Why a focus on Indigenous Peoples’ rights for the finance sector?

There is growing attention to Indigenous Peoples’ rights across sectors due to their critical role in addressing climate change and biodiversity loss. Many natural resources and areas of biodiversity are located on Indigenous territories. Recent events, however, have highlighted shortcomings in current approaches to respecting Indigenous rights, particularly in obtaining Free, Prior, and Informed Consent (FPIC) for projects on Indigenous lands. Financial institutions (FIs) are key players in value chains that impact Indigenous Peoples. With increased financing for transition minerals and nature-based solutions, FIs must ensure they and their clients understand and respect Indigenous rights, including obtaining FPIC to avoid conflict, reputational damage, and project cancellations.

A fundamental challenge: Differing views on whether the community is “Indigenous”

There is no universally accepted definition of “Indigenous Peoples,” which poses challenges for FIs in determining which communities’ rights should be considered. International standards and development banks offer varying definitions. The report emphasises that self-identification is a key criterion in international human rights standards. It suggests that where there is a lack of consensus, FIs and their clients should seek expert support to define indigeneity through ethnographic studies.

Determining what ‘good’ FPIC is

Financial institutions struggle to ascertain if clients have adequately obtained FPIC. The report outlines that FPIC is an ongoing process, not just a final agreement. It requires broad community support, engagement at multiple levels, and sufficient time for trust-building and negotiation.

A typical outcome from an FPIC process is an Impact Benefit Agreement (IBA) between a developer and indigenous community which outlines how impacts from a project will be managed, and how indigenous communities will benefit from the project’s presence. The report discusses the potential of equity ownership in projects as a proxy for FPIC, where there is broad community support and equitable distribution of benefits. Financial institutions can play a role in facilitating indigenous communities’ access to capital for such ownership.

Navigating the information vacuum: When the FI receives poor-quality information on respect for Indigenous rights

FIs often receive inadequate information from clients and consultants regarding respect for Indigenous rights. This can be due to confidentiality constraints around IBAs or a lack of expertise on Indigenous Peoples’ rights among consultants. The report recommends that FIs encourage clients to hire consultants with local expertise and cultural sensitivity. It also suggests that FIs inquire about non-confidential details of IBAs and engage directly with Indigenous Peoples or trusted experts if concerns arise.

Identifying and addressing power imbalances

Power imbalances between clients and Indigenous Peoples can hinder FPIC processes. Indigenous groups may lack resources or knowledge to make informed decisions, and companies may exploit this. Financial institutions can address this by advocating for resources to strengthen Indigenous organisational capacity, funding independent experts or facilitators, and promoting understanding between parties. The report highlights a trend of indigenous communities increasingly upskilling themselves and others to better negotiate with project proponents.

From risk to mutual opportunity

Indigenous Peoples’ presence in a project or supply chain is often viewed as a risk by FIs. However, the report argues for a shift in perspective, viewing these partnerships as opportunities for mutual benefit. Indigenous-led conservation efforts and the location of critical minerals on Indigenous territories are cited as examples.

The report concludes by suggesting that FIs should consider Indigenous Peoples as partners in achieving better outcomes, aligning with the recognition at COP26 and COP15 of the critical role of indigenous knowledge and communities in addressing climate change and biodiversity loss.