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Most banks looking the other way on labor rights violations, new report finds

In late 2014, BankTrack benchmarked banks on how they were integrating their responsibilities under the UN Guiding Principles into their policies, processes and reporting. The results were not encouraging: on a scale of 12, the average score was 3.

Now BankTrack has launched a series of Human Rights Impact Briefings, to follow up on that work and shed further light on the extent to which banks are living up to their responsibilities under the UN Guiding Principles, this time by examining specific instances of human rights violations linked to bank finance, and asking banks to explain how they have responded. The first one assesses the responses of fifteen large commercial banks to evidence of serious labor standards violations by a company they financed, the Malaysian palm oil grower IOI Corporation. It concludes that banks must do more to meet their obligations under UN guidelines to disclose their response to specific human rights impacts linked to their finance.

For this first briefing, BankTrack set out to investigate the links between banks and IOI Corporation, which is one of Malaysia’s largest conglomerates and a major global palm oil grower and trader. In 2014, Finnwatch, the Finnish non-governmental organization focused on global corporate responsibility, documented IOI Corporation human rights impacts on freedom from forced labor, freedom of association and right to an adequate standard of living. IOI Corporation was found to have blocked foreign workers on their plantations from joining trade unions, withheld their passports – a recognized indicator of forced labor, and failed to pay some workers the minimum wage.

BankTrack presented banks with existing research and asked them to detail how they had met their responsibilities to seek to prevent or mitigate these impacts. This is a basic requirement under the UN Guiding Principles on Business and Human Rights, whereby all businesses are required to seek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or services by their business relationships. Further, businesses have a responsibility to account for how they address such human rights impacts by communicating this externally.

While all banks but one responded, half of these did not acknowledge their links to IOI Corporation or discuss the specific impacts raised in the briefing. This is despite the evidence of these financial links being available either publicly or on industry databases to which banks themselves provide information. Four banks cited concerns around customer confidentiality as reasons for not providing further disclosure.

Among the seven banks which did acknowledge their financial links to IOI Corporation, only three said that they had taken some action in response to the impacts outlined, either by engaging with the company or dropping it from funds labelled as “socially responsible.”

However the UN Guiding Principles ask businesses, including banks, to account for how they address their human rights impacts by giving information that is ‘sufficient to evaluate the adequacy of the enterprise’s response’. None of the banks provided information which we would view as meeting this standard.

We plan to produce three further Human Rights Impact Briefings during 2016, as well as follow up on our 2014 benchmarking report, to build a better picture of how banks are implementing the UN Guiding Principles, both in their policies and reporting and in specific cases of adverse human rights impacts linked to bank finance. It is often said that sunlight is the best disinfectant, and we hope that exposing real human rights impacts of bank finance to more sunlight will lead to more transparency and better outcomes for rights holders.

Ryan Brightwell is Researcher and Editor at BankTrack. Click here to read full briefing.

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