"OHCHR response to request from BankTrack and OECD Watch for advice regarding the application of the UN Guiding Principles on Business and Human Rights where private sector banks act as nominee shareholders," 30 August 2021

On April 15, 2021, the Office of the UN High Commissioner for Human Rights (OHCHR) received a request from BankTrack and OECD Watch to provide advice regarding the application of the UN Guiding Principles on Business and Human Rights (Guiding Principles) in the context of financial institutions acting as custodian or nominee shareholder.

... When acting as a nominee shareholder, FIs are entrusted with the safekeeping and trading of the client’s securities under the FI’s own name, while the beneficial owner may remain anonymous but retains control over investment decisions. In this way, the nominee serves as a custodian.,, It follows... that purchasing and holding shares of an investee company constitutes a “business relationship” between an FI and an investee company under the Guiding Principles... Whether an FI invests its own financial resources in an investee company, acts as a custodian and carries out transactions at the request of beneficial owners, or actively or passively manages and advises the investment decisions of beneficial owners are factors that can determine the degree of leverage the FI has to prevent and mitigate adverse impacts which it is connected to through its business relationships and the associated measures it can take.

... FIs are expected to assess risks connected to beneficial owner clients... Where an FI identifies risks associated with clients... the FI should undertake due diligence on higher risk investee companies... Where risks or adverse impacts are identified by nominee shareholders, they are expected to use and build their leverage... Where the nominee shareholder cannot use or build leverage with the beneficial owners sufficiently to address the impact, it will engage investee companies.