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Human Rights Watch releases shareholder engagement framework with Israeli banks over settlement financing

Investors have pulled assets over concerns of breaching international law.

Human Rights Watch (HRW), the NGO, has released an engagement framework for institutional investors to obtain what it says are accurate disclosures from Israeli banks that are providing financial services and aiding settlement construction in the occupied West Bank, a subject which has become highly controversial for large institutional investors, some of whom have pulled assets from the country’s banks over concerns of breaching international law.
The framework is part of a research study entitled Israeli Law and Banking in West Bank Settlements, in which HRW argues that Israel’s domestic laws do not require banks to provide services in the settlements. Banks have traditionally adduced that in order to comply with domestic non-discrimination laws they must service clients regardless of their location. HRW’s study focuses on the five largest Israeli banks, which count a significant number of foreign institutional investors among their shareholder base: Bank Hapoalim, Bank Leumi, First International Bank Group, Israel Discount Bank and Mizrahi Tefahot Bank. According to HRW, the law only requires banks to open accounts for qualifying settlement businesses and other authorised instances. Other financial services, including mortgage loans, are being provided because banks choose to do so.
Sari Bashi, HRW’s Israel and Palestine Advocacy Director, told RI: “We are concerned that in the context of their engagement, institutional investors might have been given information that is not accurate. This publication aims at offering guidance to those investors who are still invested in Israeli banks. Nobody is forcing those banks to partner with a developer to build a new housing project. She said the Bank of Israel, the country’s central bank, could play a more active role. “As the regulator, it has an opportunity to refuse requests to open branches or decline policies to provide services in settlements. There is a lot they can and should do, frankly.”
The study’s engagement framework proposes eleven questions that institutional investors should ask banks. For example: enquiries about the number of existing and future bank branches and ATMs; or disclosures about housing and construction finance projects in settlements, as well as their monetary value. “We hope institutional investors ask those questions, and based on the answers, make decisions about the continuation of their investments,” Bashi said.According to Bashi, banks could take steps to cease their activity in settlements as early as “tomorrow”, and if they don’t, she said, “that should be a signal of their willingness to respect their human rights responsibilities”. Bashi argues that such responsibilities are shared with institutional investors holding shares in those banks. Otherwise, HRW says, consistency with the United Nations Guiding Principles on Business and Human Rights, which are widely used as investment criteria, can be compromised. HRW said investors are concerned about this topic, with a number of them having divested or excluded Israeli banks from their universe. Among them are pension funds such as PGGM in the Netherlands, the United Methodist Church in the US and Luxembourg’s Fonds de compensation commun au régime général de pension.
Other include Finland’s Danske Bank and one of Deutsche Bank’s ethical funds, according to a report by a coalition of French NGOs.
A separate study commissioned by BankTrack, the campaign group, dated February 2016, lists the main shareholders of the Israeli banks which provide settlement-related financial services.
Among them are the Norwegian Government Pension Fund, BMO Financial Group, RobecoSAM’s owner Orix Corporation, Aviva, Nordea, Calvert Investments’ owner Eaton Vance or Pax World Management. In a statement Norges Bank told RI that the fund follows the UN Guiding Principles and expects companies to respect and address human rights in their business practices. Asked whether it has engaged in the past, or, as a result of HRW’s findings, will engage Israeli banks, the spokesperson decline to comment and pointed to their official policy statement.
BMO, Aviva, Nordea and Pax World Management did not respond at the time of writing. In July, ahead of a full report it will submit to the UN General Assembly in November this year, marking the 50th anniversary of the occupation, the UN Special Committee to Investigate Israeli Practices, which Israel does not recognise, highlighted the issue of settlement expansion and the “high level of new construction announced this year, in violation of international humanitarian law.” Link