Advancing an Important Conversation on Environmental and Social Accountability in the Financial Services Sector

The Global Reporting Initiative recently concluded its public comment period to develop sustainability reporting standards for financial service organizations that support various other types of business activities. With an appreciation of the wide-ranging impacts that the financial services sector can have on the environment and people at local and global scales, Accountability Counsel contributed our perspective rooted in the challenges of securing engagement, response, and remedy for harm caused by internationally financed projects and programs.

What is sustainability reporting, and how can financial sector actors groundtruth reporting?

Sustainability reporting standards are intended to help private sector entities identify material risks and transparently disclose information about their environmental and social performance. This disclosure helps build trust and accountability in a world where reputation for ethical business conduct and respect for human rights carries increasing weight, both in markets and political discourse. A critical way to ensure that sustainability reporting is grounded in downstream realities is to rely on effective grievance redress and accountability mechanisms as direct communication channels designed to prevent, mitigate, and remedy harm. This is a major reason why grievance redress reporting became a feature of the Global Reporting Initiative’s Universal Standards, and similar requirements have been reiterated under progressive business and human rights-based legislation like the EU Corporate Sustainability Due Diligence Directive (CSDDD).

After the final CSDDD resulted in significant carve-outs for the financial sector, and as the legislation risks being weakened by an ominous omnibus package, the consultation on financial service sector sustainability standards come at an important time of much needed dialogue about the wide-ranging impacts that the financial services sector can have on the environment, people, and economies at local and global scales. A similar conversation is underway in the asset management space; consider the Impact Performance Reporting Norms for Investors in Private Markets, advanced by the Impact Frontiers initiative. The norms recognize the need to include fund- or organizational-level grievance mechanisms, complaints registries, and other accountability mechanisms to inform and support disclosures about how negative environmental and social impacts, both expected and unexpected, are identified and managed.

Our take on Global Reporting Initiative’s effort

We fully support the development of standards that encourage and empower financial service companies to investigate the downstream human rights and environmental impacts as they fund and provide support to grow sectors and businesses. Recognizing that many financial sector actors have yet to develop formal grievance mechanisms for environmental and social impacts, the disclosures complement GRI’s Universal Standards on grievance and remediation mechanisms by asking financial institutions to reflect on how they encourage positive human rights impacts and facilitate remedy for unintended harm. Accordingly, recommendations specific to the financial services sector should emphasize the importance of grievance redress and accountability mechanisms to identify unanticipated material impacts worthy of reporting, as well as to build and strengthen accountability for downstream human rights impacts.

Sustainability evokes different meanings from a business perspective and a human rights lens. The same is true for defining the ‘materiality’ of sustainability impacts. Sustainability reporting standards can help to reconcile perspectives. Complaints filed to grievance redress and accountability mechanisms allow organizations to see sustainability performance from a rights-based lens, and robust disclosures on the use and outcomes of mechanisms help concerned stakeholders assess whether human rights risks and impacts are addressed proactively and in earnest.