Picture this: It's the morning of May 28, 1998, and you're a peaceful demonstrator on an oil platform in the Niger Delta. You're protesting the devastating impacts Chevron’s operations have had on your impoverished community. The company, of course, is reaping handsome profits off resources extracted from the area. Suddenly, Chevron helicopters descend, carrying soldiers paid and supervised by Chevron. The soldiers open fire before they land, and when they disembark, kill two of your neighbors.

Cut to a federal courtroom in San Francisco, where this scene will be replayed later this month for a jury. It will consider whether Chevron is accountable for complicity in the killings. This is no isolated event. Corporations are increasingly being held to account for complicity in human rights abuses around the world. Because of cases such as these, The United Nations has appointed a Special Representative on business and human rights, Harvard Professor John Ruggie. He recently issued a report confirming that corporations do indeed have a responsibility to respect human rights.

The message is being heard. Leading companies are adopting policies on human rights in their operations and their supply chains. It's not just altruism. They want to avoid the business costs of being labeled human rights violators.

But what about the banks that finance major corporate projects? They bear risks, too, when their money finances business activities that violate human rights.

Last fall, for example, a federal appeals court allowed a case to proceed against a number of major corporations—including several banks—for assisting the apartheid regime in South Africa when it was still in power. In addition to potential legal liability, banks may also have huge reputational risks associated with their lending practices. Wouldn't you think twice about opening a checking account at a bank that is financing a Chinese oil company to drill in Sudan?

Many banks have begun to take steps to reduce the environmental and social impacts of their projects. In 2003, a number of leading banks launched the "Equator Principles" -- a set of common environmental and social standards for projects they finance. While not perfect, the Equator Principles were a first step toward improving the sustainability of the banks' lending operations. But human rights have remained a blind spot for most major banks.

The Equator Principles fall short of international human rights standards in many respects. In the analysis of the human rights requirements of the Equator Principles I helped produce, we found that, out of 335 indicators of human rights performance, the Principles failed to fully satisfy international standards on 329 of them.

Why the gaps? Well, it’s a bit complicated, so bear with me.

Instead of writing their own policies from scratch, the Equator banks adopted the policies of the International Finance Corporation, or IFC – the World Bank's private sector lending arm.

The problem is, the World Bank is the wrong place to look for leadership on human rights. The Bank has always been a consensus-driven institution. That means it's historically been reluctant to offend member governments who are guilty of violating the human rights of their citizens. As a result, the progressive ideals of the Universal Declaration on Human Rights have too often taken a back seat to the regressive impulses of member countries, like Saudi Arabia and China. For this reason, the IFC's policies are not strong enough to really tackle human rights issues.

The IFC and Equator banks need to fill the gaps between their policies and internationally recognized human rights standards. In our analysis, we made some recommendations. For starters, the banks need to make sure that their lending criteria are consistent with internationally recognized human rights standards.

Then, the banks need to honestly and carefully assess the human rights impacts of the projects they support.

Finally, the banks also need to ensure that their borrowers –the companies using their money—are listening to those who believe that their human rights are at risk. Effective grievance mechanisms could give fair recourse to those whose concerns are so often ignored.

The upshot is this: the banks can face their human rights responsibilities now—or, like Chevron, find themselves facing those responsibilities in the courts of law and public opinion.

About Steve Herz

Steve Herz co-authored the recent report: The International Finance Corporation’s Performance Standards and the Equator Principles: Respecting Human Rights and Remedying Violations? The analysis was conducted in partnership with the World Resources Institute, the Center for International Environmental Law, the Bank Information Center, BankTrack, and Oxfam Australia. Herz practices international, environmental, and human rights law in Oakland, CA.

This commentary is part of a partnership between CSRwire and Corporate Watchdog Radio.