This article grew out of a workshop, entitled The Microeconomics of Human Rights, given by Owen Pell to PILnet in September 2019.
Civil society organizations have historically been concerned with big picture, macro-level concerns: the enactment of a particular law, strategic litigation, recognition of or compliance with international human rights norms. But the argument for a different, microeconomic approach to protecting human rights grows more compelling by the day.
Corporate persons generally have not been answerable under international human rights law. Only a limited number of UN Conventions expressly recognize corporate liability, and those (e.g., regarding corruption and racketeering crimes) leave individual states when enacting these treaties to recognize, consistent with state law, corporate liability. At the same time, a huge determinant in individual human rights is tied to how people interact with companies. Whether it is working conditions, access to a local economy, rights in land or technology, or how local populations share in the wealth of their natural resources, how companies interact with people will often play a large role in determining the status of individual human rights—and may also shape how governments ensure human rights regimes for their people. Increasingly, business may have incentives to see human rights issues effectively addressed particularly because, in the long run, it may improve local labor markets and the performance of local economies.
In order to respond to human rights challenges, civil society must adopt some of the legal tools and frameworks corporates and the private sector generally use to benchmark, manage risk and conduct effective due diligence checks.
Risk management is a particularly powerful tool for civil society organizations. The Equator Principles, which established standards of transparency, assessment and monitoring for infrastructure and project financing, have been adopted by 97 major commercial banks in 37 countries. Project financing collects capital for long-term construction and infrastructure projects, which all have significant public interest implications. The Principles provide a robust, standardized and international risk management framework for large-scale financings. Projects of this scale carry significant risks, but through a nexus of contracts signed by the project company and multiple financial institutions, vendors and purchasers, lenders share that risk throughout the lifetime of a project.
The Equator Principles have spurred significant changes in the behaviour of banks and financial institutions, but not by causing banks to declare more defaults. Rather, the Equator Principles work by changing the way banks access certain types of investment risks—i.e., through changes in the methodological requirements regarding certain types of project loans. The requirements listed by the Principles regarding assessment, monitoring, transparency, participation and grievance mechanisms have altered how bankers choose which projects to finance. Financial institutions now have a profit-driven (i.e., microeconomic) reason to abide by the Principles and the human rights norms they incorporate. In order to reduce the risk of investment losses on large projects, banks are learning to avoid projects where due diligence reveals high human rights risks. That the Equator Principles align with similar lending principles designed and implemented by the IFC, IBRD, EBRD and other major development banks further enhances the likelihood that projects with potentially bad human rights effects will have a much harder time attracting capital. In addition, a new set of principles, the Poseidon Principles, is attempting to bring the logic of the Equator Principles to the global ship financing market, with a particular focus on environmental and sustainability issues.
Many bankers will privately acknowledge that the Equator Principles have reduced the incidence of projects which are highly likely to cause human rights concerns, because these projects carry greater legal and financial risk. It is interesting to consider how much more effective the Equator Principles could be if the bank members could be convinced to create an anonymized database regarding project experience under the Equator Principles—a project that might also allow civil society a way to interact with project lenders on issues that civil society is seeing on the ground in particular investment markets. If civil society organisations can learn to speak the language of these financial institutions, and make the already very strong case even stronger that human rights violations and unstable political situations are relevant risks to be considered, then project financing can become more cognizant of the potential human rights concerns associated with certain projects.
Civil society organizations should also harness the power of data and benchmarking to render their work legible to others outside of the third or public sectors. Large, macro changes are difficult to quantify and explain. On the other hand, specific, tangible and data-driven changes are much easier for the private sector to understand and socialize. Benchmarking is a tool to evaluate the performance of a business’s operations, services or products in comparison to the practices of others, with the aim of improving the business model in order to produce more revenue for the company. Being able to speak the language of the private sector ensures that civil society organizations can better understand how to cultivate a broader base of support. Benchmarking can be an effective tool for NGOs to determine points of leverage in private sector entities, and can provide a vocabulary for more precisely engaging with the private sector.
The collection and understanding of data is crucial to benchmarking, and to ensuring that civil society organizations are modulating their messages to different sectors. What is convincing to an NGO or foundation will, inevitably, be different to what a corporate lawyer or CEO will find compelling. Sometimes this means making the case for the public interest through the lens of private economic gain. For example, by looking into the data about a specific business model, like the supply chain of a certain product, an NGO may persuade a company of the possibilities of becoming more economically efficient or profitable if they work with a supplier who respects the human rights of their workers, rather than one who does not. An NGO may also focus on the more technical aspects of public policy, and ask policy makers to modify rules in order to influence a change in related business behaviors. In this way, more academic work dedicated to benchmarking, regulation and data analysis would be relevant and impactful.
In the 21st century, civil society organizations must become better at speaking ”to” the private sector, rather than “at” the private sector. This is crucial given the huge potential for private corporations to engage in human rights abuses in the course of conducting business. More than just articulating a sound economic reason for protecting human rights, this approach may in time entrench a human rights viewpoint in the process of commercial reasoning. While this raises worthy questions about the ‘soul’ of civil society organizations–whether it has been sold–the world we live in is one undoubtedly shaped by the interests of global capital, financial institutions and corporations. It may be possible yet to speak the language of the private sector in order to act in the public interest.
Written by Ray-Yun Hong with editorial assistance from Yukiko Kobayashi Lui.