Change Agents: Financial Institutions

Operationalizing Remedy for Financial Institutions with the Equator Principles Association 

Posted on by Matilda Donaldson

On 25 October the Equator Principles Association (EPA) released a suite of new due diligence tools designed to enhance access to grievance mechanisms and enable effective remedy in project finance transactions. Shift was pleased to partner with the EPA’s Working Group on the development of the tools, which will be valuable for Equator Principles Financial Institutions (EPFIs), their clients and consultants. The tools provide guidance for users to enhance remedy at various stages of a transaction and due diligence process.

The Equator Principles:
The Equator Principles set the financial industry benchmark for identifying, assessing and managing environmental and social risks in projects. The Principles are adopted by 137 financial institutions in 38 countries, and apply globally, to all industry sectors and to various project-related financial products.

The tools mark a notable step in the evolution of the standards and guidance of the EPA. They reinforce the importance of improving outcomes for people affected by projects financed by financial institutions in line with international standards (UN Guiding Principles on Business and Human Rights and OECD Guidelines). They do so by focusing specifically on human rights impacts in projects and on seeking to ensure that people affected have access to remedy.

These tools should help financial institutions address a persistent “remedy gap”: namely, that in too many cases, remedy is not available for people who are harmed by business activities that are part of projects they finance. The guidance draws from existing practice amongst leading financial institutions that already understand and demonstrate the important role they and their peers can play by using their leverage to enable remedy. This can have a critical role in strengthening the remedy ecosystem, resulting in better outcomes for vulnerable workers or communities affected by projects.

Two of the five tools (RM1 And RM2) specifically address the need to “front-load” for effective remedy.  Practice has shown that financial institutions can assess a client’s preparedness for remedy upfront in the due diligence process, and then use leverage to enhance higher risk clients’ capacity and commitment to provide remedy should it become necessary. The tools provide concrete guidance to execute this approach.

Importantly, the EPA also sets these tools in context. They provide guidance that will most typically apply in the common scenario where financial institutions are linked to a harm, but have not contributed to it by enabling or incentivizing the actions that led to it. They also recognize, however, that there may be situations where financial institutions contribute to harm and that they will then have a direct role to play in providing remedy. This distinction is important in light of the persistent myth that financial institutions will never cause or contribute to impacts in their portfolio, whether through their actions or omissions. This notion has been rebutted by the Office of the High Commissioner for Human Rights and the OECD, which have a mandate to interpret the UN Guiding Principles and the OECD Guidelines respectively, looking at both commercial banking as well as development finance contexts.

Practically speaking, contributing to remedy or supporting a client’s efforts to provide remedy will likely follow very overlapping paths – both will often require using and/or enhancing leverage with clients and working directly with them to execute remedy on the ground.  The new EPA tools provide many useful practical tips to support financial institutions in meeting those objectives.

Understanding Linkage and Responsibility for Remedy
“See the EPA Human Rights Guidance Note for a discussion of the ways in which EPFIs and other actors might be connected to adverse impacts, including the UNGPs framework of cause, contribution and linkage. As that note and additional authoritative guidance from OHCHR and the OECD highlight, financial institutions can, in some instances, contribute to project-related impacts. In such cases, EPFIs will have a responsibility not only to use leverage to encourage remedy, but to contribute directly to remedy in a manner proportionate to their contribution. EPFIs should carefully analyze their involvement with impacts in specific cases to understand their responsibility related to remedy.”
Source: EPA Remedy Tools

There are five related due diligence tools in the EPA suite of tools covering grievance mechanisms and remedy:

  • GM1: Grievance Mechanism Design: Diagnostic Questions
  • GM2: Monitoring Effective Grievance Mechanism Performance: Sample Reporting Metrics
  • RM1: Assessing Preparedness for Remedy: Diagnostic Questions
  • RM2: Strengthening Preparedness for Remedy: Sample Leverage Actions
  • RM3: Using Leverage for Remedy after Impacts Occur: Sample Leverage Actions

The tools are all available on the EPA’s website. Although written in the context of project finance, they will offer inspiration for commercial banks and development finance institutions who are working to take an ‘ecosystem’ approach to remedy.

For more on financial institutions and remedy, see Shift’s Financial Institutions Practitioners Circle publication, “FINANCIAL INSTITUTIONS AND REMEDY: MYTHS AND MISCONCEPTIONS”.

For more information please contact Ashleigh Owens, Financial Institutions Lead at ashleigh[dot]owens[at]shiftproject[dot]org.  

Financial Institutions and Remedy: Myths and Misconceptions

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July 2021 |

Using Leverage to Drive Better Outcomes for People

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It can be difficult for sustainability practitioners within financial institutions to engage the institution on the third pillar of the UNGPs: Remedy. But engage them they must. There remains an enduring “remedy gap”: in too many cases, remedy is not available for people who are harmed by business activities, which financial institutions may be involved with in some way via their products and services. In this paper, we explore possible factors that contribute to this challenge: 5 persistent myths about FIs and remedy that may cause internal blockages and get in the way of achieving better outcomes for people. We address each of these myths in turn and offer insights into emerging good practices as well as some initial steps that FIs can take to move in the right direction.

This paper draws from Shift’s experience working bilaterally with financial institutions, and from discussions in Shift’s FIs Practitioners Circle.

Using Leverage to Drive Better Outcomes for People

In March 2021, Shift held the first peer-learning session of its Financial Institutions Practitioners Circle, focusing on the topic of leverage. This resource captures the key takeaways of the session. 

The traditional approach of many banks and Export Credit Agencies (together “FIs”) has been to assess risk from a credit risk perspective and to make a binary decision about whether or not they will enter into commercial relationship with a client. As such, too often those decisions have been made on the basis of risk appetite rather than considering the more complex task of risk management, engagement with the client and the application of firm sustainability expectations. More committed FIs are shifting towards an approach that emphasizes managing risks to affected stakeholders rather than a sole focus on managing potential reputational risks. In addition to setting human rights-related expectations of clients upfront, FIs now need to focus, for higher risk sections of the portfolio, on scrutinizing the appropriateness of the expectations against intended outcomes, reviewing client adherence to them and evaluating their impact.  

When FIs take this approach, we see greater alignment with the UN Guiding Principles’ focus on improving outcomes for people. Moreover it facilitates a move away from so-called “cut and run” approaches whereby the bank makes another binary decision to cut ties with clients amid reputational concerns without first attempting to use leverage. Due Diligence is a wheel after all: it doesn’t start and end at assessment. The bank has a responsibility to get to action: to use its influence (leverage) to seek to improve outcomes for adversely affected people, including, at a minimum, engagement with clients around risks. This also helps the bank to get to the “yes, and” approach to navigating higher-risk transactions, whereby the bank can more confidently take on clients or transactions that pose heightened social risk, if it is prepared to invest the resources necessary for leverage and it has a credible road map for where the client needs to get to in terms of maturity of approach and/or concrete Key Performance Indicators (KPIs). It goes without saying that an element of pragmatism needs to be brought to bear when looking to achieve this at a portfolio level. The prioritization of resources and focus at the assessment phase is particularly important for financial institutions given their challenge of scale. 

The FI’s responsibility to respect human rights includes the need to understand where it has leverage – in the multiple different forms of leverage available – and where it needs to build it; it means using this leverage to seek to prevent and address harm in order to justify continued engagement. Leading FIs are increasingly exploring and institutionalizing this process.

Here are our 6 key takeaways from our discussion about how to consider leverage for financial institutions from the perspective of the UNGPs, with practical steps that might help turn these insights into action. 

Shift’s FIs Circle

A carefully designed space for leading practitioners in the financial sector to discuss human rights challenges and co-create cutting-edge solutions that fit their unique reality

Financial institutions are uniquely positioned to advance business respect for human rights. Their products, services, clients and investment portfolios span all sectors and industries, enabling them to catalyze change by using their leverage to help move markets in the right direction. At the same time, this broad reach means they are often connected to an enormous range of human rights risks.

For practitioners in the financial sector, this presents significant challenges as well as opportunities. Yet, there are limited spaces available for them to analyze how the responsibility to respect human rights applies to their context and to discuss possible approaches to human rights due diligence together with others who are facing similar challenges, informed by external human rights expertise.

Shift’s Financial Institutions Practitioners Circle (FIs Circle) was carefully designed to fill that gap. It is a purposefully small network of practitioners from private banks and export credit agencies – led by Shift experts – to foster insightful conversations, co-create innovative approaches and ultimately advance leading practice across the financial sector.

The FIs Circle is not a membership organization with a secretariat, nor an industry grouping for policy advocacy. Rather, it is a space for practitioners to have frank discussions about implementing respect for human rights with peers who understand the challenges involved and want to contribute to shaping leading practice in the sector, guided by top human rights experts.

Watch this Video to Learn More

FINANCIAL INSTITUTIONS LEAD, ASHLEIGH OWENS, EXPLAINS HOW THE FIS CIRCLE CAME TO BE

Benefits of the Program

Why join Shift’s Financial Institutions Practitioners Circle

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Group Workshops and Discussions

FIs Circle participants join their peers across leading financial institutions in tailored workshops and in-depth discussions that explore shared challenges in implementing the corporate responsibility to respect in the FIs context.

Every year, the FIs Circle has three virtual peer learning workshops, facilitated by Shift human rights experts who bring their experience, knowledge and learnings from working with a variety of stakeholders on distinct challenges across the financial sector.

 

 

INTRODUCTORY “UNGPs AND FINANCIAL INSTITUTIONS” SESSIONS

In addition to the peer-learning workshops, participants are invited to attend (and/or to send new team members or other colleagues) to bi-annual introductory sessions on the UN Guiding Principles on Business and Human Rights. These sessions are uniquely tailored to the operations and value chain of the financial sector.

They offer an introduction to the UN Guiding Principles to participants from institutions who are diving into business and human rights for the first time.

 

 

EXPERT FACILITATION BY SHIFT

For almost a decade, Shift has worked directly with banks, export credit agencies and other financial institutions in developing solutions for a wide array of challenges. In parallel, we’ve collaborated with peer civil society organizations and have been closely involved in standard-setting processes in this space.

Consistent with our mission, Shift brings to the table the learnings we have gathered and the tools we have designed, and are developing, to explore together with FIs Circle participants.

Learn more about our work with financial institutions, their regulators and other stakeholders here.

 

 

CONTRIBUTE TO SHAPE LEADING PRACTICE

Shift is a mission-driven organization that seeks not only to support individual companies, but to advance leading practice across entire sectors and to embed the UN Guiding Principles in authoritative standards. In line with this, we are committed to using the knowledge that we build through programs like the Financial Institutions Practitioners Circle to develop and share public-facing outputs that can inform practice and push the boundaries of business behavior, while appropriately respecting confidentiality.

Explore our public resources here.

 

 

OPTION TO JOIN SHIFT’S BUSINESS LEARNING PROGRAM

In addition to the workshops, discussions and opportunities that are specific to the financial sector, Shift offers participants of the FIs Circle the option to join our flagship Business Learning Program, where companies receive tailored strategic and operational support on specific challenges that they face, and participate in cross-industry learning with leading companies from around the world.

Learn more about Shift’s Business Learning Program.

FIs Circle Publications

We use the knowledge that we build through programs like the Financial Institutions Practitioners Circle to develop and share public-facing outputs that can inform practice and push the boundaries of business behavior, while appropriately respecting confidentiality.

PUBLIC-FACING OUTPUTS BASED ON THE KNOWLEDGE AND INSIGHTS GAINED FROM THE FIS CIRCLE

5 resources
September 2023
Human Rights Defenders and Shrinking Civic Space: A Guide for Financial Institutions

From early warnings to controversy data, investors and lenders are increasingly recognizing their reliance on civil society and human rights defenders for their human rights due diligence (for more see No News is Bad News, the product of a collaboration between ABN AMRO, APG, ING, Robeco, and Morningstar Sustainalytics). This includes the essential insights they […]

Download
July 2023
Indigenous Rights and Financial Institutions: Free, Prior and Informed Consent, Just Transition and Emerging Practice

Companies, civil society and the finance sector are paying increasing attention to Indigenous Peoples rights and expertise, which are critical in the context of our most pressing global agenda items: climate change and biodiversity loss. This is not least because much of the world’s biodiversity, and many of the natural resources needed for the energy […]

Download
February 2023
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”) […]

Download
October 2021
Financial Institutions and Remedy: Myths and Misconceptions

It can be difficult for sustainability practitioners within financial institutions to engage the institution on the third pillar of the UNGPs: Remedy. But engage them they must. There remains an enduring “remedy gap”: in too many cases, remedy is not available for people who are harmed by business activities, which financial institutions may be involved […]

Download
July 2021
Using Leverage to Drive Better Outcomes for People

In March 2021, Shift held the first peer-learning session of its Financial Institutions Practitioners Circle, focusing on the topic of leverage. This resource captures the key takeaways of the session.  The traditional approach of many banks and Export Credit Agencies (together “FIs”) has been to assess risk from a credit risk perspective and to make […]

Download

Criteria for Admission

WE ARE PURPOSELY SELECTIVE ABOUT WHO WE WORK WITH

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Shift’s FIs Circle is designed for institutions that have demonstrated organizational maturity to embed respect for human rights across their operations and are ready to take further action. Participants come from different regions of the world.

Prior to an organization joining the FIs Circle, we engage in an in-depth discussion to determine whether participation is the right fit for the organization and for the group, based on the financial institution’s human rights work and its commitment to sharing its experience and improving its performance.

At this stage the FIs Circle is only open to select participants from private banks and export credit agencies. This is to ensure that participants can take advantage of the opportunity to discuss challenges with peers that work in similar contexts and face analogous challenges and opportunities for positive impact.

Beyond the FIs Circle, Shift works bilaterally with a wide variety of financial institutions that are at an earlier stage in their human rights journey. You can learn more about the way we provide bespoke advisory support to financial institutions here, or contact us at info [at] shiftproject [dot] org to learn more.

Inquire about the FIs Circle

At the moment, Shift’s FIs Circle is open to invited practitioners from private banks and export credit agencies. Current participants include practitioners from Allied Irish Bank, ABN AMRO, Citi Group, ING, Wells Fargo and Westpac, among others.

To learn more about Shift’s Financial Institutions Practitioners Circle contact us at info [at] shiftproject [dot] org. You can also visit our Financial Institutions page to learn about more ways in which we work with other financial institutions, including investors, national development finance institutions, standard setters and others.

Introducing Shift’s Financial Institutions Practitioners Circle

Posted on by Daniel Berezowsky

New York, NY

VISIT THE PROGRAM PAGE

Shift, the leading center of expertise on the UN Guiding Principles on Business and Human Rights, is delighted to announce the launch of our Financial Institutions Practitioners Circle, a space carefully designed for a small number of leading practitioners from banks and export credit agencies (ECAs) to discuss common human rights challenges and co-create cutting-edge solutions that put people first.

The first generation of the FIs Circle will gather virtually for the first time in early March and will include a limited number of practitioners from institutions in the financial sector who have demonstrated a serious commitment to advancing their understanding and implementation of the UN Guiding Principles.

Discussion and learning in the FIs circle will be facilitated by experts from Shift, who will also contribute creative solutions that we have been fine-tuning in our one-on-one engagements with financial institutions. Together, through group workshops and discussions, practitioners will foster leading practice by sharing and co-creating approaches to putting the responsibility to respect human rights into practice in the FIs context.

Shift is committed to disseminating the learnings from this group for the benefit of a wider audience of FIs practitioners and other stakeholders.

LEARN MORE>

Participant selection

Shift is currently evaluating candidates for the first generation of the FIs Circle. Admissibility is determined through an in-depth discussion, based on where the organization is on their human rights journey and, regardless of its level of maturity, its commitment to sharing its experiences and improving performance.

To learn more about the FIs Circle, or to inquire about joining, please email communications [at] shiftproject [dot] org.

Introduction to the series

Increasingly, investors are becoming interested in understanding to what extent companies are respecting human rights, and whether their efforts are likely to improve the lives of affected people. A good place to start is by reading a company’s human rights disclosure. But company reports are often hard to analyze.  On the surface, many companies will seem to be doing the right thing. But, how can investors tell whether what they are reading is meaningful and in line with what the UN Guiding Principles expect? This collection of resources was designed by Shift to help investors apply a people-centered approach to gain deeper insights from company disclosure.

In each issue, we have selected a number of excerpts from different companies that have generally taken a forward position on business and human rights and are considered leaders in reporting in their sector. We provide a brief analysis of each excerpt, highlighting strengths in the insights it offers, and note some elements that could make it stronger.

In March 2020, Shift published the first two issues of the series:

ISSUE 1 – Engagement with Vulnerable Stakeholders

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This resource is meant to serve as a guide for investors and others in analyzing companies’ disclosure on their stakeholder engagement practices. The aim is to help readers identify potential strengths and gaps in the underlying performance of the company in engaging vulnerable groups.

This resource uses company reporting from Marks & Spencer, Best Buy, Teck, Adidas and Rio Tinto.

LEARN MORE

ISSUE 2 – Efforts to Tackle Gender-Based Impacts

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This resource uses excerpts from companies’ reporting on their efforts to tackle gender-based impacts.  In particular, it looks at whether a company’s disclosure indicates that it sees gender impacts as relevant for business; whether a company’s disclosure suggests it has real insights into women’s experience in the workplace; and whether a company’s disclosure suggests it is alert to other dimensions of gender-based discrimination.

LEARN MORE

ISSUE 3 – Risk Identification

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This resource  focuses on excerpts from company reporting on setting targets and tracking performance. Specifically, it examines whether the company only reports on issues it deems material to the business; if the only indicated external input for the human rights issues the company prioritizes is a generic survey; if a company’s list of material issues includes both individual human rights and a category of ‘human rights’; and whether human rights issues are listed in company disclosure without further explanation of how these relate to the business’s own operations and value chain.

Issue three uses company reporting from Total, Nestlé, ABN AMRO, Newmont and Pepsico.

LEARN MORE
ISSUE 4 – Taking Action on Systemic Human Rights Challenges

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This resource focuses on excerpts from company reporting on systemic human rights challenges. Specifically, it looks at whether the company positions itself solely as part of the solution to the human rights challenge concerned; whether the company only reports its membership in groups or collective initiatives that tackle certain systemic human rights risks without describing its engagement with these initiatives and how this contributes to change; and whether the company reports on any actions it has taken unilaterally to address its own potential involvement with that issue.

The fourth issue uses company reporting from H&M, ASOS, Mondelez, Anglo American and Microsoft.

LEARN MORE
ISSUE 5 – Examples of Targeted Action

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This resource focuses on examples from companies of targeted action. It delves into whether the company only reports generally on its process for identifying and addressing human rights impacts; whether the company reports on how the perspectives of affected stakeholders informed its understanding of the impact and its decisions on what action to take; and whether the company talks about engagement with suppliers or other business partners on human rights-related issues in terms of compliance.

This resource uses company reporting from ING, M&S, FMO, ASOS and Unilever.

LEARN MORE
ISSUE 6 – Setting Targets and Tracking Performance

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The final issue focuses on excerpts from company reporting on setting targets and tracking performance. It looks at whether the company’s targets set and track in reporting are limited to activities or outputs; whether the company follows up on the extent to which all of targets set in one reporting period were met in the next; and whether data on human rights performance is aggregated such that meaningful insights cannot be drawn from the disclosure.

This resource uses company reporting from Unilever, Nestlé, Teck, M&S and C&A.

LEARN MORE

Efforts to Tackle Gender-Based Impacts

Increasingly, investors are becoming interested in understanding to what extent companies are respecting human rights, and whether their efforts are likely to improve the lives of affected people. A good place to start is by reading a company’s human rights disclosure. But company reports are often hard to analyze.  On the surface, many companies will seem to be doing the right thing. But, how can investors tell whether what they are reading is meaningful and in line with what the UN Guiding Principles expect? This collection of resources was designed by Shift to help investors apply a people-centered approach to gain deeper insights from company disclosure.

In particular, this resource uses excerpts from companies’ reporting on their efforts to tackle gender-based impacts.  In particular, it looks at: 

  • Whether a company’s disclosure indicates that it sees gender impacts as relevant and important for its business;
  • Whether a company’s disclosure suggests it has real insight into women’s experience in the workplace;
  • Whether a company’s disclosure suggests it is alert to other dimensions of gender-based discrimination.

This may also be a useful tool for practitioners within businesses who want to improve how they report on these issues, and for other stakeholders who are interested in analyzing and assessing the quality of a company’s human rights disclosure.

Engagement with Vulnerable Stakeholders

Increasingly, investors are becoming interested in understanding to what extent companies are respecting human rights, and whether their efforts are likely to improve the lives of affected people. A good place to start is by reading a company’s human rights disclosure. But company reports are often hard to analyze.  On the surface, many companies will seem to be doing the right thing. But, how can investors tell whether what they are reading is meaningful and in line with what the UN Guiding Principles expect? This collection of resources was designed by Shift to help investors apply a people-centered approach to gain deeper insights from company disclosure.

In particular, this resource uses excerpts from companies’ reporting on their engagement with vulnerable stakeholders.  We have selected five excerpts from companies that have generally taken a forward position on business and human rights and are considered leaders in reporting within their sector. We provide a brief analysis of each excerpt highlighting strengths in the insights it offers and noting elements that could make it stronger.

This may also be a useful tool for practitioners within businesses who want to improve how they report on these issues, and for other stakeholders who are interested in analyzing and assessing the quality of a company’s human rights disclosure.

Tackling Modern Slavery through Financial Sector Leverage

This briefing paper was commissioned by the United Nations University, as part of the Liechtenstein Initiative for a Financial Sector Commission’s efforts to push beyond the boundaries of compliance towards creative financial sector action to prevent and address modern slavery and human trafficking.

Senior Advisor David Kovick and Managing Director, Rachel Davis provide observations and specific examples of what implementation of the UNGPs and related efforts by financial institutions looks like in practice today, including leading approaches, recurring challenges and immediate opportunities.