A Good Step Forward, but Forward Far Enough?: "UN office publishes detailed human rights guidance for banks"

On 12 June 2017, the Office of the High Commissioner for Human Rights delivered a written response to a request from a non-state actor, BankTrac (an international tracking, campaigning and support organization based in the Netherlands that focuses on banks and the activities they finance).

The Office of the United Nations High Commissioner for Human Rights (OHCHR) has been approached by the non-governmental organisation BankTrack to provide advice regarding the application of certain aspects of the UN Guiding Principles on Business and Human Rights (UNGPs) in the context of the banking sector. Specifically, BankTrack has requested advice and clarification on the factors that would influence how a bank is involved with an adverse human rights impact; the responsibilities of banks with respect to remediation in situations where a bank has contributed to an adverse human rights impact; and the role of operational-level grievance mechanisms in this context.

The following advice is provided in response to the request from BankTrack, and does not express an opinion on any specific case or the acts of any specific institutions or enterprises. The purpose of thisnote is to provide advice and clarification of the UNGPs in relation to the particular questions posed. It may also be a resource for stakeholders in the financial sector in their efforts to implement the UNGPs, by clarifying some key points regarding human rights due diligence and remediation. It is not, however, within the scope of this note to provide operational guidance on implementation of the UNGPs, which may be best articulated through multi-stakeholder processes involving banks, civil society organizations, experts, and others.

This note builds on, and aligns with, earlier advice prepared by OHCHR in relation to the application of the UNGPs to the financial sector. (OHCHR response to request from BankTrack for advice regarding the application of the UN Guiding Principles on Business and Human Rights in the context of the banking sector (12 June 2017) p 2)

The Guidance provides important insight into the thinking of the institutions in Geneva about the scope and application of the UNGPs to Banks. It is especially important in light of the work undertaken especially in the Netherlands, respecting public-private agreements that privatize responsibility for certain human rights related conditions to banks as part of their due diligence and loan conditionality structures (e.g., here, and here). It is a pity that the OHCHR did not move to solidify the primary human rights responsibilities of Banks with respect to the business of loaning funds. If those funds are understood as commodities--like hammers or guns--it might have changed the analysis in ways that might have increased the obligation of banks to use private law to ensure that their commodities are not used ill used.  Moreover, it was a pity that there was no discussion of the duty of state owned banks with respect to their operations. That is a missed opportunity that might usefully be corrected soon.  Lastly, this effort might be better understood in the larger context of multi-prong global efforts to to discipline banks within the structures of international norms.

A letter by ten signatory banks to the Equator Principles, a risk management framework for project finance, has emerged in which the banks call for changes to the Equator Principles to ensure “lessons are learned” from the financing of the Dakota Access Pipeline project (DAPL).

The letter, which has been widely circulated but not previously published, is the first public sign of discord among the 90 Equator Principles banks, and follows intense international criticism of the seventeen banks that provided financing for the construction of DAPL. ("Ten Equator banks demand decisive action on Indigenous peoples following DAPL debacle")

One last point. The opinion is particularly worthy of note if only for its source.  The Guidance was not the product of the Working Group for Business and Human Rights; it represented a guidance mechanism being developed directly through the office of the OHCHR himself. This is not the first time that the Working Group has appeared to be sidelined while critical UNGP work has been driven by the OHCHR (e.g., here here, and here).  One wonders what the emerging structures of division of authority may be. That is both a pity and an opportunity.  I have long urged the creation of a center within the UNGP establishment in Geneva for a body constituted to provide just this sort of guidance (e.g., here).  I had hoped that the Working Group might evolve into this instrument; but it appears that this important task may migrate elsewhere.

BankTrac's Press Release and the Table of Contents of the 16 page Guidance follows along with links to the primary documents.

Press Release:

The United Nations Office of the High Commissioner for Human Rights (OHCHR) on Monday published a 16-page interpretive advice note on the banking sector’s responsibilities for managing the human rights impacts of its finance. The advisory note – the OHCHR’s most detailed guidance to the banking sector to date – comes in advance of a meeting next Monday 19th June organised by the Thun Group, an informal grouping of banks on human rights, at which a recent controversial paper by the group of banks will be discussed.

The interpretive guidance is a response to a request by BankTrack for advice on how the UN Guiding Principles on Business and Human Rights (“the UN Guiding Principles”) should be applied in the context of the banking sector.

BankTrack’s request to the OHCHR followed a “Discussion Paper” released by the Thun Group in January this year, which was strongly criticised for unilaterally declaring that banks would not generally be considered, under the UN Guiding Principles, to be causing or contributing to adverse human rights impacts arising from their clients' operations. This apparent attempt to play down banks’ human rights responsibilities contradicted previous advice from as early as 2013, from the OHCHR and others, and led Professor Ruggie, the author of the UN Guiding Principles, to publicly state that he was “deeply troubled” by the paper.

The new interpretive advice from the OHCHR:

--reaffirms that banks can contribute to adverse human rights impacts through their finance, for example if its actions and decisions influence a client in such a way as to make an impact more likely. In such circumstances, the bank may be responsible for remediating the human rights impact together with its client. A bank may also be directly linked to a human rights impact through its finance, without contributing to it, in which case it would not be responsible for remedying the impact, although it may take a role in doing so. It also makes clear that neither case involves a shifting of responsibility from the client onto the bank.
--elaborates on the factors influencing the nature of a bank’s involvement with an adverse human rights impact, including whether the bank was incentivising or facilitating harm, and the quality of its human rights systems and due diligence processes. It also describes how banks can move from being directly linked to an instance of human rights abuse to contributing to it, if it “over time fails to take reasonable steps to seek to prevent or mitigate the impact”.
--discusses the responsibility of banks to remediate human rights impacts when they identify they have contributed to them, and their separate responsibility to establish or participate in a grievance mechanism so that people whose rights have been affected by the bank can seek remedy. These are areas which have been relatively little discussed by the banking industry – indeed, the Thun Group of banks committed in 2014 to “explore options for addressing the third pillar (of the UN Guiding Principles), i.e. access to remedy”, but took no further action to deliver on this. BankTrack research has found no evidence that any private sector bank has yet developed a grievance mechanism which comes close to meeting the UN’s guidelines.

The advice of the OHCHR is likely to inform relevant multi-stakeholder processes, including the OECD’s project on Responsible Business Conduct in the finance sector, and the Dutch Banking Sector Agreement on human rights. It should be read carefully by anyone within the banking sector with responsibility for sustainability and human rights.

Download the OHCHR guidance note here [PDF]
Download the OHCHR’s cover letter here [PDF]
Download BankTrack’s letter to the OHCHR here [PDF]

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OHCHR response to request from BankTrack for advice regarding the application of the UN Guiding Principles on Business and Human Rights in the context of the banking sector

Contents

Purpose of this note ...........................................................................................................2

Question 1: Which factors would influence whether a bank is (a) causing or contributing to an impact and (b) having a direct link to an adverse impact via a business relationship, in the context of the banking sector?........................................3
Causing, contributing and having a direct link to an adverse impact..................................................................................................................................5
Continuum between categories...........................................................................................6
The role of leverage................................................................................................................................7
Factors influencing the nature of a bank’s involvement with an adverse human rights impact...................................................................................................................................7

Question 2: Where a bank has contributed to an adverse impact through its finance, what are the differentiated responsibilities of the bank and the company or vehicle leading the project to provide for or cooperate in remediation under Guiding Principle 22?......................................................................................................................................10
Situations where a bank does not accept responsibility ...................................................11
Situations where a bank accepts responsibility ................................................................11
Remedy in the context of ‘contribution’ –differentiated share of remediation.....................11
Expected actions in situations of ‘linkage’......................................................................13

Question 3: How should the responsibilities of banks to “establish or participate in effective operational-level grievance mechanisms for individuals and communities who may be adversely impacted by their operations” under Guiding Principle 29 be interpreted with regard to adverse impacts that a bank may cause or contribute, or those to which the bank may have a direct link through its finance? In particular, in the context of impacts that a bank has not caused through its own activities, what would be the differentiated responsibilities of the bank and the company which has directly caused an impact to establish a grievance mechanism, and how should the term “operational level” be interpreted in this regard?.............................................14
Responsibility to establish or participate in effective operational-level grievance mechanisms........................................................................................................................14
Functions of operational-level grievance mechanisms with respect to remedy ...............16
Role of operational-level grievance mechanisms in providing feedback on human rights performance .....................................................................................................................16