Financial Institutions and Social Rights: From Foes to Friends?

Abstract

This paper sets out the social rights obligations of both public financial institutions like the World Bank and the IMF, and of private financial institutions like banks. Moving beyond doctrinal analysis, it traces how the World Bank and the IMF have in practice over time considerably improved their compliance with social rights in respect of structural adjustment policies, in particular since the Great Financial Crisis. But social rights still need to become an integral part of their decision-making. By contrast, the private sector has made little progress. Initiatives like the Equator Principles turned out to be underwhelming, and the project of a binding treaty might yield modest results only. Nevertheless, there are inherent limitations to the effectiveness of social rights in relation to financial institutions. Judicial review faces structural constraints and may only filter the most egregious cases. It is therefore necessary to include social risks in the calculation of regulatory capital for private financial institutions. These proposals might prepare financial institutions for the possible transition to a post-growth society.