The role of financial services in the fight against trafficking, human rights and ESG is at a crossroads | Moore & Van Allen SARL
Last month marks the tenth anniversary of the adoption by the Human Rights Council of the Guiding Principles on Business and Human Rights (“UNGP”), setting out the internationally accepted framework for the role of business in the promotion and protection of human rights. These principles highlight the risks companies face in their activities that may be linked to human rights violations. According to the UNGP, “[b]Business enterprises must respect human rights. This means that they must avoid infringing on the human rights of others and must address the negative impacts on human rights in which they are involved.
For the financial services industry, an industry consistently focused on identifying and mitigating risk, human rights risks are unique. The BSR has identified the ten “most relevant, urgent and probable impacts on human rights»Financial services activities, including practices related to customer due diligence, investment in certain developments and commodities, privacy, supply chains, corruption and discrimination in remuneration and loan. These are all important areas of risk and impact. The financial services industry also approaches human rights in ways that can go unnoticed. Financial institutions promote social goals (the “S” in ESG) through their unique role in combating human trafficking and supporting survivors of this crime. Below, we explain in more detail how banks and other financial institutions are currently combating human trafficking and suggest a proposal for the next step on the path of financial institutions measuring their impact on promoting preservation and protection. advancement of human rights.
Progress in the fight against trafficking to date. In recent years, financial institutions have demonstrated their commitment to human rights by:
Engage in workforce training on human trafficking awareness
Improve methods of detecting trafficking in human beings in their anti-money laundering functions through training and refinement of the typology
Include human trafficking risk factors in consumer and business customer and know-your-customer due diligence processes
Participate in the Survivors Inclusion Initiative of the United Nations Anti-Slavery and Trafficking Financing Initiative and in accordance with its objectives, beginning to integrate survivors as clients of the bank. As clients, survivors can access basic financial services and begin the journey to financial security.
Promulgate and enforce ethical supplier codes of conduct and codify human rights protection in public statements against modern slavery
Engage in local community efforts to support vulnerable populations at risk of being trafficked.
The next step for financial institutions. The first decade of the financial services sector’s commitment to the preservation and advancement of human rights, as mandated by the UNGP, should be followed by innovative initiatives. A focus on human rights-related lending frameworks, in addition to the other impact areas listed by NS, could be this innovative next step. What banks have done with sustainability loans and derivatives could serve as a model. As a basic concept, banks require guarantees given to cover the risk of non-payment. Banks could consider hedging human rights risks by requiring borrowers to address any connection to human rights violations and create opportunities to minimize human rights violations. Incentives could include a lower spread, lower collateral requirements and changes to covenants. Because at the end of the day, a borrower who may be linked to human rights violations poses a risk to the lender’s credit, bottom line, reputation and social responsibility.
How to measure anti-trafficking / human rights results. Measurable results of the impact of financial institutions on human rights in relation to human trafficking can generally include the number of: suspicious activities reported indicating exploitation; survivors of human trafficking integrated as clients; anti-trafficking non-profit organizations supported by charitable donations and banking services; human rights loans; lend pacts to advance human rights; and, commercial banking relationships with organizations that advance human rights. Further development of lending incentives linked to the role of borrowers in protecting human rights could be a next step with far-reaching impact. It brings the financial industries’ commitment to anti-trafficking and human rights to business customers and businesses and their supply chains.
As financial institutions seek to promote social goals in their ESG programs, they should reflect on current and potential anti-trafficking activities and further consider human rights-related lending frameworks. Although the development of quantifiable measures and concrete reports on the social performance of the impact of the financial services sector on human rights is under development, in relation to environmental and sustainability impacts, real progress is not being made. are not far away.