Change Agents: Financial Institutions

Shift is pleased to have worked closely with the Norwegian Export Credit Guarantee Agency (Garanti-instituttet for eksportkreditt-GIEK) (“GIEK”) to help it further align its approach to environmental and social due diligence with the Guiding Principles.

GIEK is a recognized leader among the OECD group of Export Credit Agencies (ECAs) in the development of policies and practices to manage environmental and human rights impacts. GIEK was among the first ECAs to adopt an explicit environmental and human rights policy and associated due diligence procedure.

Shift provided expert support to GIEK in 2013 in the development of these policies. In 2014, Shift worked with GIEK to explore how it could strengthen its stakeholder engagement and grievance pathways with regard to the transactions it supports.

Also see: our work with various financial institutions on the Guiding Principles | suppport to the Norwegian OECD National Contact Point

Jump to: Overview of our work with financial institutions on the Guiding Principles | Our report on human rights due diligence in high risk circumstances

In alignment with the International Finance Corporation’s (IFC) revised Performance Standards on Environmental and Social Sustainability, the IFC has been exploring the development good practice guidance for its private sector clients on the issue of human rights due diligence in high risk circumstances. Shift provided expert input to the IFC in 2013 on the content of potential guidance.

The Performance Standards’ requirements regarding the environmental and social due diligence processes that all IFC-financed projects must have in place are robust; however, the Performance Standards themselves recognize that, in certain high risk circumstances, it may be appropriate for companies to complement these processes with specific human rights due diligence (see Performance Standard 1, footnote 12). This raises two key framing questions that any guidance on this issue should address:

1. Under what circumstances might specific human rights due diligence be appropriate;
2. What should human rights due diligence entail in such high risk circumstances?

Any IFC guidance on these questions would need to be practical, relevant and grounded in the challenging realities facing companies that operate in complex, high-risk contexts. It should also build upon existing resources for companies on these issues, and seek to ensure a convergence of guidance wherever appropriate.

While the immediate audience for good practice guidance issued by the IFC is IFC client companies, the impact of the Performance Standards extends well beyond IFC-financed projects – providing a global benchmark referenced by numerous public and private financial institutions, as well as informing the policies and practices of many companies operating in emerging markets.

This collaboration informed a report that we published in 2015 on human rights due diligence in high risk circumstances.

Also see: Overview of our work with financial institutions on implementation of the Guiding Principles | Our report on the cost of corporate-community conflict

From 2012-2015, Shift was pleased to support the Superintendency of Banks, Insurers and Private Pension Funds (SBS) in Peru in the development and implementation of a new regulation to strengthen due diligence in the Peruvian financial sector. The regulation is available in Spanish (official) and English (unofficial) here.

Shift provided advisory support to the SBS regarding the development of a new regulation aimed at mitigating social conflict related to large investment projects in Peru. This initiative responded to the evidence that such conflict can increase credit risk and reduce the creditworthiness of projects and/or their primary suppliers that are directly or indirectly affected by social conflicts. | Jump to our report on the cost of conflict in the extractives sector

In recent years there has been considerable social conflict in Peru around major commercial projects, particularly in the extractive industries and forestry. This has in part resulted from local communities’ concerns about the impacts these projects may have on their livelihoods, welfare and human rights. These conflicts are seen to have implications for the credit risk of individual Peruvian banks, the stability of the Peruvian financial system, and the reputation of Peru as an investment location.

Shift worked with the SBS to look at how the elements of due diligence set out in the Guiding Principles could provide a useful reference point for the planned regulation. This advice focused on the role of effective community dialogue and engagement and grievance handling processes in ensuring that due diligence processes are effective in mitigating risks of social conflict.

The SBS has now issued the new regulation, which requires banks to pursue social and environmental risk management in relation to certain advisory services and loans for particular projects in Peru, including natural resource extraction projects. While the new regulation is framed in terms of social and environmental due diligence in general and emphasizes reduction of systemic risk, its greatest innovation lies in the human rights lens it brings to the requirements of banks, and in turn of their clients, including the assessment of the quality of client companies’ processes for engaging directly with potentially impacted communities and providing channels for them to raise grievances. In this regard, it reflects important features of human rights due diligence emphasized in the Guiding Principles.

During the development of the regulation, Shift was pleased to provide additional support to the SBS including delivering collaborative capacity building workshops for key SBS staff, joint with the Association of Banking Supervisors of the Americas (ASBA), as well as training for representatives from Peruvian banks that are subject to the new regulation.