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Consistent with the UNGPs, meaningful engagement with potentially affected groups and other relevant stakeholders should inform all aspects of an FI’s approach to human  rights – from  the development of human rights policies, to undertaking human rights due diligence and ensuring access to remedy.


This is an area where a number of FIs have made progress in recent years, with BankTrack’s Global Benchmark noting that 22 banks now detail a process for identifying impacts that includes some form of stakeholder consultation, compared to 11 in 2019. This section outlines principles for stakeholder engagement and sets out the key entry points for financial institutions to consider with respect to engaging with stakeholders (including affected stakeholders).


Key principles


Stakeholder engagement, including engagement with affected stakeholders, in relation to human rights risks should strive to:


    

  • Effectively solicit perspectives on how different business activities might impact human rights, and appropriate measures to address risk from stakeholders’ perspectives
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  • When possible, engage directly and in good faith with rightsholders, including critical voices and gain their insights on the challenges, opportunities for change and solutions to human rights risks
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  • Remove barriers to effective engagement such as language, cost, location, marginalisation or risks of retaliation, including integrating a gender-sensitive approach
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  • Identify and seek to engage with human rights organisations, trade unions, experts and credible and legitimate representatives of rights holders, particularly vulnerable groups, and gain their insights on the challenges, opportunities for change and solutions to human rights risks
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  • Understand whether existing policies, processes, and controls can prevent and mitigate adverse impacts and / or which are the main gaps and challenges FIs need to address to effectively respect human rights
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  • Maintain visibility of stakeholder’s views, concerns and experiences on an ongoing basis 
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  • Be undertaken by team members that are equipped and supported with the knowledge and skills to design and carry out respectful engagement and act on the results
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  • Protect confidentiality and preserve anonymity where it is permitted and offered
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  • Protect human rights and environmental defenders from threats and abuse.
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Key terms and concepts


Stakeholder / affected stakeholder. A stakeholder refers to any individual, organisation or community who may affect or be affected by an organisation’s activities. An affected stakeholder refers here specifically to an individual, organisation or community whose human rights have been affected by an enterprise’s operations, products or services.


Stakeholder engagement / consultation. Stakeholder engagement or consultation refers to an ongoing process of interaction and dialogue between an enterprise and its potentially affected stakeholders that enables the enterprise to hear, understand and respond to their interests and concerns, including through collaborative approaches.


Rightsholders. Stakeholders as a term can include rightsholders. Rightsholders are groups, internal or external to the FI, whose human rights are potentially or actually impacted by the FIs operational or financial activities.


Representatives and proxies. Where access, legal frameworks, resources or the structure of business relationships constrain the feasibility of direct consultation with rightsholders, it is beneficial to consult legitimate representatives or credible proxies. Legitimate representatives are actors selected by or acceptable to a group of rights holders, accurately representing their views, needs and interests in good faith. This might include actors who are (legally or communally) nominated by or accountable to the stakeholder group. Credible proxies are those that have relevant in-depth experience of working with or previously consulting a particular rights holder group and as such may offer an approximation of their likely views. This could include NGOs, academics, or representatives of multi-stakeholder initiatives.




 


Stakeholder engagement for lending and investment operations


Financial institutions should ensure that all stages of the human rights due diligence process have benefited from effective and meaningful stakeholder engagement. 


With respect to lending and investment activities, methods of stakeholder engagement will depend on the type of involvement that FIs have with potential negative human rights impacts. Where FIs cause or contribute to adverse human rights risks and impacts through their financial activities, they should take the necessary steps to cease or prevent impacts. This may include directly engaging with actually or potentially affected individuals and communities, including human rights defenders and indigenous peoples where relevant.


Where FIs are directly linked to adverse human rights impacts through their financial activities (without causing or contributing), FI’s clients have the primary responsibility for engaging and consulting with stakeholders due to their proximity to relevant individuals or communities. In these cases, financial institutions need to ensure that their clients / investees are engaging with all relevant stakeholders including affected stakeholders, in a meaningful way, and evaluating the effectiveness of  the process and outcomes relating to that engagement. Consistent with the UNGPs, FIs can also seek to consult with affected communities and / or credible representatives to improve understanding on the impacts and the actions that are needed to address them and understand if the clients/investees are engaging in a meaningful and effective way.




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Potential approaches


With respect to financing operations, there are three potential ‘entry points’ where stakeholder consultation needs to be considered. 


	

        

                                    

                                

                                                
Assessing client practices

                                                                
During risk assessment, processes to evaluate client / investee performance in relation to consultation and engagement of stakeholders.

                

                                

                                                
Incentivising and supporting client engagement

                                                                
During stewardship / portfolio managament, activities to facilitate, incentivise and support clients to undertake meaningful stakeholder engagement, including with affected rightholders. This can be in relation to assessing actual and potential human rights impacts, taking action, monitoring, emerging E&S issues, grievance, and remedy.

                

                                

                                                
Developing internal consultation processes

                                                                
Where FIs cause or contribute to negative human rights risks and impacts, including through their investment activities, they should seek to directly engage with actually or potentially affected individuals and communities.


In cases of direct linkage, FIs should seek to consult affected individuals and communities and / or seek engagement with credible representatives of these rightsholders.

                

                        

                    

    


 


The following table sets out potential considerations across these entry points:






Area
Considerations








Assessing client practices




Is a client’s approach to stakeholder engagement considered as part of risk assessments (e.g. during pre-investment due diligence and on ongoing basis, see also section on ‘Human Rights Screening and Risk Assessment‘). This can include:


    

  • Reviewing client’s / investee’s stakeholder engagement policies, grievance resolution approaches, track record of concrete consultations and how stakeholder feedback as impacted the approach
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  • Reviewing how the client / investee reports on its stakeholder engagement approach and practices to potentially interested individuals or groups
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  • Requesting and reviewing examples of human rights risks that have been identified and managed by the client as a result of stakeholder consultations
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  • Assessing if these practices align with the UNGP’s expectation of implementing ‘meaningful consultation’ including potentially affected groups
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  • Evaluating whether commitments to stakeholder engagement are adequately resourced (e.g. are adequate and qualified personnel, such as community liaison officers, engaged)
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Incentivising and supporting client engagement




Does the client / investee consider internal and external stakeholders, including affected stakeholders to assess and track the effectiveness of their stakeholder engagement efforts? Have emerging E&S risks been identified and addressed based on stakeholder engagement? Have efforts been made to encourage stakeholder engagement as a method of identifying and managing impacts, as well as to identify lessons for improving its efforts and preventing future impacts?


Do grievance records indicate when and how stakeholders were engaged in relation to issues of grievance and remedy?








Developing internal processes for consultation in case of human rights impacts and risks




Have key points been defined during the financing cycle where stakeholder consultation should be undertaken by the FI itself? Examples include:


    

  • Consultation resulting from the form of FI involvement with human rights impacts / risks. Direct consultation with affected or potentially affected people are required in cases where an FI causes or contributes to adverse human rights risks and impacts.
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  • Higher risk situations or where heightened due diligence is required (see also section on ‘Human Rights Screening and Risk Assessment‘)
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  • Situations where vulnerable or marginalised groups are present (e.g. refugees, indigenous groups, persons with disabilities)
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  • Contexts where allegations of failure to consult have specifically been raised in relation to the client or its operating context (e.g. through grievances, litigation)
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Do processes define which stakeholders should be consulted? This may involve:


    

  • The client’s own workforce (e.g. its management team, workers, third party contractors)
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  • Individuals or groups impacted by the FI’s activities (e.g. communities)
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Case studies and further reading








Case study: APFF’s engagement with communities




The Local Authority Pension Fund Forum’s (APFF) 2022 Mining and Human Rights Report presents several case studies of engagement with affected communities in mining cases. One example concerns a subsidiary of the UK mining company Vedanta, whose copper mine operation in Zambia was sending toxic waste into a river that constituted the main water supply for the local community. The community also complained that they could no longer farm there or live there, as their properties were adversely affected, and they experienced health problems, including lung pain and skin diseases. A case was brought in the UK which led to the company settling the claim and paying money to the claimants.












Case study: Goldman Sachs sector-focused community engagement requirements




Goldman Sachs Environmental & Social Due Diligence Guidelines set out enhanced due diligence approaches for transactions in key sectors which recognise the significance of meaningful stakeholder engagement. In Infrastructure & Transportation, Water and Hydroelectric Power, for transactions where potentially significant effects on local communities are identified, Goldman Sachs examines its clients’ engagement process. In cases where there is large-scale resettlement, Goldman Sachs will closely evaluate the stakeholder engagement process and, if appropriate, work with the client to improve aspects such as compensation measures and / or community engagement.  In addition, in the case of transactions in all sectors where the use of proceeds may have the potential to directly impact indigenous peoples, Goldman Sachs expects clients to demonstrate alignment with the objectives and requirements of IFC Performance Standard 7 on Indigenous Peoples, including free, prior and informed consent, and also expects clients to demonstrate an appropriate stakeholder engagement process.










 




Further reading