Respecting land rights in the energy sector

Clients of ABN AMRO are active in many countries and industries, some of which pose specific human rights risks. For the bank, respecting land-related rights is a crucial factor when financing companies or projects in the energy sector.

The construction of the Dakota Access Pipeline sparked an international debate when it emerged that the land rights of the indigenous Standing Rock Sioux tribe had not been respected by the companies participating in the project. ABN AMRO did not finance the project directly, but was linked to these adverse human rights impacts through its relationship with ETE, the mother company of one of the companies involved, ETP. In these situations, the UN Guiding Principles on Business and Human Rights (UNGPs) require companies to use their leverage to prevent or mitigate impacts. In the case of the Dakota Pipeline, however, the bank decided that in the end discontinuation of the relationship was the only option left.

This case will have a lasting effect on the banks’ human rights due diligence. In November, the Equator Principles Association, an organisation of 92 financial institutions and 37 countries, announced a comprehensive update of its principles for project finance. There will be better guidance on climate change risks and on the implementation of Free Prior and Informed Consent (FPIC), which is key to protecting the land rights of indigenous peoples. The Equator Principles do not cover general corporate lending. For these transactions, ABN AMRO has in place its own comprehensive sustainability risk framework and due diligence process. The scope of clients’ operations sometimes poses a challenge: it is impossible to visit all factories, plantations and project sites of the companies ABN AMRO finances. Nonetheless, field visits are becoming more and more frequent.

Assessing human rights risks on the ground

Nick Padgalskas is based in Singapore and is an executive director in ABN AMRO’s Asia-Pacific Energy Team. He has first-hand experience of how clients in his sector are working to meet their responsibility to respect human rights.

Recently, Padgalskas visited an oil & gas production project owned by an international energy company the bank finances. “For the bank, gaining insight into the situation around land rights involving the company and its projects was a crucial factor in our decision to finance the company. Ahead of the decision to pursue a commercial relationship, we ensured that we were comfortable with a relationship by gaining an in-depth understanding of the company’s policies and practices. We did so through research and due diligence, but also through extensive discussions with management.”

Companies in the energy sector have to comply with a number of sustainability criteria, ranging from a reduction in greenhouse gas emissions to having appropriate operational-level grievance mechanisms. But the effectiveness of these mechanisms is difficult to assess, particularly without seeing them on the ground first-hand. “In the region I visited there have been instances of disturbances to other projects due to landowner disputes. When this occurs, and when there is already a grievance, in some respects it’s already too late. We want to focus not only on how companies address grievances, but also on how they monitor and respond to early warning signals. During my visit, I obtained a better understanding of how the company interfaces with the government and the community to implement its best practices,” says Padgalskas. 

Padgalskas continues: “As a banker I want to understand my clients and have a constructive dialogue on issues that are important and relevant to them, which can include human rights. Because the bank also has a responsibility to respect human rights, we seek to understand our clients’ practices, and to discuss their progress as well as their dilemmas.” 

Luc Zandvliet - Director of Triple R Alliance

“In their contacts with clients, relationship managers have an important role to play in picking up on early warning signs of adverse human rights impacts. Equipping ABN AMRO’s relationship managers with the skills to do so is therefore essential to ensure respect for human rights in the bank's lending activities and to reduce the bank’s exposure to reputational risk. 

In 2017, ABN AMRO organised training sessions in the Netherlands, Singapore and Brazil to raise awareness among relationship managers. Knowing what to look for when engaging with clients and how to interpret their responses will help them identify potential human rights liabilities. The standards used to assess whether a client's activities are in line with the bank's policies are the UNGPs on Business and Human Rights and ABN AMRO's own Sustainability Risk Policy. The things you typically look for is whether a company's social impact values, policies, management system, internal organisation, incentives and its employees’ views are aligned.

In my experience, ABN AMRO’s approach to assessing human rights risks is more than a checklist – it highlights the importance of increasing the bank’s toolbox to deal with challenging issues. What I see is that some clients seek out ABN AMRO because of the knowledge the organisation brings to the table. This is good for business… and good for human rights.”