Published: July 11, 2019

This has been an important year for Japan in terms of steps taken to recognize Indigenous Peoples and to align human rights and sustainable business.

On April 19, Japan passed first-ever legislation that officially recognized the Ainu people as an Indigenous population. While human rights groups have called out major insufficiencies of the Ainu bill (Yuji Shimizu, chairman of the Ainu rights association Kotan no Kai, noted there is "no guarantee of the Ainu's aboriginal rights, such as the right of self-determination and land rights”), this historic first step marks an opportunity for Japan to exemplify a 21st century approach to incorporating Indigenous Peoples’ rights in public policy.

On June 18, the Ministry of Foreign Affairs (MOFA) conducted its first meeting of the Advisory Committee for the National Action Plan on Business and Human Rights, following a massive government study that examined the "extent current legislation and policies provide for the protection of human rights in the context of business."

Finally, as widely reported, Mitsubishi UFJ Financial Group (MUFG), one of the world’s largest banks by assets, announced it had revised its environmental and social policy framework and made the noteworthy step to no longer finance new coal-fired power generation projects after July 1, marking a growing policy shift among Asian lenders.

Now, on Friday, July 12, Tokyo hosts the launch of international public consultations that examine the latest revisions to the Equator Principles (EPs) – the global finance industry's only environmental and social risk assessment framework, used by 96 financial institutions in 37 countries [as of 7/1/19].

The new draft of the EPs, EP4, comes after two years of revisions following the financial fallout of the Dakota Access Pipeline in the U.S., in which banks lost at least $4.4 billion of the more than $12 billion in material losses resulting from the social uprising against DAPL. The intense social conflict emanated from a failure by companies, banks and the government to assess social risks as to the project – social risks that flowed from a lack of respect for the human rights of the affected Indigenous Peoples.  

Of the banks that financed the Dakota Access Pipeline, 13 of the 17 were signatories to the EPs, and their involvement in DAPL contradicted their commitment to human rights and the environment. Three of Japan's largest financial institutions – MUFG, Mizuho Bank and Sumitomo Mitsui – had all signed onto the controversial pipeline project despite having adopted the EPs.

Given that Mizuho Bank is the Equator Principles Regional Representative, and that MUFG provides Management Support for the EPs and is on both its Consistency Working Group and Social Risk Working Group, Japan is in a remarkable position to create positive change in how businesses assess and address social risk.  

Though EP4 makes some headway on environmental concerns by referencing the 2015 Paris Climate Change agreement, the revisions are wholly insufficient in terms of incorporating and protecting global human rights standards, especially when it comes to operationalizing the free, prior and informed consent (FPIC) of Indigenous Peoples.

Japan now has the opportunity to be a leader in sustainable finance and human rights-oriented banking and business by leading the financial industry to improve and bolster its human rights and environmental risk assessment framework. To best understand, assess and manage social and environmental risks related to working on and near Indigenous territories, a robust framework must be aligned with the rights of Indigenous Peoples as enumerated in the UN Declaration of the Rights of Indigenous Peoples (UNDRIP) and other international instruments.

How Japan and All Nations Can Ensure Indigenous Peoples' Rights are Protected and Incorporated in Business Policy and Practice

While the MOFA lists several "UN Human Rights Instruments" on their official human rights resource web page, including the UN Guiding Principles' (UNGPs) 'Protect, Respect and Remedy' framework in the "Business and Human Rights" section, there is no mention of UNDRIP. This is especially problematic given that the MOFA includes only vague considerations for the indigenous Ainu people in its official human rights "Pledges":

Japan will continue to promote comprehensive and effective policy measures for the Ainu people, taking their views into consideration, through various channels including inter alia the Council for Ainu Policy Promotion.

Compounding this inconsistency, Indigenous Peoples' rights are only mentioned once in the recent government report conducted to create a baseline for human rights in business as part of the MOFA's 2020 National Action Plan, and the mention is limited to how Japan conducts business in developing countries. While Japan is moving forward in their approach to Indigenous Peoples, the application of human rights norms must be expanded to apply nationally to evidence a true commitment to implementing the UNGPs.  

These inconsistencies exacerbate two of the biggest failings of EP4. One, that EP4 never references the UNDRIP and second, that it mistakenly relies on some countries' national frameworks to respect Indigenous Peoples’ rights instead of applying international human rights standards in all projects that affect Indigenous Peoples. This is a critical point when operationalizing the right of Indigenous Peoples to FPIC.

Specifically, EP4 gives financial institutions two options to implement the FPIC of Indigenous Peoples. Option 1 is grossly insufficient to protect the rights of Indigenous Peoples because it prioritizes process without reference to Indigenous Peoples' right to give or to withhold consent. This option should be removed altogether. Option 2 is a much stronger step because it requires the client to demonstrate the affirmative consent of the Indigenous Peoples as to the specific project under consideration.

The second failing is that EP4 has different standards for so-called "Designated" and "Non-designated" countries when there should be one standard for all countries. Having one standard would ensure that the rights of Indigenous Peoples are protected uniformly without relying on faulty national standards that rarely implement the full breadth of Indigenous rights, especially as to FPIC.

FPIC draws directly from the UNDRIP and relates to Indigenous Peoples’ rights under all international human rights instruments. The process of FPIC is meant to support its implementation as a right. As such, an FPIC process is not just an information-sharing process or a process “with the goal of consent” to secure a transactional “yes” from Indigenous Peoples. Rather it is a process that allows banks to operationalize FPIC as a right by instituting plans to listen, dialogue and negotiate with affected Indigenous Peoples and then integrate their perspectives into the project design and implementation.

Without the opportunity for Indigenous Peoples' perspectives to be integrated, any FPIC process is flattened into a mere community management scheme. Banks then miss critical opportunities to screen for social risks stemming from human rights violations that may then generate extensive financial losses.

Banks and the financial institutions know that respect for human rights is good for business and the promise of a strong EP4 is to provide a gold standard for business to assess social risks. Thus, there must be a consistent, single global benchmark outlined by EP4 that 1) ensures respect for Indigenous Peoples in any country, and 2) allows banks to apply a uniform framework when they fund projects internationally. Incorporating international human rights standards into EP4 is the best way to ensure respect and protection for Indigenous communities and also to provide the best foundation for social risk assessment.

Japan’s recent studies on national processes to integrate respect for human rights into routine business and finance operations provides an encouraging context for the upcoming consultation on EP4 in Tokyo.

The final version of the EP4s are to be ratified at the end of 2019, with additional in-person consultations to take place in London (7/16) and Toronto (7/30) after the Tokyo consultation, as well as two online consultations (7/17 and 8/6). More information about the EP4s and the consultations can be found at http://equator-principles.com/EP4.