This month, the Dutch Development Bank went public with its commitment to “explicitly and systematically address human rights” across its investment process. The announcement accompanies a detailed plan already underway to conduct human rights “due diligence.” It also comes alongside the implementation of human rights respectful procedures undertaken by the entire Dutch banking sector.
Last year (and the year before, and the year before, and the decade before…) we wrote about the collision course between human rights and international banking. Most multinational companies need loans and investment to expand globally, so adding human rights strings to their financing options creates good leverage. Additionally, development banks actually seek out investment and loan opportunities in complex contexts, and we think they should know what they’re getting into before they enter these risky transactions.
Development banks were created to reduce poverty in low-income countries. Increasingly, they recognize that poverty-reduction is a complex aim, and that equitable development can be hard to achieve. The World Bank has put power and wealth imbalances at the core of its current mission, and many banks have followed.
But the human rights policy of the Dutch Development Bank (FMO) is a game changer in international development finance, and we should all be watching.
Why? First, FMO is prioritizing human welfare using data, real-time evaluation and risk assessment to guarantee it. Second, it faces pressure to be a true leader in rights-respectful finance, as the whole Dutch private banking sector is expected to follow suit. Third, it gives them a policy position to stand up against the international banks that, as partners, would pressure them to overlook human rights risks in the name of profit.
On the third point, one Dutch bank has learned firsthand that human rights risks could also create financial risks. Dutch bank ABN-AMRO published its first human rights report in 2016, eight years after getting burned by a transaction with Goldman that turned out badly both for human rights and business. The “Abacus deal” with Goldman exacerbated the global financial crisis (specifically hitting Dutch and German pensioners, not to mention the mortgage holders left homeless), and cost ABN $840 million.
ABN’s flagship human rights report acknowledges the bank’s need for new personnel with a human rights focus. Banks are accustomed to working within financial reporting frameworks and benchmarked standards and have historically bypassed direct engagement with affected rightsholders. Yet at a minimum they will need to learn to vet the quality of engagement processes implemented by clients.
FMO’s new human rights policy has the potential to show them how.
Full disclosure: NomoGaia assisted FMO in developing its policy and intends to provide ongoing support as needed.