ANZ sets a global precedent with adoption of human rights grievance mechanism: Delivering remedy to third parties

In a world first, Australia’s ANZ Bank has adopted a Human Rights Grievance Mechanism to evaluate complaints of adverse human rights impacts associated with its institutional or corporate lending customers.

Key points

• Launched on 3 November 2021, the Mechanism is notable for its commitment to reporting on the types of complaints received and publishing their outcomes, which will be key to assessment of the Mechanism’s function.
• In this respect, it is the first of its kind, and has been praised by civil society and advocacy groups as a precedent-setting move likely to put pressure on other large commercial banks to follow suit.
• This comes as Citigroup last month became the first Wall Street bank to agree to a racial equity audit, in a further step forward for measurement and transparency on human rights issues.

Legal framework

The OECD Guidelines expect companies to comply with the UN Guiding Principles on Business and Human Rights. This includes conducting due diligence informed by guidance issued by the OECD Secretariat including (for financial institutions): the Due Diligence for Responsible Corporate Lending and Securities Underwriting (2019), Due Diligence Guidance for Responsible Business Conduct (2018), and Responsible Business Conduct for Institutional Investors (2017).

“Remedy” is a core pillar of the UN Guiding Principles, endorsed by the UN Human Rights Council ten years ago. The UN Guiding Principles recognise that businesses have a responsibility to “establish or participate in effective operational-level grievance mechanisms for individuals and communities who may be adversely impacted” by their operations, so that grievances can be “addressed early and remediated directly” (Principle 29).

Operation of ANZ’s Mechanism

ANZ’s Human Rights Grievance Mechanism will accept complaints that meet key criteria, including:

• being submitted by the affected people or their nominated representative (e.g., community leader, legal representative, or civil society organisation);
• where there has been an alleged adverse human rights impact; and
• where the human rights impact is associated with an ANZ Institutional or Corporate lending customer, and occurred during the time of ANZ’s lending to that customer.

Importantly, the Mechanism will only accept a human rights complaint about a customer where the customer has consented to ANZ disclosing the existence of the lending relationship. ANZ has stated that it “expects” its customers to consent to this disclosure and subsequently to participate in the Mechanism’s processes. The bank has indicated that it will engage with its customers and try to use leverage to encourage them to meet obligations under the UN Guiding Principles.

Possible outcomes under the Mechanism include dialogue between the affected people, the customer and ANZ; ANZ contribution to remedy; use of leverage by ANZ to encourage the customer to meet their commitments under the UN Guiding Principles; and recommendations for improvements to ANZ policy and process to reduce the risk of any impacts happening again.

In developing its mechanism, ANZ undertook an 18-month consultation with human rights advocacy organisations and civil society groups on the development of the Mechanism, through an external multi-stakeholder working group.

Takeaways

With this year marking the ten-year anniversary of the adoption of the UN Guiding Principles, momentum is building for businesses, including major financial institutions, to take action to comply with the Principles – not only through statements of endorsement, but by designing and adopting meaningful remedy frameworks.

The UN Office of the High Commissioner for Human Rights (OHCHR) confirmed in August this year that financial institutions have responsibilities under the UN Guiding Principles including when acting as custodian or nominee shareholder. The OHCHR emphasised that where human rights risks or adverse impacts are identified through nominee shareholders’ due diligence, they are “expected to use and build their leverage” to effect change.

The OHCHR noted that where human rights risks and adverse impacts connected to a financial institution’s activities, products and services are severe, the UN Guiding Principles expect the institution to formally report on how they address them. Disclosure must be sufficient to provide “transparency and accountability” for rights-holders.

The launch of the ANZ Human Rights Grievance Mechanism marks an important step forward, by a major commercial bank, in enhancing the transparency and accountability around businesses’ responsibilities to respect human rights and provide access to effective grievance mechanisms for business-related human rights harms. The bank’s commitment to publish and report on the outcomes of the Mechanism is significant, as it will provide an avenue for assessment of the Mechanism’s efficacy.

Developments like these are key steps towards businesses, including global financial institutions, taking concrete actions to make good on their commitments to the UN Guiding Principles.