Week of 9 August 2021
How does leverage help financial institutions improve outcomes for people?
Our key takeaway: For leading financial institutions, using leverage when engaging with clients on human rights is a valuable tool in the toolbox. Instead of retroactively applying pressure on clients to do damage control following negative human rights impacts, sophisticated financial institutions recognise leverage as a way to reduce both human rights and business risks, and provide added value to clients.
In March 2021, Shift held its first peer-learning session of the Financial Institutions Practitioners Circle to discuss the topic of leverage and create solutions for building and applying it with clients. The outcomes of the first session are summed up in a report with top lessons and actionable recommendations for financial institutions (FIs).
- “[Reposition] engagement with clients from ‘sorry to bother you’ to ‘you’re welcome.’” FIs should lead the conversation with clients around the advantages of engaging on human rights issues rather than treating engagement as a “potential nuisance at best.” In fact, many leading banks are treating engagement on human rights as a ‘value-add’ and as a source of expertise for the client to draw on. In other cases, FIs might find more success leaning into ‘sticks’ like emerging regulation on human rights due diligence: “Regulatory drivers can provide a mandate within clients aligned with the expectations of leading FIs.” This strategy could also help FIs illuminate for the clients the direction of travel for the sector at large and tackle one of the biggest challenges that arose during the peer-learning session—the perception from leading banks that, among a crowded field of competitors, “we are the only ones asking” about human rights.
- Think critically about the role and desired outcomes of leverage, and ensure these outcomes by building in accountability. The report advises FIs to look critically at client expectations and “interrogate whether the ‘asks’ we are making of clients are actually likely to lead to better outcomes for people.” Sometimes it can help FIs to reverse the process, starting with the desired outcomes for people, and then figuring out how to get there in partnership with clients or unilaterally. What’s more, the report recognises that leverage takes time, but asks banks to “do a better job of holding themselves accountable for leverage efforts”—including tracking whether outcomes for people are actually achieved.
- “Front-load” leverage. Build leverage into client “onboarding, assessment and decision-making processes” from the start of the relationship rather than attempting to circle back to it later on or putting it as a lower priority in client engagement efforts. Building leverage in from the start can also serve as a ‘carrot’ of sorts for clients to help move transactions forward: it gives the FI enough security in the transaction or relationship by “ensuring there is leverage available commensurate to the severity of the risk.”