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Banks and human rights: Assessing strengths and weaknesses of the Thun Group’s approach

In May 2011, four European banks (Barclays, Credit Suisse, UBS and UniCredit) came together in Thun, Switzerland, and created an informal group (the Thun Group of Banks) to explore what the United Nations Guiding Principles on Business and Human Rights (UNGPs) mean for the banking sector. In October 2013, the Group (enlarged by the participation of three additional members: BBVA, ING Bank N.V. and RBS Group) released its first public document, a discussion paper entitled “The Guiding Principles on Business and Human Rights: An interpretation for banks”.

Several commentators emphasised that the discussion paper represents a critical step in the way to delineate the human rights responsibilities of the financial sector. According to KOFF Centre for Peacebuilding, the document shows, for the first time ever, “a common understanding amongst the companies involved that respect for human rights is an integral part of the business”. At the 2013 UN Annual Forum on Business and Human Rights, the document was hailed as a “paradigm shift” for thinking on human rights in the banking sector, in spite of its shortcomings. Sudeep Chakravarti argued that the paper is “a must-read for financiers, their clients, corporate governance and human rights specialists, and teachers and students of business schools”.

The foundational aspect of the Thun Group’s discussion paper makes it particularly important that the seven banks ‘get it right’ from the very beginning and avoid any misinterpretation of their responsibilities. A false start can have long-lasting repercussions (in terms of both poor legal risk management and adverse human rights impacts). In addition, the document is likely to influence the way in which other (private and public) financial institutions integrate human rights into their operations.

Against this background, I followed the lead of other experts (including BankTrack, Andreas Missbach, Ariel Meyerstein and Sarah Altschuller) and wrote a detailed report on the main strengths and weakness of the discussion paper. You can find the report here, and a summary of my arguments here below.

The seven banks should be praised because … 

… they acknowledge that the UNGPs represent “a new overarching single point of reference for business and human rights” (p. 4). The banks therefore formally accept that the UN document is the starting point for any discussion on their responsibility to respect human rights.

… the discussion paper is the first comprehensive analysis on how the UNGPs can be integrated into all the activities of universal banks (from retail banking to asset management). Other initiatives, like the Equator Principles, are still limited to specific types of activities (for instance, project finance and a few related services).

… the Thun Group concedes that banks should conduct human rights due diligence not only because of the reputational and financial advantages that it offers (the so-called “business case” for human rights), but also because it is “the right thing to do” (p. 3). This is important because adverse human rights impacts must not be discounted when they are linked to profitable opportunities.

… the discussion paper heavily draws on the UNGPs to describe how banks should express their policy commitment to respect human rights. Among numerous positive elements, the banks recognize that their human rights policies should not be ring-fenced in one part of the organization, but should “apply to all parts of the business” (p. 6) and concede that it is “critical to seek senior management buy-in at the outset” because staff need to know that they are supported in considering the issue (p. 7).

… the Thun Group recognizes that the human rights due diligence process should:

  • be “an ongoing process, not something to be completed once and not revisited” (p. 16),
  • “take a broader view of their potential impacts rather than focusing solely on their own commercial and reputational risks” (p. 9) and be based on “a risk management model that goes beyond traditional parameters, to address (identify, manage and mitigate) human rights risks to external stakeholders” (p. 5)
  • pay “heightened attention” to groups “who are particularly vulnerable to human rights violations in a specific context, even though the bank’s connection to these violations may be remote” (p. 10).

The seven banks should be criticized because …

… they fall victim of what Mary Dowell-Jones named the “subsidiary approach”, that is, they focus only on those human rights impacts that arise via the actions of banks’ clients. Yet, banks can abuse human rights in numerous other ways. Just to offer a few examples, banks can abuse the human rights of their employees (e.g., long working hours, macho culture and discrimination against women) and their customers (e.g., discriminating against female customers, such as pregnant women and women on maternity leave seeking mortgages). In addition, adverse human rights impacts have been linked to banks’ activities in derivatives markets (e.g., exacerbation of financial crisis through irresponsible lending and volatility of food markets because of aggressive speculation).

… the Thun Group is silent with respect to other banks’ activities that have been linked to human rights abuses, such as lobbying, land grabbing and tax avoidance.

… the discussion paper fails to mention the importance of creating valid and reliable indicators of respect for human rights in order to integrate human rights issues into financial decision-making processes and align internal incentives with the human rights statement of policy.

… the wording of the discussion paper suggests that reporting is purely voluntary. Yet, according to the UNGPs, businesses should, not “may wish to” (p. 19), be prepared to communicate how they address their human rights impacts. A higher level of transparency is widely considered to be a key feature for a more sustainable financial sector.

… according to the Thun Group, if clients need funds for general corporate purposes (such as strengthening the working capital), banks should only look for responsible “management systems and structures” and not check the “potential impacts of specific investments” (p. 15). This is problematic because the activities of the clients often reveal more about their human rights records than the procedures written on paper.

… the discussion paper intentionally avoids to address the need for greater access by victims to effective remedy. This is disappointing because UNGP 22 is clear that, where business enterprises “identify that they have caused or contributed to adverse impacts, they should provide for or cooperate in their remediation through legitimate processes”, and the UN Working Group on business and human rights recently confirmed that “lending money to a company to construct a large processing plant built on a community land where a village was displaced to make way for the project without appropriate consultation or compensation as per international resettlement standards” is an example of “contributing to adverse human rights impacts”.

… the discussion paper ignores the five “foundational principles” (UNGPs 11-15) and the two principles that deal with “issues of context” (UNGPs 23-24). Acting this way, the Thun Group overlooks important aspects of the corporate responsibility to respect. To cite just one example, UNGP 11 recognizes that banks may undertake other commitments or activities to support and promote human rights, which may contribute to the enjoyment of rights. However, this does not offset a failure to respect human rights throughout their operations. This is particularly important because the sustainability reports of numerous banks still focus on philanthropic activities.

… the discussion paper reports that its drafting process benefitted from support of the Competence Center for Human Rights at the University of Zurich and a small group of individuals who had already been involved in drawing up the UNGPs. Yet, no meaningful consultation took place with affected stakeholders and human rights NGOs. Effective engagement with potential victims and/or their representatives is also missing from the recommendations included in the document: there is only one reference under the “Reporting” section. The UNGPs recommend effective engagement with affected stakeholders at all stages of the human rights due diligence process.

Arguably, the last element of criticism is the most problematic. The definition of banks’ human rights responsibilities still presents abundant unresolved dilemmas (e.g., how to assess severity of human rights abuses and thus prioritize action? Under what circumstances do banks have higher leverage?) and Ruggie’s mandate has showed that long-lasting solutions can only be achieved through a participatory and inclusive approach.

On 5 June 2014, the seven banks invited a few external stakeholders in Thun to discuss recent evolutions and future plans. The hope is that such a small step denotes a bigger change in attitude.

You can download Damiano de Felice’s full report here.

Damiano de Felice is co-Director of Measuring Business & Human Rights, a PhD Candidate at the London School of Economics, and a member of the World Economic Forum’s Global Agenda Council on Human Rights. Please feel free to contact the author for any questions or to offer feedback regarding this article or the report it is based upon.

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