Our benchmark explained

Understanding how we make our assessment
What the benchmark comprises, why we chose this structure and how we use a traffic lights system to indicate the performance of financial service entities (FSEs).

In formulating our assessment, we identify requirements within five areas of impact (customers, commerical lending/investment, employees, suppliers, society) by examining five factors (governance, policy positions, due diligence, outcomes and impacts) and the relevant indicators for each factor. We call this benchmark the 655i model.

We have opted to use a traffic light system (red-amber-green) as a way of communicating our assessment of the company’s performance within an area of impact.

Each FSE will therefore have five traffic light colour-codes altogether, one per area of impact.

We considered, but ultimately rejected, the idea of devising a more detailed scoring mechanism that provided an overall ‘score’ for each FSE's human rights performance.

We believe an overall score could muddy the nuanced insights we anticipate the 655i model provides on FSE human rights performance.

An overall score could mean strong performance in one area of impact would overshadow weak or concerning performance in another area of impact. We view our current approach as overcoming this potential weakness.

Given our model has more than 200 indicators (10 indicators x 5 factors x 5 domains), debates as to whether the ‘correct’ weight is given to an indicator within the overall score would create distraction and undermine our holistic approach.

The benchmark breakdown

As per relevant international human rights instruments (such as the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights) and relevant Australian laws.

Privacy and information Privacy and protection against misuse or abuse of personal information protection against FSE providing misleading information or withholding information that materially impairs a person’s informed “consent” regarding contractual relations with FSEs.
Anti-discrimination No discrimination on illegitimate grounds such as gender, race, indigeneity, or disability.
Economic security “Quality” of goods and services necessary for the enjoyment of basic economic, social and cultural rights (including the “continuous improvement of living conditions” such as housing, health care and education) is “not sacrificed for the sake of increasing profits.”

Also covers fair remuneration both within FSEs and their suppliers, contractors and clients.
Health and safety Rights to workplace health and safety as pertaining in the FIs themselves, their suppliers, contractors and clients (re: commercial lending), and as pursued (or not) by FSEs in their broader societal interactions.
Voice and participation Right to freely express views relevant to functions of FSEs or the impact of their actions, including the right to association and participation in decisions directly affecting their interests – especially employees (in FSEs, their suppliers, contractors and clients), communities (including indigenous), and, in certain circumstances, broader societal interactions (eg regarding relevant policy positions).
Right to remedy Right to appropriate means of redress or “effective remedy” when human rights standards are violated or infringed.

These areas of impact comprise the core business of FSEs.

They are best understood by considering the range of products and services offered by Australia’s Big 4 Banks (ANZ, Commonwealth Bank of Australia, National Australia Bank and Westpac).

Retail customers (day-to-day busines) The basic banking product (savings accounts; term deposits) as well as the credit products (credit cards, car loans, personal loans, home loans, overdrafts) offered to retail customers. The FSE will typically directly cause or contribute to the human rights impact on its customers.
Commercial lending, investment and financial services

Involves providing services and lending funds to commercial enterprises for commercial purposes, as well as the FSE issuing its own investible securities, such as bonds, where the proceeds will be used for further lending (including ‘social’ and ‘green’ bonds raising funds for community and/or environmental projects).

The size of the commercial enterprise includes small and medium enterprises up to multinational corporations and institutional investors. While a FSE could directly cause or contribute to the human rights impact, it will more typically be linked to the impact of the borrowers’ activities, but not directly cause or contribute to that impact.

Employees Individual persons who are directly employed by the FSE. The range of impacts extends from non-discrimination to health and safety, and economic security. The FSE will directly cause or contribute to the human rights impact.
Suppliers Individuals or corporate entities who supply goods or services directly to the FSE. One aspect of this domain relates to typical supply chain issues, where the FSE might be linked to the impact of the suppliers’ activities, but not directly cause or contribute. The second aspect of this domain relates to the commercial conduct of the FSE vis-à-vis small and medium sized enterprise suppliers, where the financial institution will directly cause or contribute.
Society The impacts on society at large of civic actions taken (or not taken) by a FSE in public policy or law reform debates whether directly or through its membership of industry groups, or by way of political donations or other political expenditures. The FSE will likely be linked but not necessarily directly cause or contribute to the human rights impacts.

Within each area of impact, we consider five factors:

Governance of human rights matters at Board and Executives levels
Policy positions on the relevance of human rights to each/all domains of FSE business
Due diligence procedures managing human rights risks in each/all domains of FSE business
Immediate outcomes - evidence of positive or negative human rights impacts arising directly from activities in each/all domains of FSE business
Enduring impacts - evidence of medium/long term human rights impacts arising directly or indirectly from activities in each/all domains of FSE business.

For each factor we use tailored sets of indicators to measure the human rights performance of the FSE within each of the areas of impact.

For example, the indicators for governance (factor) of day-to-day activities re FSE's retail customers (area of impact) will be separate from the indicators for its governance in the commercial lending and investment (another area of impact).

A sample of some indicators for Society is set out below.

A full list of indicators can be found in the appendices of our Methodology report.

Example: "Society" (Area of impact)

Governance FI acknowledges its public policy advocacy can have human rights impacts and commits to having positive impact 
Policy positions Resign membership of industry associations wherepolicy position on HR conflicts with FI's stated policy position
Due diligence FI has feasible due diligence process to identify risks arising from public policy advocacy
Outcomes No evidence of direct/indirect advocacy for laws/policies that undermine human rights
Impacts Public policy and laws promote human rights

This is not a complete list of indicators for this area of impact, but a sample to assist with understanding the relationship between the factors within an area of impact, and the range of indicators deployed within the benchmark.

Why this structure?

We measure the impact of FSEs by looking beyond charitable work to examine the core business activities of these companies.

Typically,  risk management frameworks emphasise corporate policies and processes that identify and manage risk through that is governance, policy positions and due diligence.

In addition to assessing these key features of human rights risk we explicitly include outcomes and impacts as two further of measurement.

Given the nature of impacts are over a longer-term and involve larger-scale changes, we anticipate our description of these impacts will be suggestive/speculative, at least initially. Over time, however, stronger evidence for these impacts will emerge.

Another key influence came from the statements of the larger FSEs on their human rights impact, including Australia’s Big 4 banks.

These statements recognise that human rights matters can and do arise across all aspects of financial services activities impact on the human rights of very different stakeholders, including their own customers, employees and suppliers, but also those of their commercial clients and on society more generally.