Our key takeaway: Financial institutions (FIs) are steadily gaining the tools and the know-how to address and mitigate climate change impacts in their investment portfolios. But can the same be said for addressing and mitigating climate-related impacts on people? A new report from Shift highlights that banks have a critical role to play here, especially as climate change impacts intensify over time. FIs are expected to evolve beyond looking at exposure to climate change risk to proactively incorporate consideration for where climate change impacts can increase human rights risks in their investee companies, especially for already-vulnerable groups. Some key actions for FIs include adopting “outward-facing” risk management systems that assess how banks could be connected to negative human rights impacts through their investments; identifying the ways in which investing in climate-mitigation and adaptation solutions could inadvertently have negative impacts on land rights and livelihoods; focusing not only on exposure to climate transition risk but also on the physical climate risks linked to investee companies (like heat, flooding and drought causing unsafe working conditions, inadequate livelihoods and access to food and water); prioritising action and investee engagement based on the severity of human rights impacts; and considering indirect impacts on vulnerable people through risk transmission channels, as well as direct impacts through the bank’s own lending and collection practices.
Building on insights from its Financial Institutions (FI) Practitioners Circle, Shift published Climate Change and Human Rights: Avoiding Pitfalls for Financial Institutions (March 2023):