Jun 192014

By Ryan Brightwell, BankTrack and Andreas Missbach, Berne Declaration, 19 June 2014 

The city of Thun in Switzerland isn’t a bad place to travel for a meeting. Overlooked by the snow-capped Bernese Alps, and situated on the banks of the clear blue Thunersee, it’s easy to see why a group of seven banks picked this location to hash out the details of their October 2013 discussion paper on how banks can implement the UN’s new global human rights standard, the Guiding Principles on Business and Human Rights.

Perhaps wanting to keep their mountain retreat a secret, the banks kept the process of writing this paper closed to outsiders, other than a few academic advisers. However earlier this month the Thun Group held, for the first time, an open meeting, inviting BankTrack among others to join discussions on what banks should do next in order to meet their human rights obligations.

Last year, BankTrack welcomed the Thun Group’s paper as an important step forward. The paper recognized, in a first for the banking sector, that the Guiding Principles apply to all parts of a bank’s business, including asset management and personal banking as well as corporate and investment banking. And it echoed a central point of the UNGPs by saying that risk management models used by banks must go beyond traditional parameters, to also identify and assess potential adverse human rights impacts on rights holders, rather than just identifying risks for banks – a key change of perspective.

However, we also voiced substantial criticisms about the scope, ambition and guidance of the paper, which we set out in a briefing. To summarise, the banks failed to consult with NGOs and civil society, underplayed their ability to increase their leverage over companies, and omitted to discuss a number of important areas of the Guiding Principles. Most importantly, they left out the need for banks to ensure that rights holders whose rights are affected by activities financed by banks have access to remedy  , including the establishment of a grievance mechanism within the banks themselves.

Setting the Thun from the top - Thun and the Thunersee from Niesen, by Vasile Cotovanu (Sourced from Flickr under a Creative Commons licence)

“Thun from the top” – Thun and the Thunersee from Niesen, by Vasile Cotovanu (Sourced from Flickr under a Creative Commons licence)

Room for improvement: five gaps in the first “post-Thun” bank human rights policy

One point we made to the banks at the Thun meeting of last month was that the real world impact of the group lies in policy implementation at individual banks. However, progress from the banks in implementing the recommendations of the Thun paper has been slow. UBS deserves credit, then, for being the first of the seven banks that signed on to the paper to release a new policy addressing human rights and implementing (at least some of) its own recommendations.

For this reason, the UBS policy deserves closer attention, not to single out one bank, but to give some pointers to the other six banks which are yet to produce clear “post-Thun” human rights policies. In this spirit of constructive criticism, there are five areas where UBS could have gone further:

  1. Focus on rights holders: The Thun Group called for the “development of a risk management model … which identifies and assesses potential adverse impacts on rights holders as well as risks to the bank itself.” However, in contrast, UBS defines environmental and social risks purely in terms of “the possibility that UBS is harmed reputationally or financially” (at least according to the publicly available information). The focus is only on the risks faced by the banks and the risks to rights of people are out of sight.
  2. Consult with civil society: The Guiding Principles call for meaningful consultation with potentially affected groups and other relevant stakeholders when impacts are assessed. Having raised this point in our discussion paper, it is regrettable that no external consultation seems to have taken place at UBS.
  3. Show how due diligence is conducted: At the centre of the corporate responsibility to respect human rights is the responsibility to conduct due diligence – so some detail from the bank on how due diligence is designed and implemented would be welcome.
  4. Show how risks are categorized: TheThun Group paper set out a checklist for banks’ human rights policies, which includes ensuring policies assist identification of human rights impacts, for example by classification of risk level. This is missing from UBS’ policy.
  5. Publish the whole thing: The highly abstract environmental and social policy published on the UBS website is just the tip of the iceberg – supporting documentation is left unpublished. Without such information, it is impossible for external stakeholders to assess the quality of their processes, or for them to serve as a model for others.

For a bank which has signed up to the Thun Group’s discussion paper to be falling short of some of its recommendations is an inauspicious start. That said, the new policy sets a high standard of “do no harm”- a good basis to improve upon. We hope that other banks developing new policies based on the Thun Group recommendations will go further. And fully show, what they are actually doing.

Could the Thun Group of Banks break the deadlock on accountability mechanisms?

In January 2004 a then recently-formed NGO network named BankTrack called on banks which had signed a recently-agreed set of voluntary guidelines called the Equator Principles to establish a joint Independent Accountability Mechanism. Said chair of the BankTrack board Michelle Chan: “The Equator Principles, as a voluntary set of principles, cannot depend solely on peer group pressure to succeed. Independent monitoring and compliance mechanisms must be put in place. Signatories cannot expect to receive much public credit without accountability procedures that ensure that banks practice what they preach on the ground”.

Ten years on, there is still no Independent Accountability Mechanism for the Equator Principles, and with the organisation now having expanded to 79 banks, the chance of them agreeing on one looks remote. To date, only one Equator bank has developed a grievance mechanism – FMO, the Dutch development bank, which is 49% privately owned.

Yet the UN Guiding Principles are clear on the need for grievance mechanisms. Principle 22 states that “where business enterprises identify that they have caused or contributed to adverse impacts, they should provide for or cooperate in their remediation” (and that where a business does not cause or contribute to adverse human rights impacts, but is directly linked to such impacts, they may take a role in remediation), with grievance mechanisms being the primary means for remedy discussed in the principles. Principle 29 also makes clear the need for business enterprises (i.e. including banks) to establish or participate in grievance mechanisms.

This of course opens a can of worms in terms of what it means to cause, contribute or be directly linked to human rights abuses, and whether this means that banks financing operations that cause human rights violations are themselves also involved in the violation. But here the UN Working Group on human rights and business has stepped in to confirm that in some instances, banks can contribute to human rights abuses through their finance: “Examples of this in the financial sector include: 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.” This is in addition to the human rights impacts banks may cause themselves, for example by discriminating against ethnic minorities in their workforce or their lending practices.

In Thun, BankTrack helped ensure that the issue of ensuring remediation came up repeatedly. The day after the open meeting, the banks held their own closed meeting to discuss their next steps. We understood that the issue of how banks can provide those affected by human rights abuses with access to remedy has been high on the agenda there. We hope that the inspirational mountain setting inspired some ambitious solutions.

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