Human Rights and Environmental Risks, Responsibilities, and Opportunities of Financial Institutions

The Business and Human Rights Lawyers Association in partnership with King and Spalding, the American Society of International Law NYC Chapter, Business and Human Rights Committee of the NYC Bar, Business for Social Responsibility, KPMG LLP, NYU Stern Center for Business and Human Rights, and the Vance Center for International Justice of the NYC Bar hosted this hybrid event to discuss the human rights responsibilities of financial institutions.

The discussion, kicked off by Robert McCorquodale, centers on the UN Working Group’s recent report regarding investor responsibilities in respecting human rights, especially for those investing in ESG aspects, and emphasizes the necessity for financial institutions to adopt a human rights due diligence framework within internal policies and management systems. He identifies the key categories of institutional involvement with adverse impacts — “causing,” “contributing to,” and “directly linked”— and stresses that failing to act on known human rights risks can implicate investors in facilitating abuses. There are also several key recommendations for investors listed in the report, including a shift from a solely financial materiality perspective to a double materiality framework that more adequately addresses adverse human rights impacts.

McCorquodale also cautions against an overreliance on data from data providers that may not fully capture the complexities of human rights issues (i.e., data that may reflect over 50% of female employees in a company as a net positive, yet will fail to detail the level of seniority of women or the treatment of those women). The report makes clear that if an investor fails to take reasonable steps to prevent or mitigate an investee's actions, this may be viewed as facilitating the continuation of that situation, thereby contributing to the human rights violation and necessitating direct remediation. Consequently, McCorquodale cautions against lawyers who may advise clients toward inaction.

McCorquodale provides a practical example from Equitable Cambodia IDI v. ANZ Bank (2018), where an Australian bank funded a Cambodian sugar company without verifying the company's intended use of the investment. The company used the funds to seize land and displace legitimate landowners. The National Contact Point for the OECD guidelines noted that ANZ Bank failed to implement appropriate human rights due diligence and subsequently compensated the displaced landowners and introduced a grievance mechanism.

Michael Littenberg highlights practices relating to integrating human rights into ESG for asset owners and managers. He observes that discussions around human rights are rapidly gaining traction alongside environmental and governance issues that have traditionally dominated the ESG conversation. Littenberg points out the challenges of incorporating a human rights framework or checklist, given variations in asset class, investor size, and regional differences. It’s essential to recognize these nuances in the integration process. Legislative developments, such as the Uyghur Forced Labor Act in the US and the CSDDD in the EU, serve as catalysts for increasing investor focus on human rights issues, enhancing transparency, and enabling better management of these challenges.

The ensuing dialogue between McCorquodale and Littenberg explores the distinction between the "directly linked" and "contributing to" categories of responsibility. McCorquodale remarks that if an investor has enabled an investee to engage in adverse human rights impacts, is aware of a controversy, but chooses not to take any action—such as engaging in stewardship or instructing the asset manager to review the investment—then the investor may fall into the "contributing to" category, incurring a higher level of responsibility. Both speakers highlight the crucial role of lawyers in bridging these discussions with clients, advocating for a deeper understanding not only of current legal frameworks but also of emerging trends. The Business and Human Rights Lawyers Association (BHRLA) is recognized for facilitating these valuable discussions among legal professionals, reinforcing the necessity for comprehensive legal expertise in navigating these complex issues.

The session ended with Q&A, where attendees and speakers discussed topics including (1) concerns with passive investment and its potential to expose financial institutions to unforeseen human rights abuses, as well as (2) examples of best practices from investors implementing these human rights due diligence systems. To the latter point, McCorquodale encourages members to read the full UNWG report for further examples.

Speakers

‍Michael Littenberg, Partner at Ropes & Gray, Global Head of ESG, CSR and Business and Human Rights Practice
Robert McCorquodale, member of the OHCHR’s Working Group on Business and Human Rights (UNWG), former Director of the British Institute of International and Comparative Law