Archived press release

Finance sector profiting from poverty, environmental damage and human rights abuses, say UK charities

1 December 2005

New report published in response to lack of UK Government leadership on CSR for the finance sector.

Joint press release from Action Aid, Amnesty International, CAFOD, Christian Aid, The Corner House, Friends of the Earth, Global Witness, New Economics Foundation, Tax Justice Network, WWF.

Ten leading UK charities (1) today (1 December) publish a report that exposes the damaging impacts of the European finance sector on the environment, human rights and development.

This report has been compiled in response to the UK government's failure to exercise leadership to ensure that the finance sector does not continue to undermine global policy objectives in areas ranging from climate change to corruption to the Millennium Development Goals.

The publication of the report coincides with a major European conference opening in London today hosted by the UK Presidency of the EU, "Investing in the Future: a European conference on CSR and the finance sector".

The report also comes in the same week as Gordon Brown's much criticised decision to abandon new corporate reporting rules, known as the OFR (the Operating & Financial Review), a step that has been widely condemned by the investment community, trade unions, think tanks and pressure groups. The OFR was the first step towards improving transparency on social and environmental impacts, and its abandonment constitutes the discarding of the only concrete measure this Government has taken to improve corporate accountability.

The ground-breaking report, `A Big Deal? Corporate Social Responsibility and the Finance Sector in Europe', accuses European banks and financial institutions of benefiting from corruption, profiting from poverty and social exclusion, as well as contributing to human rights abuses and environmental degradation, and includes case study examples of all of these. The report includes alternative proposals that are more likely to deliver greater accountability and lasting sustainable development.

In spite of the overwhelming evidence to the contrary, the agenda for the UK's EU Presidency CSR Conference assumes that the industry's largely ineffectual attempts at self-regulation are working. Yet initiatives such as the Equator Principles or the UN Global Compact have failed to achieve progress in the sector as a whole.

`A Big Deal?' presents seven case studies which clearly demonstrate the finance sector's inability to embed corporate responsibility on a voluntary basis. The report finds that the finance sector:

• Provides a haven to siphon off much-needed tax revenues from cash-strapped developing countries, only benefiting a wealthy minority who avoid paying tax altogether.
• Has abjectly failed to factor in the financial risks of climate change, which may ultimately lead to a global economic breakdown as the costs of climate change begin to outstrip increases in global GDP.
• Is a primary conduit for bribery and corruption, providing billions of dollars in loans to repressive governments. European filters of finance, such as the UK's Export Credit Guarantees Department have failed to prevent bribery and corruption on a massive scale.
• Perpetuates poverty and social exclusion in Europe, by providing unscrupulous levels of debt at high rates to those least able to afford it, all the while bringing in record-level profits.
• Regularly puts a price tag on human rights, financing projects which pose a threat to the implementation of human rights laws in developing countries, while breaching the sector's own guidelines in the process.
• Often fails to assess adequately the environmental impacts of projects and to address issues raised before releasing project finance, yet continues to reap the reputational benefits of participation in voluntary CSR initiatives.

According to Deborah Doane, Chair of the UK Corporate Responsibility Coalition:

"All the UK Government is doing is showcasing the finance sector's current array of international CSR initiatives that have proved incapable of preventing the serious problems and abuses that they purport to address".

Moves to make financial institutions more directly accountable for their actions will go a significant way to enabling the finance sector to contribute to sustainable development targets, rather than undermine them. As Doane points out:

"There's no point in highlighting wooly CSR initiatives without a legitimate dialogue on enforcement". Carrots without sticks just don't work."

Friends of the Earth's Head of Corporate Accountability, Craig Bennett, said:

"This conference is a whitewash and misses the real issues. If the Government spent more time looking at the evidence rather than the corporate glossy brochures, they'd realise that some of the UK's largest high street banks are financing some of the corporate world's most destructive activities, such as oil pipelines and clearance of rainforest. It's high time they brought in new laws to force UK companies to behave responsibly."

Jules Peck Global Policy Advisor WWF

"The limits of the voluntary approach are shown by banks which have committed to vague initiatives such as the UNEPFI and Equator Principles still being involved in projects such as the Baku-Ceyan pipeline and Sakhalin which are fundamentally destructive for people and planet".

"Even as we speak, major players in the European banking industry are helping to set up huge new oil-backed loans to Angola, one of the most corrupt and impoverished countries in the world, that will undermine fledgling attempts to improve its transparency and good governance." - Sarah Wykes, researcher Global Witness

"Business is making a big deal of corporate social responsibility. But Europe's finance sector shows that actual progress is little more than small change. Investments with positive benefits to society remain trapped in ghettoes of good practice, while this research shows that the mainstream remains focused on profit before human progress." Andrew Simms, policy director nef (new economics foundation)

Background and notes

The Euro zone is now the second largest economy in the world after the US, with $8.2 trillion in GDP in 2003. Europe's finance sector is part of a massive global industry which now controls a staggering $118 trillion. As such, the sector's influence has enormous consequences for efforts to achieve sustainable development both in Europe and elsewhere.

(1) Action Aid, Amnesty International, CAFOD, Christian Aid, The Corner House, Friends of the Earth, Global Witness, New Economics Foundation, Tax Justice Network, WWF

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Published by Friends of the Earth Trust