Civil society organizations called for human rights accountability of financial firms, investment agreements and corporate tax practices in the United States. A submission (hereinafter “the submission”) by RightingFinance, Friends of the Earth and Global Witness articulated such demands in the occasion of a consultation in preparation for the US National Action Plan on Responsible Business Conduct.
The US Administration committed to develop a National Action Plan on Responsible Business Conduct, which would be essentially the equivalent of what other countries are doing in implementation of the UN Guiding Principles on Business and Human Rights. Guidance issued by the US government, however, states the NAP will not be just address human rights but established norms of responsible business conduct with respect, but not limited to, human rights, labor rights, land tenure, anti-corruption, and transparency.
To frame its demands on accountability of financial firms, the submission built on Principle 3 of the UN Guiding Principles on Business and Human Rights that say “in meeting their duty to protect, States should: “(a) Enforce laws that are aimed at, or have the effect of, requiring business enterprises to respect human rights, and periodically to assess the adequacy of such laws and address any gaps; (b) Ensure that other laws and policies governing the creation and ongoing operation of business enterprises, such as corporate law, do not constrain but enable business respect for human rights.”
It argued that reporting requirements for companies that issue publicly-traded securities may operate as a constraint for business respect for human rights by excluding issues that are not “material.” This qualification in the requirement would not be so much of a constraint if human rights, environmental and social aspects of a company’s operations were considered material. But the Securities and Exchanges Commission –the agency in charge of further regulating and enforcing such disclosures — has understood, generally, materiality in a narrow way, as ‘financial’ materiality. The submission requested the Administration to expand corporate disclosure requirements for listed and non-listed companies on human rights, environmental and social issues, including, for instance, due diligence measures companies have in place to prevent such risks.
The case was particularly strong in “high risk” investments, such as infrastructure and farmland. Decisions in the Group of 20, multilateral development banks and other forums that promote infrastructure as an asset class are likely to lead to growth in infrastructure investments by institutional investors. These projects are particularly prone to affecting human rights, given the way they often involve resettlements, affect the livelihoods of communities and distribution of benefits and losses in the ensuing contracts with the government. Similarly, evidence points to financial firms’ growing consideration of agriculture and land itself as an investment asset class. The direct purchases or securing of long term use for large tracts of land also present high risks of human rights conflicts that range from violations associated with how the land was initially acquired to violations of civil and political rights relating to disputes with local communities.
In addition to disclosure regulation, the existing regulation on fiduciary duties of trustees or managers of institutional investors is an aspect of existing regulation that may constrain financial sector companies’ ability to respect human rights, the submission stated. ”Although several studies find that there is nothing to prevent trustees and asset managers from considering human rights, social and environmental factors as part of their analysis”, they said, there is no encouragement or requirement to do so in the existing guidance.”
Regulations on vulture funds and index funds were special cases that the submission targeted. Vulture funds were recently the subject of a Human Rights Council resolution that held that debt repayment to such funds, under predatory abusive conditions, bears a direct negative effect on human rights. The submission implied that the availability of possible legislative remedies that could prevent the behavior of these financial entities from harming human rights means there are measures that the State could take to comply with its duty to protect human rights on this front.
With regards to index funds, the submission claimed that they represent a way for investors to evade human rights accountability for the companies they are investing in. Since index funds are by definition constituted by a large number of companies, given a particular human rights issue with one of the companies, the equity owned by a particular asset manager would be extremely small. Since there would be so many companies represented in the index, it would be impossible for the managers to monitor human rights performance in all of them, even if they wanted to do so. If a human rights issue emerges, even in the case of an asset manager that has a mandate to disengage from investments representing human rights risks, short from having the index reconstituted – an option we should assume is never available — it would be impossible to do so.
Citing some of the cases when rules in US investment treaties enabled US companies’ challenging overseas regulations required to comply with human rights in other countries, the submitting groups made demands for a review of the US draft investment treaty template to include alternative approaches that guarantee human rights are enforced with primacy over companies’ rights. They also called for an open review of investment clauses in existing US treaties to conform them to the newly-adopted template. Because preventing future abuses would not provide justice to victims of past ones, an additional demand asked for an audit of existing treaties to identify cases where companies used them to limit the ability of other States to comply with their human rights obligations and ensure such companies provide compensation in line with ex post human rights impact assessments.
On corporate tax practices, the submission emphasized the material cost that corporate tax fraud, evasion and aggressive avoidance tactics have on all governments’ realization of human rights, due to their impact on lost revenue. This is especially the case in poorer countries who receive more corporate income tax as a proportion of their tax take. This loss of financing is not just a threat to the government’s starving revenue base, it also undercuts its redistributive capacities to reverse growing economic and gender inequalities, the submission said.
According to the Administration, the National Action Plan should be ready after the summer.