As Facing Finance launches its 4th edition of the Dirty Profits report exposing companies and financial institutions benefiting from violations of human rights, BankTrack examines why banks are not making more progress towards meeting the human rights responsibilities established by the UN.
While the UN Guiding Principles on Business and Human Rights are not perfect, their full adoption by the banking sector could spur real progress in business adherence to human rights standards across the board, making corporate activities which cause human rights abuses less likely to find the finance they need to proceed, and providing more avenues for victims to seek justice. Yet four years on from the endorsement of the Guiding Principles by the UN Human Rights Council, banks are still a long way from fully adopting them.
BankTrack’s research report, “Banking with Principles”, showed that only around half of the 32 large commercial banks covered have developed human rights policies. And while some have begun to outline their approach to conducting due diligence, the sector has scarcely begun to make progress on reporting on how they address human rights impacts, or on developing grievance mechanisms to allow those affected to advance complaints.
Grievance mechanisms: Earth calling the banking sector!
In particular the lack of grievance mechanisms in the banking sector has been a focus of Banktrack’s efforts over the last year. Some banks have been resistant to the very idea that they need grievance mechanisms at all, while others have pointed out barriers to developing them which need to be overcome. We have encountered three principal lines of argument from banks as to why they have not yet made more progress.
Firstly, banks have argued that there is a need for greater clarity on their precise responsibilities for respecting human rights before they can make progress; for example, on when banks can be considered as “contributing to” a human rights impact, rather than being simply “directly linked” to it through their business relationships. This distinction is important in the Guiding Principles, as the responsibility to remediate human rights impacts is limited to instances where businesses themselves identify that they have “caused or contributed to” the impact through their own operations.
It is fair to say that more guidance on such terminology would be helpful, but this objection is indicative of an approach which is focussed on seeking to establish the minimum level of responsibility before acting. The Guiding Principles make clear that businesses may also “take a role” in providing remedy to victims where they do not cause or contribute to the impact, but where the impact is directly linked to its business relationships. This should be seen, then, as good practice, and a bank which was striving towards such good practice would be prepared to risk going further than the minimum expectations of the Guiding Principles; hereby providing channels for remedy to all victims of human rights abuses linked to its finance.
Secondly, banks have argued that most of the time, when a bank is ‘linked’ to a human rights issue, it is caused by the client rather than directly by the bank, and therefore the client is “in a better position” to provide remedy.
We agree that this is often the case, but banks have their own responsibilities as well, and with good reason. For rights-holders, being able to seek remedy from the financiers of a project as well as the project sponsors directly will only be to their benefit – indeed the company directly responsible may prove unwilling or unable to remedy the impact. But beyond this, grievance mechanisms help companies identify potential human rights issues, and make sure they are addressed early before they become full-blown complaints, leading to expensive lawsuits or derailing projects completely. Banks should surely welcome this as an essential element of their risk management process.
Thirdly, some banks have argued that they meet their responsibilities because they have signed the Equator Principles – as under the Equator Principles, banks must make sure the projects they finance include grievance mechanisms. However, the Guiding Principles stipulate that banks have a responsibility to “establish or participate in” grievance mechanisms, not simply ask their clients to set them up and then step back and ignore the complaints. The Equator Principles themselves are also notably lacking in a complaints mechanism.
In short, bank explanations for not getting complaints mechanisms in place do not hold a lot of water, and progress on this issue is urgently needed. Encouragingly there are signs that awareness of the need for more progress on this front is becoming more widespread.
We need to know what banks are financing
While it is important to keep an eye on banks’ progress on policy development, reporting, and grievance mechanisms, it’s also important to maintain a focus on the human rights impacts of the projects and companies banks are financing. Doing so is an ongoing challenge.
Reports such as this, along with BankTrack’s library of Dodgy Deal profiles, shed some light on this question, thanks to painstaking and costly research. Yet in doing so, we are hamstrung by limited transparency from banks on what they are financing, and what actions they are taking when human rights issues arise.
Banks frequently claim that they are unable to discuss specific transactions, or that commercial confidentiality prevents them from discussing particular clients. This needs examining afresh in light of the UN Guiding Principles, and their requirements for all businesses to communicate how they address the human rights impacts they identify. After all, banks can and do disclose detailed information on certain transactions in their sustainability reports, and also to pay-walled financial databases, accessed regularly by their competitors.
We believe that a step change in banking transparency, about what banks finance and how they manage their human rights impacts, is both possible and necessary, and that there is an urgent need for a wider debate on how banks might find a way to discuss specific transactions, where there is a clear public interest in them doing so.