How the Financial Sector Can Help Accelerate Access to Remedy

April 27, 2022

When a group of banks financed a large construction project in the Middle East, it ensured the project included a system for migrant construction workers to report adverse impacts on their labor rights to management. Over the course of the multi-year project, this so-called “grievance mechanism” received and dealt with hundreds of issues. When I reviewed reporting on the mechanism as part of the project’s periodic social performance evaluation, a significant number of the complaints were about canteen food (don’t underestimate the importance of good food!)—but issues around wages, health and safety, and worker accommodation were also reported and subsequently remediated.

The project above is a good, but all too rare instance of “Access to Remedy” (AtR). Despite the best efforts of governments and businesses to protect and respect human rights, there is clearly still a need to ensure people harmed by economic activities are able to raise issues and have them addressed. It is also the third pillar of the UN Guiding Principles on Business and Human Rights (UNGPs) and an essential way to ensure that economic activity does no harm and is beneficial for as many affected people as possible. However, more than 10 years since the UNGPs set the standard for the intersection between business and human rights, there needs to be more progress when it comes to companies of all sectors providing AtR—and I believe the financial sector can help accelerate this progress.

There are a number of building blocks already established by individual financial actors. The IFC and other development banks, such as FMO and the EIB, all have mechanisms in place to receive grievances from affected communities. The Dutch banking sector agreement (a multi-stakeholder initiative aimed at more respect for human rights) published an influential report on AtR and the importance of a “remedy ecosystem.” The Australian commercial bank ANZ publicly launched its grievance mechanism in October 2021, while ABN AMRO Bank is exploring whether it can develop a similar grievance mechanism for its lending activities. Other types of financial sector organizations, like pension funds, asset managers, and insurance companies, have also started actively looking into their role when it comes to AtR, but ESG policy and practices when it comes to AtR is quite limited.

There are plenty of reasons for the financial sector to take a leading role in facilitating AtR. Firstly, it is our responsibility. As a sector, we are directly linked to most economic activity and therefore have a responsibility to also facilitate AtR for those negatively impacted by such activity. Secondly, it is in our interest to know when things are going wrong with the economic activity we finance—and grievance mechanisms provide an effective “early warning mechanism.” Research shows the costs of social conflict are extremely high when ignored for too long. Thirdly, upcoming (EU and national) due diligence legislation requires (large) companies to set up grievance mechanisms—and many of the companies we finance and/or invest in will be impacted by this.

Recognizing the systemic leverage financial actors have over the economy, how can we better facilitate AtR? A financial sector collaboration dedicated to enabling AtR, for example, could build awareness in the financial sector—from banks and investors to insurance companies, private equity, and others—that we all have a role to play. Such an initiative could also set up a “center of expertise” related to AtR and how to best apply whatever form of leverage is available—collecting best practice examples, encouraging transparency, conducting research on the existence and effectiveness of company grievance mechanisms, and connecting organisations.

Furthermore, the financial sector can collaborate with civil society to address two significant AtR issues. The current number of grievances we’re aware of is not correlated to the current number of negative human rights impacts. For example, from June 2020 to December 2021, the RMG Sustainability Council (set up in response to the Rana Plaza factory collapse nine years ago) received 2,000 complaints from workers. Given the organization’s focus on the Bangladeshi garment sector, it is highly likely there are many more grievances in other regions and sectors than we know about. In addition, a grievance procedure is often not a “level playing field” and can pit a community, trade union, or individual represented by an overworked and underpaid legal counsel against a highly professional, exorbitantly compensated legal team on behalf of the company. The financial sector can work directly with civil society to address these two systemic issues. Again, it is in our interest to ensure affected people are heard and there is a fair process in place for their issues to be treated in a timely and equitable manner.

If the banks previously mentioned had not insisted on establishing a grievance mechanism, the migrant construction workers would have received less pay, worked in more hazardous conditions, lived in more ramshackle dormitories and—last but not least—enjoyed their meals a lot less. There is great potential for the financial sector to ensure economic activity does no harm and benefits as many people as possible.

Originally appeared on BHRRC.

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