including the views of 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 should consider how this may impact on 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 partly government owned need to consider the risks of association with human rights issues or controversies concerning the state. There is also potential for state influence to have an impact on the relationship or transaction.
It may therefore 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.
December 2014 United Nations Environment Programme Finance Initiative