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Responsible investment guidelines subordinate to humanitarian law – Dutch legal opinion

Dutch sustainable investment association VBDO publishes legal opinion on West Bank

Investors’ responsible investment guidelines are subordinate to international humanitarian law when it comes to the occupied territories of the West Bank, according to a legal opinion sought by the Dutch sustainable investment association VBDO.

The VBDO has published the analysis by human rights lawyer Phon van den Biesen in a new 46-page document called Dutch Institutional Investors and Investments related to the Occupation of the Palestinian Territories.

It states: “In general, and consequently in the case of the occupation of the Palestinian Territories, responsible investment guidelines are subordinate to international humanitarian law.

“Responsible investment guidelines are designed in addition to existing legislation, to address environmental, social and governance issues for corporations which are not embedded within a legal framework. Thus international humanitarian law provides the basis for any analysis of the situation.”

Van den Biesen notes that many investors have (in)directly stated that they follow international law through international frameworks for incorporating social responsibility and responsible Investment. The best known are the UN Global Compact, the Principles for Responsible Investment (PRI), and the OECD Guidelines for Multinational Enterprises [the Ruggie framework].

The VBDO’s publication is timely, given the divergence of views on divesting from Israeli companies shown recently by Dutch pension management giants PGGM and ABP. The former has divested five banks over their involvement in financing the settlements, citing breaches of international law. But civil service fund ABP is maintaining its holdings in three banks, saying it found no breaches of international law or the Global Compact.

VBDO Executive Director Giuseppe van der Helm crystallizes the debate in his foreword to the report: “Should investors avoid the occupied Palestinian territories or rather engage?”

Van den Biesen points out the Ruggie Principles “formulate an active role for the investors: in instances where serious adverse human rights impacts are at stake, the corporation (bank, insurance company or pension fund) should either try to use its influence to end the violations or withdraw from financing them if this would turn out not to be possible”.His argument cites ESG research house Sustainalytics’ 2011 analysis of the Ruggie Principles.

And Van den Biesen also notes the principles do not differentiate between majority or minority shareholders: “All shareholders have responsibility. This position is confirmed by, among others, the National Contact Point for the OECD-Guidelines for Multinational Enterprises of the Dutch ministry of foreign Affairs.”

He notes that pension funds, insurance companies, sovereign wealth and development funds, investment managers and service providers have signed on to the PRI, whose principles are voluntary and aspirational but whose goal is to increase the interest of institutional investors in environmental, social and corporate governance issues. He says the PRI’s first two principles call on the investor to be active on human rights, with transparency key.

While there is no specific guidance within the PRI on human rights and/or the occupied Palestinian territories, the first two principles “are a call to investors not be passive with respect to human rights and to be an active owner on these issues”.

The analysis also cites the recent Posco case, where the Dutch OECD National Contact Point argued that ABP, a minority shareholder in the South Korean firm, had a responsibility to practice due diligence and to use its influence to diminish and eliminate human rights breaches. “This means that (minority) shareholders complying to the OECD guidelines have the obligation to practice due diligence and to use their influence when human rights breaches occur regarding the occupied Palestinian territories and in other cases.”

Elsewhere in the report, the VBDO says it found “no evidence” of Dutch institutional investors having filed proposals at annual shareholder meetings regarding questions of adherence with humanitarian law and human rights law, nor about investments related to the occupied Palestinian territories.

But about one out of seven Dutch institutional investors who responded to a questionnaire it sent out said they excluded companies because of their involvement in the occupied territories – although many “did not seek publicity on this decision”. Link.