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10 Dec 2021

Ioana Tuta, Adviser, Danish Institute for Human Rights Signe Andreasen, Strategic Adviser, Danish Institute for Human Rights

Development finance institutions and human rights: The urgent need to connect the dots

In December 2021, the UN Working Group on Business and Human Rights launched its much-awaited roadmap for the next decade. High on the action list is the need to make business respect for human rights central to the just transition and sustainable development strategies. While the report acknowledges that many actors need to step up, it is significant that the roadmap explicitly mentions development finance institutions (DFIs) in this respect.

DFIs are unique investors. As state-owned or state-supported institutions, they have a mandate to provide loans, equity and guarantees to the private sector in low- and middle-income countries. Their developmental impact lies in their ability to foster private sector growth and associated job creation and access to goods and services in countries where private investors are often hesitant to invest because of governance and political risks.

The strong focus on leveraging private finance in the 2030 Agenda and Addis Ababa Action Agenda has enhanced the role of DFIs and created opportunities for portfolio expansion. Concurrently and somewhat paradoxically, civil society organisations have increasingly documented human rights allegations linked to DFIs’ investments and sought accountability for affected communities via judicial and non-judicial mechanisms. Such abuses have been connected to shortcomings in the implementation of DFIs’ environmental and social due diligence processes. In 2019, the Office of the High Commissioner for Human Rights (OHCHR) published a study highlighting gaps in DFIs’ sustainability policies and procedures when benchmarked against the UN Guiding Principles on Business and Human Rights (UNGPs).

Since the publication of the 2019 OHCHR study, some DFIs have revised or are in the process of revising their policies and procedures to further align with human rights standards. As part of these efforts, DFIs should take a critical look at their strategies and organisational structures which might inadvertently limit the transformative potential of human rights due diligence.

As illustrated in a Discussion Paper published today, many DFIs have approached human rights and the 2030 Agenda in a relatively disjointed manner. While the SDGs have been incorporated as a cross-cutting, strategic agenda centred on positive developmental impacts, human rights have been more narrowly interpreted as a compliance agenda focused on screening for and managing negative impacts on workers and communities. Moreover, oftentimes DFIs have different teams and methodologies for managing negative human rights impacts and demonstrating positive SDG impacts. As a result, DFIs often report “the number of jobs” created by their investments as a contribution towards SDGs, but not whether the jobs created are quality or decent jobs. Or, in the case of investments in healthcare, DFIs often record “the number of patients served” as an SDG contribution, but not whether the health services provided are affordable and reach marginalised communities.

This disconnected approach falls short of acknowledging the developmental impact and value add of human rights due diligence. As articulated by the late John Ruggie, “getting respect for human rights right is itself radically transformative and disruptive” and a meaningful contribution towards SDG realisation. For example, influencing a client to consult with local communities before undertaking a natural resource-related project on local communities’ lands is not only good human rights risk management but a direct contribution to SDG target 12.2 (achieve the sustainable management and efficient use of natural resources) and SDG target 1.4 (ensure equal rights to economic resources).

To deliver on the roadmap outlined by the UN Working Group on Business and Human Rights, it is pressing that DFIs elevate human rights due diligence from a risk management approach only to a cornerstone for securing development impacts.

The disconnect between SDGs and human rights might also make DFIs less prepared to prevent human rights harm. The energy transition is a case in point. As DFIs make investments in green energy a critical component of their contributions towards SDG realisation, they might fail to consider the dramatic increase in allegations of human rights abuses linked to clean-energy projects and their supply chains. The hard fact that clean energy technologies require the mining of minerals and metals at unprecedented levels which can harm vulnerable communities is a complex problem that needs to be addressed collectively. Given their unique mandate, DFIs have a distinct opportunity to lead by example and ensure that investments to decarbonize the planet do not come at the expense of human rights.

To deliver on the roadmap outlined by the UN Working Group on Business and Human Rights, it is pressing that DFIs elevate human rights due diligence from a risk management approach only to a cornerstone for securing development impacts. Overcoming internal strategic and organisational silos around the implementation of the SDGs and human rights is an important step in the right direction.

By Ioana Tuta, Adviser, and Signe Andreasen, Strategic Adviser, Danish Institute for Human Rights