I have just posted a preliminary draft of an article that is currently entitled The Corporate Social Responsibilities of Financial Institutions for the Conduct of their Borrowers: The View from International Law and Standards. The article is expected to be published in the Lewis and Clark Law Review.
The object of the article to to think about two different but related trends. The first is on the linkages that appear to be growing between domestic legal orders, international standard setting organizations and private organizations with respect to corporate social responsibility rules, including sustainability and business and human rights norms. I am interested in seeing the extent to which one can understand CSR as a set of law and norm structures that seek to maximize the value of linking law, social norms, markets, national and international law together to produce a web of command and guidance that might produce a coherent and targeted effect. The second is on CSR and indirect compliance mechanisms, that is on the development of the development of the instrumental use of other actors to compel CSR compliance by operating companies. This is particularly intriguing for the possibilities (and challenges) it may offer through regimes that are based on the privatization of law and the transfer of regulatory hard(er) authority (through contract) in lending institutions. Legal privatization merits greater focus in the context of CSR debates.
As always, reactions, suggestions and engagement are most welcome. The current version of the abstract and introduction follow.
The Corporate Social Responsibilities of Financial Institutions for the Conduct of their Borrowers: The View from International Law and Standards
Larry Catá Backer
Abstract: Corporate social responsibility (CSR) can be split along two distinct lines. The first touches on the nature of corporate personality and is rooted in domestic law regulating enterprises specifically and legal persons generally. The second touches on the nature of the rights of individuals and is rooted in international law (and sometimes domestic constitutional law) defining the scope of the human rights of individuals and the consequential obligations of states and legal persons. Both conversations intertwine though they tend to operate autonomously. In both cases, however, the traditional focus of corporate responsibility has focused on the relationship between an operating company and its direct effects on individuals, society and the environment. But increasing attention has been paid to indirect compliance through private intermediaries—the financial institutions which provide operating capital to enterprises. This article considers the corporate social responsibilities of financial institutions, including sovereign wealth funds, for the conduct of their borrowers. The focus will be the extent of any duty or responsibility of lenders to ensure that their borrowers comply with CSR obligations (or alternatively conforms to international human rights standards) as a core aspect of their own CSR obligations (or alternatively) of their responsibility to respect human rights. Section II examines the general regulatory framework. There are two aspects that are relevant. The first is to understand the scope and character of the legal norms that may be applied to enterprises generally with respect to their operation’s that might be understood as CSR-human rights related in nature. The second is to consider the range of non-legal normative governance rules that might apply. In the process it will be important to distinguish between a CSR based regulatory approach and a human rights based approach. Section III considers the application of these norms to financial institutions. This requites distinguishing between those obligations that apply to the internal operations of financial institutions generally, and those obligations that apply to the financial institution’s obligations with respect to its lending activities, that is with respect to its relationship with its borrowers. The essay ends with a brief examination of recent cases in which financial institutions undertook such a responsibility, and the ways in which that obligation was undertaken.
I. Introduction and Context
Over the last half century or so the debates about corporate social responsibility (CSR) came to be split along two distinct lines. The first touches on the nature of corporate personality and is rooted in domestic law regulating enterprises specifically and legal persons generally. The second touches on the nature of the rights of individuals and more generally of society, and is rooted in international law (and sometimes domestic constitutional law) defining the scope of the human rights of individuals and the consequential obligations of states and legal persons. Both conversations intertwine though they tend to operate autonomously. Yet in both cases the object is the same. It touches on corporate obligation (as distinct from the obligations of states, of individuals or of organizations other than entities engaged in economic activities); it focuses on the societal aspects of corporate activities (as distinct from the legal obligations imposed by or through the state through the conventional processes of formal law, statutory or court administered); and it touches on responsibilities that arise from these societal aspects of economic activity (in contradistinction to the duties that may arise from the obligation to comply with law).
As a manifestation of domestic law and policy, CSR is a term whose importance to the debates about the nature of corporate personality and the governance responsibilities of enterprises is as old as the corporation itself. At its broadest, it refers to the extent to which an aggregation of capital that is recognized as a separate legal person must, may, or should, operate in accordance with certain standards of conduct. That mimics the general conversation a society has about the legal, civic, ethical and societal obligations of its citizens. But since the 1930s, at least, CSR has acquired a quite specific and distinct meaning. It references the question of the extent of the legal, social, civic and moral obligations of enterprises in their operations. A spectrum of views have been advanced reflecting quite distinct views of the nature of the corporate enterprise and its relation to the polity in which it is constituted and licensed to operate.
At one extreme, and still quite powerful, is the view of the corporation as property in the hands of its equity owners. This property might be understood either as the aggregation of a series of contracts among actors, or as the product of a legal fiction that permits the partitioning of assets from a number of individuals into a common operation. As property, exercise of corporate activity must center on its owners. From early in the 20th century it has been commonplace to understand that the corporation and its fiduciaries owe their highest duty of loyalty to equity holders, and that this duty requires the operation of the enterprise to maximize the value of their holdings. This principle of shareholder primacy continues to serve as the central principal of the legal management of corporate governance. And from the 1960s acquired a political dimension as well. Milton Friedman famously argued that to impose political, social, cultural or other similar obligations on corporations would be anti-democratic in the sense of delegating to unelected and unaccountable institutions powers that ought to be exercised through democratically elected governments.
At the other extreme, and increasingly powerful, is the view that the corporation is a creature embedded in society and as such owes duties not merely to those who hold certain contractual rights to its income and assets, but also to the state that permitted its creation and the society within which it is permitted to operate and acquire wealth. In the United States that might mean the enterprise embedded within society; in Japan, it might suggest an enterprise embedded in itself and then society—that is, of corporations as autonomous and independent entities capable of self-ownership. As a societal actor, the autonomy of the enterprise is privileged over the property rights of its equity holders. As an autonomous institution, it ought to be responsible for its actions. But that responsibility might be measured in the social (rather than the legal) context in which it is exercised. More specifically, the corporation would have an obligation to ensure that it maximized the societal value of its operation, even if that meant reducing the return on investment to its shareholders. The search for meaning about the scope and nature of this corporate responsibility remains contested in the United States. But it has moved well beyond the original ideals of using corporate funds to provide charity to affected communities, though still discussed in terms of value maximization to the enterprise.
Within these extremes, the domestic debates about CSR tend to revolve around the extent that an enterprise may or must engage in certain socially privileged ways—especially those that account for the social and environmental consequences of corporate activity. In the United States, shareholder primacy continues to define the legal standard. “While many deplored the disconnect between corporate power and social need, and CSR . . . became a more frequent discussion topic in corporate and academic circles, not many corporations acted meaningfully in pursuing CSR. Indeed, Friedman’s view probably remained the prevailing one for most corporations.” Still, it is a view that is tempered by law—which recognizes that corporations remain in and not above the society within which they operate. As a consequence the embrace of CSR is advanced in terms of value maximization, of the business case for societal action. Within these constraints of law and principle, corporate boards of directors may exercise a wide discretion. It is to guide the exercise of that discretion that CSR has appeared most useful in the United States especially. As a consequence, CSR remains substantially a creature of voluntary efforts in the United States and elsewhere. It is soft law in the relationship between the state and the enterprise, but it may be hard law within the governance structure and internal operations of the enterprise itself.
But such voluntary efforts, even when legalized through regulatory instruments are constrained by the shareholder primacy principle. Within law there have been efforts to seek ways to (1) soften the limitations of shareholder primacy at its limits, and (2) to permit the creation of enterprises that might avoid its strictures. With respect to the former, the move toward mandatory disclosure and reporting has been seen as a way of formally complying with shareholder primacy rules while using the possibility of societal pressure to manage corporate behavior in the “right” direction. These include disclosures in the Dodd-Frank Wall Street Reform and Consumer Protection Act as well as state disclosure statutes. With respect to the latter, the enactment of benefit corporation statutes was provided for enterprises that might wish to reject shareholder primacy as a matter of law. In addition, “other constituency” statutes have also gained favor—though these still are grounded in shareholder primacy and tend to provide that boards may consider effects on other constituencies in choosing alternatives to maximizing shareholder welfare.
But CSR has also become a key element of international debates. And these, to a large extent, have had profound effects both on domestic discretionary approaches to CSR, and to the development of international consensus principles for framing corporate behavior expectations in the social sphere. But the debate is of a substantially different character. In this context, the principal focus was on the developing normative structures for human rights. Within those structures the corporation played an increasingly consequential role. The focus of human rights originally centered on the state. Since every state controlled everything and everyone within its territory, it was considered the logical point for human rights enforcement as against people and social organizations, including corporations. But the rise of transnational production chains, and enterprises powerful enough to control them through strategic organization of its assets and production, appeared to suggest that some corporations could in certain instances exercise greater authority than states. A series of scandal in the 1970s and 1980s—the possible involvement of enterprises in the overthrow of the Marxist Chilean government and the murder of its president, and the deadly gas leak at Bhopal India, for example, suggested to many that enterprises ought to bear at least a responsibility for the protection of emerging human rights.
The protection of human rights in the international sphere differs somewhat from traditional domestic CSR debates. First, the focus was on the human rights of individuals, from out of which were derived the legal or societal obligations of states and of enterprises. CSR, in that context was understood as consequential—in the sense that it did not produce rights but rather that it followed from the normative structures of international human rights. The object was on the legalization of human rights norms as a matter of international law. That requires a focus on international norm making with the object of creating international law that might be embedded within domestic legal orders through treaties, conventions and similar binding instruments. CSR, then, becomes both an expression of the need to embed international norms within the operations of any enterprise (whatever its character) and also the acknowledgement that to some extent this is a political and ideological project. Second, the problem of human rights in this international CSR context was the enterprise itself and the governance gaps created by the growing importance of global trade and economic activity.  There was a tension between the role of states in protecting domestically chartered corporations, and the increasing porosity of borders that permitted corporations to operate between a variety of states in a way that strategically maximized local risk and minimized enterprise risk. For many, the question centered on the character of the enterprise as an object or subject of international law. But that itself challenged the central tenet of international law—one grounded in the primacy of the state and the recognition that only states were subjects of law. Third, the nature of globalization made it difficult for any one state to “solve” the problem of corporate compliance unilaterally. Extraterritorial application of national law remains powerfully attractive, but it is also problematic on political grounds, especially when the laws of former colonial powers were projected into the territories of former colonies. And competition for investment has created what might be considered a CSR race to the bottom. Fourth, even where there might be agreement on human rights at the international level, many states refused to transpose international norms into their domestic legal orders. As a consequence, the most vigorous and successful to date approaches in the international arena are so-called soft law efforts. These are non-binding norms or standards that are meant to produce a framework for guiding conduct that might eventually harden into law. Among the most successful have been the U.N. Guiding Principles for Business and Human Rights (UNGP) and the OECD Guidelines for Multinational Enterprises.
Both domestic CSR and international human rights conversations intertwine though they tend to operate autonomously. In both cases, however, the traditional focus of corporate responsibility has focused on the relationship between an operating company and its direct effects on individuals, society and the environment. That discussion, contentious, conflicted and unresolved, centers analysis on the parameters of direct compliance. These touch on the use of the domestic law of home and host states, on soft law and indigenous governance structures, and on the private law of enterprises directly on the enterprise that is the object of behavior regulation. Yet in its conventional form, the CSR debates traditionally marginalized indirect compliance, that is the instrumental use of other actors to compel CSR compliance by operating companies. One critical actor has recently drawn attention in this respect—the financial institutions which provide operating capital to enterprises. To what extent are financial institutions responsible for the human rights breaches of their borrowers? “While the obligation for the protection of human rights lies with the state, IFIs and their member states also have responsibilities to ensure that activities they support do not cause, or contribute to, human rights abuses by putting in place adequate safeguards.” This adds a new and important dimension to CSR and human rights governance matters. But it also produces substantial consequences which are both functional and normative. The functional consequences turn on the way that such indirect compliance may affect loan making—especially with respect to pricing loans, assessing risk, and developing covenants and the mechanisms to monitor compliance. The normative consequences might be profound—to impose on lenders a CSR-human rights responsibility to monitor and discipline their borrowers would suggest both a privatization of state regulatory power (the lender would effectively legislate CSR downstream through its contracts) and an extension of CSR principle to the financial sector in ways that affect financial markets and the cost of capital in unexplored ways. A secondary responsibility of financial sector enterprises suggests the intertwining of CSR and human rights at the heart of loan making, pricing, the regulatory effect of covenants, and the management of borrowers through a requirement for due diligence during life of relationship.
This essay considers the corporate social responsibilities of financial institutions, including sovereign wealth funds (SWFs), for the conduct of their borrowers. The focus will be the extent of any duty or responsibility of lenders to ensure that their borrowers comply with CSR obligations (or alternatively conforms to international human rights standards) as a core aspect of their own CSR obligations (or alternatively) of their responsibility to respect human rights. After this introduction, Section II examines the general regulatory framework. There are two aspects that are relevant. The first is to understand the scope and character of the legal norms that may be applied to enterprises generally with respect to their operation’s that might be understood as CSR-human rights related in nature. The second is to consider the range of non-legal normative governance rules that might apply. In the process it will be important to distinguish between a CSR based regulatory approach and a human rights based approach. Section III considers the application of these norms to financial institutions. This requires distinguishing between those obligations that apply to the internal operations of financial institutions generally, and those obligations that apply to the financial institution’s obligations with respect to its lending activities, that is with respect to its relationship with its borrowers. The essay ends with a brief examination of recent cases in which financial institutions undertook such a responsibility, and the ways in which that obligation was undertaken. Three different types of institutions are considered—private banks, SWFs and international financial institutions (IFIs). The essay ends with a preliminary consideration of the consequences of this movement for domestic CSR in the United States.
 Writings about CSR has grown enormously over the last two decades. For a sampling, see, e.g., Andreas Georg Scherer & Guido Palazzo, Globalization and Corporate Social Responsibility (2008) in The Oxford Handbook of Corporate Social Responsibility 413-431 (A. Crane et al., eds., Oxford University Press 2008), available at https://ssrn.com/abstract=989565; Geoffrey M. Heal, Corporate Social Responsibility - An Economic and Financial Framework, 30 Geneva Papers on Risk & Insur. 387 (2005); Miriam A. Cherry & Judd F. Sneirson, Beyond Profit: Rethinking Corporate Social Responsibility and Greenwashing After the BP Oil Disaster, 85 Tul. L. Rev. 983 (2011); A. Harwell Wells, The Cycles of Corporate Social Responsibility: An Historical Retrospective for the Twenty-first Century, 51 Kan. L. Rev. 77 (2002); Paul Morrison et al., Corporate Social Responsibility and Economic Performance (Jan. 2006), available at https://ssrn.com/abstract=900838.
 See, e.g., Marleen A. O’Connor, Restructuring the Corporation’s Nexus of Contracts: Recognizing a Fiduciary Duty to Protect Displaced Workers, 69 N.C. L. Rev. 1189 (1991); Robert B. Thompson, Piercing the Veil Within Corporate Groups: Corporate Shareholders as Mere Investors, 13 Conn. J. Int’l L. 379 (1999); Nicole Rosenkrantz, The Parent Trap: Using the Good Samaritan Doctrine to Hold Parent Corporations Directly Liable for their Negligence, 37 B.C. L. Rev. 1061, 1086–87 (1996); Marc Galanter, Law’s Elusive Problem: Learning From Bhopal, in Transnational Legal Processes: Globalization and Power Disparities 172 (Michael B. Likosky ed., 2002). Generally, Janet Dine, The Governance of Corporate Groups (Cambridge University Press 2006) (criticval discussion); Peter Muchlinski, Multinational Enterprises and the Law (2d ed., Oxford University Press 2007).
 “It is impossible to incorporate respect for the values on which our existence is based into the current practices that aim to maximize profit regardless of other considerations.” ECOSOC, Sub-Comm’n on Prevention of Discrimination & Prot. of Minorities, Working Document: The Realization of Economic, Social and Cultural Rights: The Question of Transnational Corporations, ¶ 21, U.N. Doc. E/CN.4/Sub.2/1998/6 (June 10, 1998) (prepared by Mr. El Hadji Guissé), available at http://www.unhchr.ch/Huridocda/Huridoca.nsf/(Symbol)/E.CN.4.Sub.2.1998.6.En?Opendocument; ECOSOC, Sub-Comm’n on Promotion & Prot. of Human Rights, Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, U.N. Doc. E/CN.4/Sub.2/2003/12/Rev.2 (Aug. 26, 2003), available at http://www.unhchr.ch/huridocda/huridoca.nsf/0/64155e7e8141b38cc1256d63002c55e8?OpenDocument. See, also, Surya Deva, Regulating Corporate Human Rights Violations: Humanizing Business (Routledge, 2012); David Kinley & Junko Tadaki, From Talk to Walk: The Emergence of Human Rights Responsibilities for Corporations at International Law, 44 Va. J. Int’l L. 931, 933 (2004).
 See, e.g., Adrian Cadbury, Corporate Social Responsibility, 1(1) Twenty-First Century Society 5-21 2006
 See, Larry Catá Backer, Corporate Social Responsibility Law—A Tentative Syllabus, Law at the End of the Day, April 11, 2017, available http://lcbackerblog.blogspot.com/2017/04/corporate-social-responsibility-law.html.
 For an example, see, e.g., the contributions to Symposium, Corporate Social Responsibility: Paradigm or Paradox?, 84 Cornell L. Rev. 1133 (1999).
 The germinal debate, the contours of which have remained largely unchanged in relationship to domestic law, started in the 1930s between Adolphe A. Berle and E. Merrick Dodd. See A.A. Berle, Jr., For Whom Corporate Managers Are Trustees: A Note, 45 Harv.L. Rev. 1365 (1932); E. Merrick Dodd, Jr., For Whom Are Corporate Managers Trustees?, 45 Harv. L. Rev. 1145 (1932).
 Discussed in Larry Catá Backer, The Autonomous Global Corporation: On the Role of Organizational Law Beyond Asset Partitioning and Legal Personality, 41 Tulsa L. J. 541 (2006).
 See, e.g., Dodge v. Ford Motor Co., 170 N.W. 668 (Mich. 1919).
 See Milton Friedman, The Social Responsibilities of Business is to Increase Profits, New York Times Magazine (1970).
 See, Katsuhito Iwai, Persons, Things and Corporations: The Corporate Personality Controversy and Comparative Corporate Governance, 47 Am. J. Comp. L. 583 (1999).
 See, e.g., Peter Fleming and Marc T. Jones, The End of Corporate Social Responsibility: Crisis and Critique (Sage, 2013).
 Consider M. Todd Henderson and Anup Malani, Corporate Philanthropy and the Market for Altruism, 109 Colum. L. Rev. 571 (2009) (exploring the demand by corporate stakeholders for charitable activities). The trend beyond charity is discussed in Larry Catá Backer, Multinational Corporations, Transnational Law: The United Nation’s Norms on the Responsibilities of Transnational Corporations as a Harbinger of Corporate Social Responsibility as International Law, 37 Colum. Human Rights L. Rev. 287 (2006).
 See, e.g., Shlensky v. Wrigley, 237 N.E.2d 776 (Ill.App. 1968).
 See, e.g., Henry Hansmann & Reinier Kraakman, The End of History for Corporate Law, 89 Geo.L.J. 439, 439 (2001).
 Jerome J. Shestack, Corporate Social Responsibility in a Changing Corporate World, in Corporate Social Responsibility: The Corporate Governance of the 21st Century 113-126, 116(Ramon Mallerat, ed., Kluwer Law Int’l 2011)
 A.P. Smith Mfg. Co. v. Barlow, 98 A.2d 581 (N.J. 1953) (holding that a corporation may make a charitable contribution where it promotes the goodwill of the corporation).
 See, e.g., Matteo Tonello, The Business Case for Corporate Social Responsibility, Harvard Law School Forum on Corporate Governance and Financial Regulation (June 26, 2011), available https://corpgov.law.harvard.edu/2011/06/26/the-business-case-for-corporate-social-responsibility/; David Vogel, The Market for Virtue 16-17 (2005).
 See, George, Erika R., Tweeting to Topple Tyranny, Social Media and Corporate Social Responsibility: A Reply to Anupam Chander, 2 Calif. L. Rev. Circuit 23, 38 (2011).
 Discussed in Larry Catá Backer, From Moral Obligation to International Law: Disclosure Systems, Markets and the Regulation of Multinational Corporations, 39 Geo. J. Int'l L. 591 (2008).
 Pub. L. No. 111-203, 124 Stat. 1376 (2010).
 See, e.g., Ohio Rev. Code Ann. § 1701.59(E) (West ) (allowing directors the discretion to consider, in determining the best interests of the corporation, factors such as employee interest, the state economy, and community considerations).
 See, e.g., Richard B. Tyler, Other Constituency Statutes, 59 Mo. L. Rev. 373 (1994).
 See, T. Moran, Multinational Corporations and the Politics of Dependence: Copper in Chile 252–53 (1977)
 See, Marc Galanter, The Transnational Traffic in Legal Remedies, in Learning From Disaster: Risk Management After Bhopal 133, 133–57 (Sheila Jasonoff ed., 1994).
 See, e.g., Anupam Chander, Googling Freedom, 99 Calif. L. Rev. 1, 22-31 (2011) (elaborating a social responsibility of business in an unfree society); cf. George, Erika R., Tweeting to Topple Tyranny, Social Media and Corporate Social Responsibility: A Reply to Anupam Chander, 2 Calif. L. Rev. Circuit 23 (2011).
 The most powerful of these arguments focused on the governance gaps that result from the application of the free movement logic opf economic globalization in the context of the laws of territorially bounded states whose laws could not freely move. The resulting governance gap was produced where enterprises and production chains operated among states and no one state had the power to fully regulate the global operations of the enterprise. “This makes it exteremely difficulñt for any jurisdiction to regulate the overall activities of multinationals, and it can prevent the victims of corporate-related human rights abuses from obtaining adequate remedy.” John Gerard Ruggie, Just Business: Multinational Corporations and Human Rights xxxiii (W.W. Norton, 2013) (“Thus, business and human rights is a microcosm of a lareger crisis in cintenmporary governance: the widening gaps between the scope and impact of economic forces and actors, and the capacity of societies to manage their adverse conseqeunces.” Id., xxiii).
 See, e.g., Jordan J. Paust, Nonstate Actor Participation in International Law and the Pretense of Exclusion, 51 Virginia J. Int’l L. 977 (2011).
 See, e.g., Penelope Simons, The Governance Gap: Domestic Laws and Other governance Mechanisms, in Penelope Simons and Audrey Macklin, The Governance Gap: Extractive Industries, Human Rights, and the Home State Advantage 178-272 (Routledge, 2014).
 R. Vernon, Codes on Transnationals: Ingredients for an Effective International Regime, in Transnational Corporations: The International Legal Framework (A.A. Fatouros ed., 1994) at 69 (“When governments think of an appropriate regime for “their” transnational corporations, most tend to look for principles that will enlarge the rights of those corporations in foreign countries without impairing the responsibilities of such corporations to the home government.” Id., 72).
 U.N. Guiding Principles for Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework (2011), available at http://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf [hereinafter UNGP].
 OECD, Guidelines for Multinational Enterprises (2011 edition), available at http://www.oecd.org/daf/inv/mne/48004323.pdf.
 Statement of Global Initiative for Economic, Social and Cultural Rights to UN Human Rights Council, available at http://globalinitiative-escr.org/the-world-bank-and-other-international-financial-institutions-must-uphold-human-rights-in-all-activities-they-support/.