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Communicating efforts to prevent and address impacts is a critical step in the human rights due diligence process. FIs should be prepared to demonstrate the effectiveness of its efforts which requires proactive communication with affected stakeholders and other relevant groups.

The UNGPs deliberately use the word ‘communicating’ to emphasise that human rights due diligence encompasses a broader spectrum of ways to convey information to stakeholders than formal reporting alone. An FI should therefore assess the best means of communication for each of its relevant stakeholder groups. It is important to note that FIs which are involved with severe human rights impacts should report formally on their efforts to prevent and address them.

How should FIs communicate on human rights in investment and lending operations?

Communication can take a variety of forms, including in-person meetings, online dialogue, consultation with affected stakeholders, and formal public reports. Formal reporting is itself evolving, from traditional annual reports and sustainability reports to more frequent online updates and integrated financial and non-financial reporting.

Formal reporting by FIs is expected where risks of severe human rights impacts exist, whether this is due to the nature of the investment / loan or the operating context. This reporting should cover topics and indicators concerning how FIs identify and address adverse impacts on human rights. Independent verification of human rights reporting can strengthen its content and credibility. Sector-specific indicators can provide helpful additional detail.

Requirements relating to communication

According to the UNGPs, communication should be:

  • Of a form and frequency that reflect an FI’s human rights impacts and that are accessible to its intended audiences
  • Provide information that is sufficient to evaluate the adequacy of an FI’s response to the particular human rights impact involved (rather than general reporting on hight-risk areas and processes)
  • In turn not pose risks to affected stakeholders, personnel or to legitimate requirements of commercial confidentiality.

 

Specific considerations and approaches

A key concern in financial sector communications pertains to client confidentiality. FIs owe a duty of confidentiality to their clients in most cases, meaning they are not usually able to share information about their clients without the client’s consent. However, FIs can still take steps to promote greater transparency with respect to client relationships without being in breach of this duty. A legal opinion commissioned by the Dutch Bank Sector Agreement on what forms of information banks could share with civil society and the public concluded that individual client information cannot be discussed unless there is the consent of the client, this information is released in compliance with a statutory obligation of disclosure or it is made anonymous. For this reason, there is increasing emphasis on the importance of introducing contractual clauses into financial agreements which allow for disclosure of information. The OECD’s Guidance on Responsible Corporate Lending And Securities Underwriting encourages banks to respond to client confidentiality restrictions by obtaining client consent to disclose specific information, ideally at the outset of a relationship. It is also noted that several banks publish full lists of their business and corporate customers, requiring consent as a condition of providing banking services, and most commercial banks routinely share information about their lending activities with proprietary financial databases.

Effective human rights communications can involve a range of functions and roles across an FI. Although dependent on institutional context, this may involve:

  • ESG / sustainability: May help track information about specific human rights performance that provides content for communications; may be responsible for helping to prepare an FI’s sustainability reporting
  • Investor relations / public relations / communications: Typically responsible for communication with external stakeholders
  • Human resources: Typically supports internal communication with employees
  • Finance: Responsible for helping to prepare an FI’s financial reporting which is relevant if the FI has an integrated report that includes financial and non-financial information
  • Legal: Typically reviews and often approves formal external communications.

Reporting on human rights performance in investment and lending operations is important for both internal and external audiences:

  • Internal communication (e.g. to employees, management team) can foster accountability and helps identify areas for improvement.
  • External or public communication can demonstrate commitments to human rights to regulators, stakeholders, and partners (including commercial partners and suppliers). Communicating to civil society, affected communities and workers can serve an important awareness raising function while also contributing to improved accountability.

The UNGPs expect FIs whose financing operations pose risks of severe human rights impacts to report formally on how they address them. A growing number of FIs are looking to strengthen their reporting using the UN Guiding Principles Reporting Framework, which constitutes a comprehensive framework for companies in all sectors, including the financial sector, to report on human rights in line with the UNGPs. The Reporting Framework consists of three parts:

  • Part A: Governance of Respect for Human Rights
  • Part B: Defining a Focus of Reporting
  • Part C: Management of Salient Human Rights Issues

 

The framework includes indicators for good reporting which prompt reporting entities to describe human rights impacts and how they are managed in a way which provides useful contextual and qualitative information. This includes indicators and guidance in the following areas:

  • Governance: Does the reporting explain how the FI’s governance structures support the management of human rights risks?
  • Specific processes: Does the reporting go beyond high-level statements of policy and commitment and discuss specific processes for implementing respect for human rights?
  • Specific impacts: Does the reporting refer to specific impacts that occurred within the reporting period and are associated with the FI’s financing or business operations?
  • Clear examples: Does the reporting provide clear, relevant examples of how the FI’s policies and processes have influenced practice and outcomes within the reporting period, including on remedy?
  • Stakeholder perspectives: Does the reporting explain how the FI gains the perspective of stakeholders who could be negatively impacted?
  • Challenges: Does the reporting discuss complex or systemic human rights challenges and how the FI grapples with them?
  • Metrics: Does the reporting include specific data, key performance indicators or other metrics that offer clear and relevant evidence to support the narrative?
  • Forward focus: Does the report include information about the FI’s plans for advancing its efforts to respect human rights?
  • Strategic initiatives: If the reporting references particular initiatives, for example, projects, third-party assessments or participation in industry or multi-stakeholder organisations, does it make clear how these initiatives help the FI advance its own management of human rights risks?
  • Improving disclosure: If this is not the first year of human rights reporting for the FI, does the reporting show improvements in the quality of its disclosure in comparison with previous years, taking into account the indicators set out above?




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Increasingly, national legislation also requires reporting on human rights. Reporting might involve dedicated human rights reports or information on human rights performance which is integrated into other documents such as sustainability or annual reports. Reporting must reflect the actual practice of the FI. In some cases, reporting standards may be driven by regulations or industry standards. Within the EU, certain entities (including companies, banks, and insurance companies) are required under the Corporate Sustainability Reporting Directive (CSRD) to disclose certain sustainability information in line with the European Sustainability Reporting Standards (ESRS). These requirements include a range of topics covering environmental, social (notably human rights) and governance matters. Other jurisdictions have also introduced enhanced ESG reporting for certain entities including Chile, India, and Colombia.

                    

                

            

                    

                    

    


 


Case studies and further reading










Reporting on salient human rights risks




Mizuho provides an overview of salient human rights risks in its Human Rights Report. This includes, for example, forced labour, child labour, and human trafficking, as well as ‘business activities (financing and investment) in conflict areas’. The report also covers affected stakeholders such as employees, communities, and indigenous peoples. For each risk and issue, relevant responses and actions are summarised. See also BankTrack’s Global Human Rights Benchmark 2022. Netherlands-based BNG Bank has used the UNGP Reporting Framework as the structure for its 2021 Human Rights Report.












Reporting based on UNGPs Reporting Framework




ING’s 2022/2023 Human Rights Report provides an example of reporting based on the UNGPs Reporting Framework for identifying and managing human rights issues. As a UN Global Compact signatory (UNGC), National Australia Bank submits an annual Communication on Progress that includes reporting on the implementation of principles relating to human rights, labour, environment, and anti-corruption.














Further reading