Business, Human Rights and Climate Due Diligence: Understanding the Responsibility of Banks

Abstract

Under the 2011 UN Guiding Principles on Business and Human Rights (UNGPs), banks, like all businesses, have a responsibility to respect human rights and to carry out human rights due diligence. Although climate due diligence is not explicitly included in the UNGPs, tackling an enterprise’s direct and indirect climate change impacts is arguably a dimension of the corporate responsibility to respect human rights and should form part of the human rights due diligence process. At present, it is unclear how such responsibility applies to banks, whose contribution to climate change is mostly indirect. This article addresses the research question: how should the law be interpreted to form a coherent climate due diligence standard for banks? To address it, the article first maps out the climate responsibility of banks under international soft law standards and assesses privately developed guidance. It then elucidates the emerging concept of climate due diligence, reading climate change responsibilities into the now well-established corporate responsibility to respect human rights as authoritatively elaborated in the UNGPs. Finally, it explains how such normative standard applies to banks and unpacks the key elements that a bank’s climate due diligence process should include.

Beyond Climate Due Diligence: Fossil Fuels, ‘Red Lines’ and Reparations

“…As a standard for guiding the interpretation of climate due diligence it broadly aligns with Macchi and Bernaz' argument that new projects or project expansions that are 'bound to give rise to significant amounts' of GHG emissions, 'potentially contribute to climate change within the meanings of the UNGPs'. 198 It also aligns with the findings of the UN High-Level Expert Group that 'net zero' claims by business are not credible if the business is also supporting new investment in fossil fuel supply. 199 The setting of clear regulatory 'red lines' could also provide a clear standard to guide the assessment of whether the operations, products or services of a business is directly or indirectly 'linked to' climate-related human rights impacts through their business relationships.…”

“…28 Moreover, as Chiara Macchi and Nadia Bernaz have argued, the principle of 'systemic integration' should be applied, to require the interpretation of Pillar II of the UNGPs in light of relevant rules of international law, including environmental and climate law. 29 Thus, the corporate responsibility to respect human rights requires business to avoid causing or contributing to climate-related human rights impacts and to seek to prevent those climate-related human rights impacts they are linked to through their business relationships.…”

Benefit Corporation Certification and Financial Performance: Capital Structure Matters

“…Post is a dummy that is equal to one for years with B-Corp Certification for a particular firm, and zero otherwise. Variable definitions are available in After facing criticism for their failures to address human rights issues and their contribution to global warming, companies are now under increased scrutiny regarding their social and environmental responsibilities (Macchi & Bernaz, 2021). When companies strive for environmental and social responsibility, it often means more costs, evident in widespread greenwashing where firms claim sustainability without genuine commitment (Nemes et al, 2022).…”

Towards a Business, Human Rights and the Environment Framework

“…At the same time, academic scholarship has been instrumental in exploring the theoretical and practical operationalisation of this relationship and the inquiry into the relationship between human rights and the environment in the BHR context. Turner and Sara Seck paved the way, with further elaboration by diverse authors, including Chiara Macchi [96] and Nadia Bernaz [97]. In Business, Human Rights and Climate Due Diligence: Understanding the Responsibilities of Banks [97], Macchi and Bernaz argue that whilst international standards such as the UNGPs and OECD Guidelines do not establish standards on climate change, this does not mean that such responsibilities are non-existent.…”