Public Financing – Export Credit Agencies and Human Rights

On June 23, 2010, Special Representative on Transnational Corporations, Prof. John Ruggie, delivered an address entitled “Engaging Export Credit Agencies in Respecting Human Rights” at the OECD Export Credit Group’s “Common Approaches” Meeting.

Ruggie focused his statements on the lacking human rights due diligence undertaken by the Export Credit Agencies (“ECAs”) themselves and required for the projects that they finance.

ECAs are public agencies and entities that provide government-backed loans, guarantees and insurance to corporations from their home country that seek to do business abroad, including in developing and emerging markets.  According to ECA Watch, ECAs are now the world’s biggest class of public finance institution operating internationally, exceeding the size of the World Bank Group and funding more private-sector projects in the developing world than any other class of financial institution.

ECAs not only support projects in high-risk environments, but also engage actively in supporting industries with high environmental and human rights impacts, such as the extractive industries.  In fact, a recent Amnesty International submission notes that one of the reasons why ECAs were able to deliver “excellent results” in 2007-2009 was because of their major investments in large oil and gas, as well as mining and other natural resource projects.

It was only recently that most ECAs adopted environmental policies, developed from a set of recommendations known as the “Common Approaches”.  However, groups like ECA Watch have leveled criticism at the Common Approaches, noting that they do not require ECAs to consult with affected communities and civil society in the development of the projects they finance.

In Ruggie’s compelling address, he noted the two risks that ECAs are running in terms of human rights.  First is the risk that a client’s business activities or relationships contribute to human rights abuse abroad, with the moral, reputational, political  and in some cases legal implications this entails for an ECA itself. The second is the financial risk to the project that may result from its adverse impact on the human rights of individuals and communities, which in turn could affect the  ECA’s own exposure.  He further notes that the most fundamental step is the need to integrate the corporate responsibility to respect human rights into the Common Approaches.

In the United States, both the Overseas Private Investment Corporation (“OPIC”) and the Export-Import Bank of the United States (“Ex-Im Bank”) operate as ECAs. OPIC has established an Office of Accountability to assess and review complaints about OPIC-supported projects. The Office of Accountability gives local communities, which may be materially, directly and adversely affected by an OPIC-supported project, and project sponsors a means of raising complaints, independently from OPIC operations.  Perhaps due to criticism of sponsored projects impacting the environment, the latest of OPIC projects center around microfinance operations in the developing world.

This is welcome news, and it appears to be paying off both for OPIC and for the citizens benefiting from microfinance arrangements.  According to a report by the US Agency for International Development, microfinance operations supported by OPIC and others in Iraq have achieved an ambitious rate of growth and socio-economic impact.  As of the end of April 2010, such operations cumulatively disbursed over 197,000 loans of more than $453.3 million.

This evidences the extreme power that ECAs have on impacting the lives of citizens where they support projects.  However, as Ruggie properly notes, the lack of adequate processes to assess human rights impacts often leaves ECA projects doing more harm than good.  Not only must ECAs build due diligence processes into their assessments of viable projects, but the companies benefiting from ECA support must also be required to carry out due diligence, including building a human rights policy, conducting human rights assessments and monitoring human rights performance.

To read Ruggie’s speech, click here.

To read Amnesty’s Report, click here.

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