Danish financial institutions struggle to demonstrate respect for human rights

12 December 2023

A new benchmark of 22 of the largest private Danish financial institutions made by Danish Institute for Human Rights shows that financial institutions fail to demonstrate how they align their activities with the UN Guiding Principles for Business and Human Rights. Other benchmarks show similar problems in Luxembourg and globally.

The largest financial institutions in Denmark generally fail to demonstrate that they consider human rights in their financial activities, a new benchmark from Danish Institute for Human Rights reveal.

The benchmark comes amid new trilogue-negotiations in the European Union on whether to include financial institution in the coming Corporate Sustainability Due Diligence Directive that will require companies to identify, prevent and mitigate their impact on human rights abuses.

“As the traction around ESG investing continues to grow, financial institutions’ practices must align more closely with human rights standards. The benchmark findings highlight that this is a crucial moment in time for policymakers to ensure that financial institutions meet minimum expectations on human rights through including financial institutions in the scope of the Corporate Sustainability Due Diligence Directive.” Elin Wrzoncki, Department Director, Human Rights, Business and Technology, Danish Institute for Human Rights

The Environment, Social and Governance (ESG) trend has recently been on the rise in the financial sector. A PwC report has estimated ESG investing will reach more than 20 percent of all investments by 2026. According to research by London Stock Exchange Group subsidiary FTSE Russell, 86% of asset owners said they were implementing sustainability into their portfolios in 2022. While the traction around ESG continues to grow, common definitions and regulation of the area has been lacking especially when it comes to the ‘S’.

The UN Guiding Principles for Business and Human Rights (UNGPs) however applies to financial institutions and clarifies expectations of these actors in relation to respect for human rights. At the heart of these expectations is the practice of human rights due diligence.

Lack of documented alignment with UNGPs

The new report from Danish Institute for Human Rights provides an initial benchmark of the human rights policies and self-reported human rights due diligence practices of 20 of the largest private Danish financial institutions, along with 2 state affiliated financial institutions. The financial institutions represent four different financial sector categories: pension funds, banks, insurance companies, and investment management firms. The report examines how they communicate to the public about their commitments and approaches to avoiding and addressing negative human rights impacts in relation to their financial activities.

The financial institutions are benchmarked on 8 indicators derived from UNGPs and existing human rights benchmark initiatives such as the Corporate Human Rights Benchmark. The key findings in the benchmark are:

Lack of documented alignment with the UNGPs: The overall score is 38% equalling an average score of 5,3 out of 14 possible points across the eight indicators. Given the UNGPs are a minimum standard of expected corporate conduct on human rights, this average is indicates significant room for improvement.
Best and worst indicators: The financial institutions perform best on demonstrating that they identify human rights risk (76% overall alignment score),and poorest on engaging with affected people to inform their approaches(6%)
Pension funds perform best: Pension funds on average have the highest overall alignment score (50%) followed by investment management companies (37%), insurance companies (31%) and banks (26%).

The need for new regulation

Elsewhere benchmarks from IDV in Luxembourg and from the World Benchmarking Alliance show similar trends.

The findings across the benchmarks affirm the need to align financial institutions’ ESG-practices more closely with business and human rights standards. Despite existing EU regulatory initiatives aimed at improving practices and disclosures on sustainable finance, the benchmarked organisations are far from demonstrating that they consider human rights throughout their financial activities.

The findings are particularly important in light of current discussions at EU level about financial sector inclusion or not in the EU’s coming Corporate Sustainability Due Diligence Directive (CSDDD) and suggest that indeed, including financial institutions could be a needed pull for the industry to meet minimum expectations on human rights. A number of financial institutions and initiatives have expressed support for the inclusion of the sector.