Submission to the International Finance Corporation/Multilateral Investment Guarantee Agency (IFC/MIGA) Consultation on the proposed “Approach to Remedial Action”

At Shift, we have worked for several years with a wide range of financial institutions and their stakeholders seeking to embed the UN Guiding Principles on Business and Human Rights (UNGPs) into their practice, as well as supporting the integration of the UNGPs into the work and tools of various financial industry associations and initiatives. One of our areas of focus has been defining and operationalizing the concept of the ‘remedy ecosystem’ and the important role financial institutions can play in enabling remedy, including in the context of the innovative Dutch Banking Sector Agreement.

From March through April 2022, Shift supported the initial conversations of the IFC/MIGA interdepartmental Working Group on IFC/MIGA’s approach to remedial action by providing initial scoping and research on remedy as reflected in the UNGPs. IFC/MIGA subsequently carried out further analysis and then developed and published a proposed “Approach to Remedial Action” for public consultation. We are pleased to make this submission to that consultation.

We recognize that this is an extremely important topic for IFC/MIGA to be tackling in terms of its potential to deliver meaningful outcomes for people in connection with IFC/MIGA’s own investments and also in the signals that such an approach can send to other financial institutions, particularly national and regional development finance institutions.

IFC/MIGA’s proposed “Approach to Remedial Action” (the Approach) references extensively the concepts of the remedy ecosystem and enabling remedy. On the positive side, we note with appreciation that the Approach considers “prospective and anticipatory measures” throughout the project cycle that could lessen the need for and/or increase preparedness for remedy. However, the Approach is grounded in an assumption that IFC/MIGA’s involvement in remedy will typically take, absent “exceptional circumstances”, the primary form of “facilitating or supporting” its clients’ provision of remedy.

In this submission, we provide some background on the development of these concepts, grounded in the international standards on human rights due diligence (the UNGPs and the OECD Guidelines for Multinational Enterprises), and highlight examples of application of these concepts by financial institutions that we would encourage the IFC/MIGA to consider further. Both the Approach and the External Review reference these authoritative frameworks; moreover, a growing number of bilateral development finance institutions (DFIs) have made commitments and advancements in practice with reference to these standards over the last decade. They are increasingly being incorporated, in whole or in part, into existing or emerging regulations and legislation governing responsible business conduct. Most pertinently, the concepts of the remedy ecosystem and enabling remedy emerged from processes that took these standards as a core reference point.

This submission covers:

  1. The Centrality of the Connection to Harm Analysis to Concepts of Enabling Remedy
  2. The Remedy Ecosystem and Enabling Remedy
  3. The Relevance of Proximity to Harm?

We hope that the IFC/MIGA will draw on this, and other feedback, to reorient the core elements of the Approach to align more fully with the existing International Standards and developing practice among other financial institutions.

Climate Change and Human Rights: Avoiding pitfalls for financial institutions

This paper explores the nexus between climate change strategy and action by financial institutions (FIs) and the responsibility to respect human rights in accordance with the UN Guiding Principles on Business and Human Rights (UNGPs).

It discusses a series of pitfalls for financial institutions to avoid as they operationalize climate-related commitments and explore the social (“S”) dimensions of the challenges and opportunities presented by the activities of portfolio companies. It explores how the human rights lens of the UNGPs – complemented by over a decade of practice since their endorsement – can inform efforts to ensure transition and adaptation efforts respect peoples’ dignity.

The paper is a companion piece to Shift’s report: Climate Action and Human Rights: How the UNGPs can help companies respect human rights when responding to climate change. It benefited from discussions between banks and ECAs in Shift’s Financial Institutions Practitioners Circle.

Climate Change Background

This document is a non-technical introduction to some key climate change concepts for readers who are less familiar with climate change. It explains how climate change could affect businesses and is designed to accompany Shift’s report Climate Action and Human Rights: How the UN Guiding Principles can help companies respect human rights when responding to climate change.

  • Part 1 provides an overview of the causes and main drivers of climate change, explains why the 1.5°C and 2°C targets are important and why limiting climate change cannot be postponed. 
  • Part 2 explains the relevance of the Paris Accord targets and highlights the scenarios used in the most recent IPCC reports and their relevance. 
  • Part 3 explains the impact that climate change may have on businesses, the concept and relevance of net zero targets and greenhouse gas accounting. 

What data do investors need to manage human rights risks?

With almost 1 in 4 asset owners using international human rights standards to guide their responsible investment activities last year, investor demand for “better S in ESG” data is growing. Investors are not only considering the impacts on people that arise or could arise from their business activities and investee companies, but they are also trying to understand how risks to people can create financial and reputational risk.

Working together, Shift and UN PRI, the world’s leading proponent of responsible investment, set out to identify the key challenges facing investors in understanding and addressing how portfolio companies manage human rights risks within their operations and value chains. In this paper, they outline four key areas for improving the quantity and quality of information accessible to investors. Download the full report to learn more about how these gaps can be addressed, and how they relate to the latest developments in reporting standards.

Embedding the UN Guiding Principles in Finland’s State Financing of Private Sector Activity Abroad

Between 2018-2021, THE FINNISH GOVERNMENT engaged Shift to support a comprehensive approach to integrating the UN Guiding Principles into the work of the main programs and agencies that provide state financing to Finnish businesses investing abroad. This included Finland’s national development finance institution and export credit agency, and several tailored programs, including one focused on private equity.

Shift’s support aimed to strengthen alignment between the policies, processes and practices of these agencies and programs and the expectations of the UNGPs, by embedding a human rights lens in their due diligence approaches. Read the final program report to learn more about the key takeaways – and three tools developed as part of Shift’s wider Valuing Respect Project that can help any financial institution – whether public or private sector – strengthen its human rights efforts.

Enhancing the S in ESG: Tools for Investors and Lenders to Drive Better Evaluation and Engagement on Human Rights

Investors and lenders are responding to financial incentives and external pressure to better consider human rights impacts connected to their investment and financing activities. These impacts are at the core of a company’s social performance or the “S” in ESG. However, despite increasing internal support for more explicit consideration of social performance, existing “S” data skews heavily towards well-known industry and geographic risk profiles and “observable basics” in the form of documented policies and processes, or numbers of audits, issues found, grievances or media stories about a company. 

At best these types of information signal minimal compliance with aspects of international standards of business conduct, well-known reporting frameworks and recent legal developments. But they offer little insight into whether a company has made or will make progress towards achieving improvements in its business practices and the resulting outcomes for workers, communities, and consumers. At worst, conclusions drawn from some of the “S” data can mislead financial institutions to allocate money and attention to the most talked about companies, versus those that bring the highest exposure to financial institutions due to the severity of risks to people and business. 

For three years, as part of our Valuing Respect Project, Shift worked with companies, investors, and civil society organizations around the world to research and co-create improved ways to evaluate business respect for human rights. The resulting, publicly available products can be used by investors and lenders in: 

  • Focusing their screening and engagement activities on whether portfolio companies are wired – at the level of their business model, strategy, and culture – to anticipate and address the most severe risks to people connected to their operations and value chain. 
  • Designing and measuring the impact of strategies that aim to effect changes in the behavior of investees and clients so as to achieve better outcomes for people and business. 

This series provides an overview of the indicators and tools developed, and how investors and lenders are beginning to draw from them to facilitate and strengthen their work.

These tools were produced as part of a multi-year program of expert support to the Finnish Government, focused on integrating the UNGPs into the activities of the main state agencies and programs supporting Finnish private sector investment abroad. This work is summarized in the final program report.

3 resources
December 2022

Business Model Red Flags

Investors and lenders may be missing a key source of risk in their portfolios, as well as the opportunity for more sophisticated and effective engagement, if they fail to consider how a company’s business model can lead to negative impacts on human rights.

December 2022

Leadership and Governance Indicators of a Rights Respecting Culture

Lenders and investors that can identify the appropriate leadership and governance characteristics that drive a rights-respecting culture, can better understand and influence the extent to which their portfolio companies think and act about impacts on people. This resource offers an introduction to Shift’s Leadership and Governance Indicators.

December 2022

Indicator Design Tool – a tool for Financial Institutions

The Indicator Design Tool provides financial institutions with a structured way to design and measure their efforts to use leverage with portfolio companies. At the core of the tool is an approach known as Theory of Change thinking: a well-established practice for designing, monitoring and evaluating interventions.

Comments by Shift on the ISSB Sustainability Reporting Standards

The case for developing a ‘social’ standard as a matter of priority

As the International Sustainability Standards Board (ISSB) considers its forward workplan, looking beyond its first draft standards on Climate and General Requirements, it should be a priority for the Board to develop a thematic standard on ‘social-related’ disclosures. This can provide a much-needed, coherent frame for the future integration of sector-specific standards that build on the work of the Sustainability Accounting Standards Board (SASB) and others regarding, for example, health and safety, and diversity, equity and inclusion, along with other aspects of human capital. But a general standard on social-related disclosures is a necessary precursor to addressing those more granular issues.

In these comments, we elaborate on the case for a thematic ISSB standard on social-related disclosures, before touching briefly on the alternative ways such a standard could be framed. Finally, we highlight a number of ways in which this standard should complement but go beyond ISSB’s ‘General Requirements’ draft standard to address the particular risks and opportunities associated with social issues.

La proposition de la Commission européenne pour une directive sur le devoir de vigilance des entreprises en matière de durabilité, Analyse de Shift

Le 23 février 2022, la Commission européenne a publié sa proposition de directive du Parlement européen et du Conseil sur le devoir de vigilance des entreprises en matière de durabilité. L’objectif principal de cette proposition “vise à faire en sorte que les entreprises qui opèrent sur le marché intérieur contribuent au développement durable […] grâce au recensement, à la prévention, à l’atténuation, à la suppression et à la réduction au minimum des incidences négatives potentielles ou réelles sur les droits de l’homme et l’environnement découlant des activités propres aux entreprises, à leurs filiales et à leurs chaînes de valeur.”

La directive peut avoir un impact positif, que ce soit pour les personnes ou la planète, en renforçant la qualité des processus de devoir de vigilance portant sur les droits humains et les risques environnementaux les plus graves, en encourageant des formes créatives d’actions individuelles et collectives pour adresser les risques à travers la chaîne de valeur, en améliorant la gouvernance interne et en élargissant l’accès aux voies de recours pour les personnes affectées par les activités des entreprises. 

Cependant, pour que la directive atteigne ses objectifs et réalise l’ambition affichée de veiller à ce que les entreprises du marché intérieur contribuent à la durabilité en prévenant et en traitant les incidences négatives, elle doit être alignée avec les principales normes internationales de diligence raisonnable en matière de durabilité adoptées par les Nations unies et l’OCDE.

Dans cette analyse de la proposition de la Commission, Shift compare les points principaux du projet de directive par rapport aux normes non contraignantes que sont les Principes directeurs des Nations Unies relatifs aux entreprises et aux droits de l’homme et les Principes directeurs de l’OCDE à l’intention des entreprises multinationales. L’analyse se concentre sur les domaines au sein desquels un manque d’alignement sur les normes internationales risque d’entraver la capacité de la directive à atteindre ses objectifs. Shift délivre ici ses premières réflexions pour y remédier. 

The Case for Living Wages: How Paying Living Wages Improves Business Performance and Tackles Poverty

This report, authored by Shift, Business Fights Poverty and the Cambridge Institute for Sustainability Leadership, helps show how living wages not only offer a way out of in-work poverty and help tackle inequality, but also support business resilience, stability and growth.

As a route out of working poverty and a prerequisite to tackling growing income inequalities, living wages have growing support among business, civil society, and governments. This new collaboration of academics and experts has explored the business benefits of living wages alongside the high cost of inaction and found that paying a living wage can deliver:

  • More motivated and productive workforce, with lower staff turnover
  • Improved revenues and profits, for example, PayPal attributes much of its recent growth to the decision to pay ‘decent wages’ to all employees
  • Increased value chain resilience and performance
  • Reputational benefits
  • Improved investor prospects
  • Readiness for future regulatory reporting