Jan 222014

 By Andreas Missbach, Berne Declaration and BankTrack, 22 January 2014

The Thun Group was formed when a group of banks came together in May 2011 in Thun, Switzerland,to discuss what the UN Guiding Principles on Business and Human Rights (UNGP) may mean for the banking sector. In October 2013 the group issued a discussion paper supported by seven international banks. Although no consultation of civil society has taken place and although the two-year process that led to the Thun group discussion paper seemed to constitute a “managing down” of expectations BankTrack welcomed the Thun Group’s paper as an important step. At the Business and Human Rights Forum of early December 2013 in Geneva BankTrack presented an analysis of the discussion paper that is summarized below.

Scope of the Thun Group paper

The Thun Group discussion paper limits its scope to Principles 16-21 of the UN Guiding Principles, the operational Principles on due diligence. The Paper does thus not address Principle 22, which discusses remediation as part of the responsibility to respect. Consequently but sadly the third pillar on Access to Remedy is not discussed at all. UNGP Principle 22 determines that even “enterprises that have not caused or contributed to adverse human rights impacts (…) may take a role” in enabling remediation.

BankTrack is convinced that banks can play a valuable role in ensuring that a grievance mechanism is established by the bank’s client in the first place. Where their business is directly linked to a project that affects the rights of rights holders and when a bank client that is violating human rights is unwilling to address the issue of effective remedy they should establish their own mechanisms for access to remedy.

Ambition of the Thun

The Thun Group paper begins with a series of caveats that seek to play down the banking sector’s influence and its leverage over clients. The UNGP define leverage as “the ability to effect change in the wrongful practices of an entity that causes a harm” (commentary to Principle 19). By providing essential financing, banks have a higher leverage than for example a buyer in a supply chain. Banks also have the possibility to increase leverage, for example by the use of specific covenants outlining non-financial obligations of the client.

Where banks come to the conclusion that they really don’t have any leverage, they always have the possibility to terminate a client relationship. While we agree, that using the exit option will not per se improve the situation on the ground, as other financiers my step in, it is important for a bank to know, where its red lines are. Therefore the issue of exit would have deserved further elaboration by the Thun group.

Guidance of the Thun Group paper

The discussion paper elaborates on human rights due diligence processes in the different areas of activities of universal banks. In corporate and investment banking, where many high risk transactions occur, the paper proposes a different approach depending on whether the funds are used for general corporate purposes or for a specific investment or purpose.

When providing funds for general corporate purposes, the paper advises that the due diligence process focuses on management systems and the company’s process for identifying and consulting with stakeholders. Only “if the client intends to use the funds for a defined purpose” should the potential impacts “on the rights of affected rights-holders … be assessed” (page 5). The focus on rights-holders that is acknowledged in other parts of the position paper is lost in the due diligence process for general corporate purposes. This is even more serious as there is plenty of evidence that banks routinely provide general corporate financing for many companies that are involved in serious human rights conflicts.


If implemented the Thun Groups proposal would be a major step forward, as it advocates for a “development of a risk management model that goes beyond traditional parameters, to address (…) human rights to external stakeholders, i.e., which identifies and assesses potential adverse impacts on rights holders” (page 5).That paradigm change is key and Banktrack expect banks to work quickly towards implementing the UNGP across their operations. The implementation at individual banks is also a chance to correct some of the weaknesses of the paper. First and foremost consultation with civil society stakeholders should really take place.

It goes without saying that a credible implementation of the UN Guiding Principles in the financial sector is only possible in combination with much more transparency. Only if policies are publicly available are stakeholders able to assess whether the Principles have been implemented in a meaningful way.

Dr. Andreas Missbach is Head of Commodities, Trade and Finance Department, Berne Declaration and member of the Steering Committee of BankTrack. This blog was originally published on Righting Finance. Image: John Ruggie at the opening session of the 2012 UN Forum on Business and Human Rights. Source: United States Mission to the United Nations.