Human Rights and the Financial Sector - February 16, 2007

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Office of the High Commissioner for Human Rights,
in Cooperation with the Special Representative of the Secretary-General for Human Rights and Transnational Corporations and other Business Enterprises

Consultation on Human Rights and the Financial Sector

February 16, 2007, Geneva

Karyn Keenan
Halifax Initiative Coalition

The Halifax Initiative is a coalition of over twenty Canadian organizations that represent organized labour and faith-based constituencies, as well as human rights, international development and environmental groups. The coalition works for the transformation of public financial institutions, including export credit agencies (ECAs) and international financial institutions (IFIs), so that their operations promote truly sustainable development and the full realization of universal human rights.

Public financial institutions are key actors in the area of human rights and transnational corporations (TNCs). They are particularly relevant to the mandate of the Special Representative. The Special Representative has been charged with examining the role of states in effectively regulating and adjudicating the role of TNCs with regard to human rights, including through international cooperation. States have a unique opportunity and an accompanying responsibility to exercise this regulatory function when they facilitate the exports and overseas investments of their TNCs through officially-supported export credits. The role of international financial institutions, including the multilateral and regional development banks, is critical to international cooperation efforts in the regulation of TNCs.

The Special Representative has also been mandated to report on the standards of corporate responsibility for TNCs with regard to human rights. This requires a consideration of the International Finance Corporation (IFC), which has positioned itself as the de facto source of international corporate social responsibility standards for project finance. IFC standards are also under evaluation as the basis for government regulation.

Public financial institutions are important actors in the area of TNCs and human rights because of the remarkable role they play in facilitating corporate activity. The OECD reports that in 2005, ECAs issued over US $125 billion in credits, insurance, guarantees and interest support. In the case of IFIs, the worldwide committed portfolio of just the IFC for fiscal year 2006 surpassed US $21 billion.

Public financial institutions often support high-risk projects with the potential to generate serious social and environmental impacts, frequently in areas of conflict and/or weak governance – that is, projects that are more likely to be associated with human rights concerns. Several IFIs are specifically mandated to finance projects that do not attract private capital on “reasonable terms” due to the associated risks. In such cases, IFI involvement frequently determines whether and how these risky projects are developed.

Unfortunately, as we heard from Titi Soentoro, the risks are not always adequately managed and all too often, the investments supported by public financial institutions generate or are associated with far-ranging and sometimes extremely serious human rights abuses.

Public financial institutions are not only well placed, both as standard-setters and the purveyors of significant financial and political backing, to influence TNCs in the area of human rights, they have an obligation to ensure that their clients meet international human rights standards.

I would like to refer the Special Representative to two publications regarding the human rights obligations of public financial institutions. The first was written by Steven Herz, who is with us today, on behalf of the Bank Information Center. It concerns the role and responsibilities of IFIs with respect to human rights and their relevance to the private sector. This document was submitted to the Special Representative in advance of today’s meeting. The second document was produced by the Halifax Initiative and concerns the human rights obligations of ECAs. I believe that the Special Representative has some familiarity with this document, which is available on our website.

Export Credit Agencies

Based on the rules of attribution under public international law, which include a consideration of ownership and control, as well as the nature and purpose of ECA activities, officially-supported ECAs are organs or agents of the state. Under the international law principle of the unity of the state, the acts and omissions of all state organs are attributed to the state for the purposes of international responsibility. This means that ECAs are bound by their governments’ international obligations, including those concerning human rights.

It has been argued that when ECAs apply standards to their nationals in foreign jurisdictions, they unlawfully interfere in the sovereign affairs of foreign states. However, the extraterritorial application of a country’s legislation to its nationals is permitted under international law – provided that the relevant provisions do not conflict with host country laws. In the context of human rights, such conflicts are unlikely to occur given the universality of these rights and the customary law character of a number of human rights norms. Moreover, in order for an international human rights provision to conflict with host state legislation, the latter would have to prohibit the observance of human rights norms.

Should OECD ECAs make a collective decision to adopt the IFC Performance Standards, as they seem poised to do, they would apply these standards to their clients’ overseas operations. It stands to reason that if ECAs are amenable to the extraterritorial application of Word Bank standards, they should have no difficulty with the extraterritorial application of the international human rights standards that have been ratified by their governments.

At least one ECA, Belgium’s Ducroires, has begun to condition support to TNCs on compliance with Belgium’s international human rights obligations.

International Financial Institutions

International financial institutions are public agencies, with public mandates that are owned and governed by states that have international human rights obligations. They are inter-governmental organizations with international legal personality. This implies that they are bound by general international law including the human rights principles that are recognized under customary international law.

The World Bank has long argued that it is barred from considering human rights issues by its Articles of Agreement. The Bank maintains that the Articles limit its analysis, during decision-making, to purely economic considerations. However, according to a legal opinion produced in 2006 by then-World Bank General Council, Roberto Dañino, “it is consistent with the Articles that the decision-making processes of the Bank incorporate human rights.” In fact, in some cases, he adds, the Articles require the Bank to recognize the human rights dimension of its development policies and activities, as human rights constitute an intrinsic part of the Bank’s mission.

To conclude, public financial institutions can play a critical role in ensuring that TNCs operate in a manner that is consistent with international human rights standards. In fact, they have an obligation to do so.

One ECA has assumed this responsibility. Others lag far behind. And while the IFIs have taken some preliminary steps towards addressing human rights, they are a long way from discharging their international human rights obligations.

I strongly encourage the Special Representative to focus a level of attention on these institutions that is commensurate with their substantial influence over the operations of TNCs. Finally, I urge the Special Representative to utilize his unique position to call for leadership from the public financial institutions in the fulfillment of their international human rights obligations.