Last month marked the tenth anniversary of the United Nations’ Human Rights Council adoption of the Guiding Principles on Business and Human Rights (“UNGPs”), setting forth the internationally-accepted framework for the role of businesses in promoting and protecting human rights. These principles highlight the risks businesses face in their activities that may be linked to human rights violations. According to the UNGPs, “[b]usiness enterprises should respect human rights. This means that they should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved.”
For the financial services industry, a sector regularly focused on identifying and mitigating risk, human rights risks are unique. The BSR identified the ten “most relevant, urgent and probable human rights impacts” of financial services activities, including practices related to customer due diligence, investment in certain development and commodities, privacy, supply chains, corruption, and pay and lending discrimination. These are all important areas of risk and impact. The financial services industry is also addressing human rights in a way that may be going unnoticed. Financial institutions are promoting social goals (the “S” in ESG) through their unique role in combatting human trafficking and supporting survivors of this crime. Below, we further explain how banks and other financial institutions are currently combatting human trafficking and suggests a proposed next step on the road to financial institutions’ measuring their impact on promoting human rights preservation and advancement.
Anti-Trafficking Progress to Date. In the last several years, financial institutions have demonstrated a commitment to human rights by:
- Engaging in workforce training on human trafficking awareness
- Enhancing methods to detect human trafficking in their anti-money-laundering functions through trainings and typology refinement
- Including human trafficking risk factors in consumer and commercial costumer due diligence and know-your-customer processes
- Participating in the United Nations’ Finance Against Slavery and Trafficking Initiative’s Survivor Inclusion Initiative and consistent with its goals, beginning to onboard survivors as bank customers. As customers, survivors can access basic financial services and begin the journey to financial security.
- Promulgating and enforcing supplier codes of ethical conduct and codifying human rights protection in public anti-modern slavery statements
- Engaging with local community-based efforts to support vulnerable populations at risk for being trafficked.
The Next Step for Financial Institutions. The first decade of the financial services industry’s commitment to human rights preservation and advancement as prescribed by the UNGPs ought to be followed by innovative initiatives. A focus on human rights-linked lending frameworks, in addition to the other areas of impact listed by BSR, could be that innovative next step. What banks have done with sustainability-linked loans and derivatives could be the model. As a basic concept, banks require pledged collateral to hedge the risk of nonpayment. Banks might consider hedging risks to human rights by requiring borrowers to address any links to human rights violations and create opportunities to minimize human rights’ violations. Incentives could include lower spread, lower collateral requirements and modifications to affirmative covenants. Because, at the end of the day, a borrower that 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 Outcomes. Measurable outcomes for financial institutions’ impact on human rights as it relates to human trafficking generally can include the number of: reported suspicious activity indicative of exploitation; human trafficking survivors onboarded as customers; anti-trafficking non-profits supported through charitable giving and banking services; human rights-linked loans; lending covenants to advance human rights; and, commercial banking relationships with organizations that advance human rights. Further development of lending incentives linked to borrowers’ role in the protection of human rights could be a significantly impactful next step. It carries the financial industries’ commitment to anti-trafficking and human rights through to commercial and corporate customers and their supply chains.
As financial institutions look to promote social goals in their ESG programs, they ought to reflect on current and potential anti-trafficking activities and further consider human rights-linked lending frameworks. Although the development of quantifiable metrics and concrete reporting on social performance of the financial services sector’s impact on human rights is in the development stage, as compared to environmental and sustainability impacts, real progress is not far off.
Ed's practice is focused on swaps, derivatives, general corporate matters, and advising clients on various types of debt and equity capital market activities (e.g., security private placements, loans and revolving credit ...
Sarah has years of experience representing survivors of sex and labor trafficking and is nationally recognized for her work in combatting human trafficking. Sarah is a frequent conference speaker and advocate for legislative ...
About MVA White Collar Defense, Investigations, and Regulatory Advice Blog
As government authorities around the world conduct overlapping investigations and bring parallel proceedings in evolving regulatory environments, companies face challenging regulatory and criminal enforcement dynamics. We help keep our clients up to date in these fast-moving areas and to serve as a thought leader.
MVA White Collar Defense, Investigations, and Regulatory Advice Blog Updates
- Federal Reserve Board Issues Denial to Custodia Bank
- States Look to Impose Financing Disclosure Requirements on Commercial Loans and the CFPB Considers Potential TILA Preemption Considerations
- Banks – What Should You Know? Civil Liability for Failure to Detect Human Trafficking
- Client Alert: Beneficial Ownership Reporting at the Federal Level effective January 1, 2024