Addressing the Human Rights Risks of Financing the Arms Industry: Insights from Banks’ Corporate Policies

Can banks finance the arms industry without fuelling human rights abuses?

Hiruni Alwishewa reviews the corporate policies of 20 major banks that fund top weapons manufacturers in Addressing the Human Rights Risks of Financing the Arms Industry: Insights from Banks' Corporate Policies.

This research examines banks' defence-sector guidelines, due diligence processes, and exclusion criteria to see how they address potential complicity in human rights abuses and concludes:

• Historically, banks' role in funding arms deals received far less scrutiny than other high-risk sectors.
• Today, global standards like the UN Guiding Principles on Business and Human Rights are prompting banks to recognise their responsibilities in arms financing.
• Many leading banks now have dedicated defence sector policies to curb the human rights impacts of arms deals and set ethical criteria for financing military clients.
• Banks are increasingly conducting human rights risk assessments to identify potential adverse impacts and avoid or manage high-risk deals before financing arms transactions.
• Growing pressure from regulators, investors, and civil society is pushing banks to strengthen these measures: adopt stricter policies, use exclusion clauses, and address overlooked ethical risks that were once.
• Transparency remains limited: banks rarely disclose how rigorously they apply exclusion criteria or risk assessments to real deals.

This article suggests genuine enforcement of balanced arms-related policies could reduce legal, reputational, and credit risks associated with financing controversial arms activities.

Proactive banks might pre-empt stricter regulation by self-regulating now, whereas laggards could face future stakeholder backlash if responsible investors and regulators are to monitor how they implement these policies.

As a limitation, the study reviews policy documents rather than outcomes. Policies on paper don't guarantee change on the ground: without concrete implementation and transparency, the actual impact on arms-related human rights risks remains uncertain in practice.