All people have a natural entitlement to human rights. They specify the essential safeguards of human dignity, needs, and freedoms, such as food, shelter, privacy, personal security, and democratic participation. They are defined and established in more than 80 international legal instruments.
Governments have been largely responsible for defending human rights since the Universal Declaration of Human Rights (UDHR) was adopted in 1948. But starting in the early 2000s, it became more and more obvious that the private sector might also violate—and support—the liberties guaranteed by the framework.
The UN Guiding Principles on Business and Human Rights (Guiding Principles), the first international document to hold corporations accountable for upholding human rights, was unanimously accepted by the UN Human Rights Council in 2011. According to the Guiding Principles, governments must enact sound policies, laws, and enforcement measures to stop corporations from violating rights; corporations must refrain from doing so even in cases where governments fail to enact or enforce the necessary laws, and those who have been the victims of corporate abuses must have access to effective redress. The Guiding Principles mandate that as part of this obligation, businesses must do due diligence to recognize and mitigate their adverse effects on human rights.
The 10 most important, urgent, and likely effects on human rights for financial sector companies are listed in this primer. The data presented here was acquired through direct interactions with businesses in the financial industry.
Private equity, venture capital, commercial banking, asset owners and managers, and other firms and activities make up the financial industry. This brief emphasizes general dangers for businesses engaged in the banking industry, even though each of these subsectors will have its unique human rights profile and difficulties.
Top 10 Human Rights Risks In The Financial Sector
1: Practices of Discrimination in Lending
No matter how big or little, lending practices pose a risk to human rights. Individual brokers may target minority applicants for loans they are unlikely to be able to afford in the long run, as was the case during the subprime mortgage crisis. Similarly to this, whole lending organizations may refuse to loan clients based on their ethnicity, religion, or gender. Financial models can perpetuate, worsen, or hide prejudice as loans are increasingly granted or rejected by algorithms.
2: Customer Due Diligence
Before making loans, all financial organizations, big and small, should do environmental, social, and governance due diligence. The Guiding Principles clearly state that businesses must assess all of their relationships, including those with their customers, for potential human rights impacts. This is true regardless of whether they are dealing with a single client, a small business, a multinational corporation, or a government agency. Without first looking into a customer’s social and environmental history, lending to them might facilitate egregious human rights violations. This could take the form of supporting oppressive regimes or fostering the expansion of businesses that mistreat their employees.
3: Sector Due Diligence
In addition to performing client due diligence, financial sector organizations should also perform sector due diligence to make sure that their investments in businesses, infrastructure projects, or other entities do not support human rights violations. The geographic setting in which the investment will be made as well as operation-specific effects, such as the displacement of the local population by a mining project, should be taken into account during sector due diligence. The possible effects of not conducting sector due diligence are just as diverse as those described in risk.
4: Bribery and Corruption
Large-scale projects that seek outside money frequently include corruption, particularly those that are carried out in authoritarian nations, by state-owned businesses, or under the direction of people with political clout. By misusing monies that could be used for healthcare, education, or other public goods, or by restricting participation in the democratic process, corruption and bribery have a significant negative impact on disadvantaged groups. Financial sector companies should make sure that any participation in high-corruption environments follows international standards of accountability and transparency.
5: Land Development and Large-Scale Infrastructure
Strong due diligence on land rights, displacement, and forced relocations is necessary for project financing, especially in nations where access to remedies for these breaches is severely restricted or nonexistent. Companies should make sure that infrastructure projects are only constructed under rigorous adherence to international laws on consultation, compensation, and population relocation in environments where there is a high danger of corruption and poor rule of law.
6: Commodities Investing
Trading and investing in commodities, particularly in agricultural or staple goods, may have a significant impact on the cost of food, water, and healthcare, as well as limit how vulnerable communities can use land or other natural resources. Although these effects may first seem to be outside the purview of the financial sector’s due diligence, they can have significant distortionary consequences, and the companies involved should think about taking on collective mitigation duty.
7: Customer and Employee Privacy
Human rights abuses may be caused by data breaches and the improper use of consumer or employee information, particularly if sensitive financial information is revealed. Companies must make sure that any data acquired is secure by doing regular security updates and providing employees with the necessary training. Arbitrary invasion of privacy is regarded as a breach of human rights. The correct gathering and use of such data fall squarely into the purview of a company’s direct obligations under the Guiding Principles.
8: Slavery and Modern Human Trafficking in Supply Chains
In their supply chains, all companies that buy goods or services run the danger of supporting forced labor and human trafficking. Regardless of the size of a company’s procurement, supply chain mapping is essential to pinpoint the biggest threats, check for compliance with regional legislation, and, where appropriate, correct infractions. Even while a business cannot be held accountable for every supplier’s working conditions, it is crucial to spot the worst transgressions and take preventative measures.
9: Equal Pay
The financial services industry in the US accounts for three of the top five jobs with the largest income discrepancies between men and women. Financial organizations should carry out an internal investigation to make sure that their workers are paid fairly for the work they do and take corrective action if any inequities are discovered.
The financial business has always been controlled by men. Financial firms have discriminated against various minority groups in recruiting, promotion, and workplace culture norms in addition to the gender wage gap. Even while significant progress has been made to address these problems, especially in developed economies, there is still cause for serious worry. Financial institutions should monitor and involve their staff to prevent discriminatory activities as well as actively address these concerns through workplace discrimination and sexual harassment policies, procedures, and training.