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This is a guest blog by Professor David Kinley, Chair in Human Rights Law at Sydney Law School, University of Sydney.
The Thun Group of Banks is an informal gathering of some of Europe’s largest financial institutions, including Barclays, BBVA, Credit Suisse, ING Bank, RBS Group, UBS and UniCredit. We should be glad then when it takes interest in the financial sector’s interaction with human rights. And indeed, cautious optimism was raised when in 2013 the Group published a Discussion Paper (DP1) on its view of the implications for its members of the UN Guiding Principles on Business and Human Rights (GPs). Albeit that the DP1 was strictly limited to the due diligence demands of the GPs, and that it interpreted those demands very narrowly, the human rights community was at least encouraged to see some in the sector apparently taking the matter seriously.
In releasing a second Discussion Paper (DP2) on the same issue on 23 January 2017, one might have expected the Thun Group to have extended its analysis of the matter and perhaps to have addressed some of the concerns aired in respect of DP1. Unfortunately, this has not been the case. Though it might be said that DP2 is more reflective than its predecessor, it appears to have taken the banks’ thinking backwards rather than forwards.
At the root of this thinking lie the intertwined notions of ‘proximity’ and ‘directness’. That is specifically, the proximity of a bank to a human rights impact will be determined by the directness of its actions in effecting that impact. It is, according to the Thun Group, only when the bank’s actions are sufficiently direct that any responsibility or liability will be borne by the bank. DP2 seems to envisage a sliding scale of responsibility according to “the ‘degree of directness’ of linkage between the impact and the product and service offered by the bank”.
The critical question is of course, where is that inflexion point? And more particularly, how can it be identified in respect of any human rights impact? For it is with the extent of a bank’s need for human rights due diligence (in scanning it operations, action and omissions) that DP2 is principally concerned. In this, DP2 offers what looks like a useful service by supplying a set of seven hypothetical case studies which aim to illustrate the levels of banks’ due diligence responsibilities. They prove, however, to be anything but; raising more questions than they provide answers.
The thrust of DP2’s message is that there are limits to the responsibility of banks in this field and that those limits are determined essentially by the extent to which a bank has some significant, direct transactional links with clients whose actions are affecting human rights impacts. Direct linkage (and therefore some degree of responsibility), according to DP2, occurs when banks’ products or services are dedicated to a client entity, such as “asset financing”, “project financing [and] project-related corporate loans” (DP2; 9). No such linkage (and therefore no responsibility) accrues in situations where there exists no direct transactional relationship between the bank and client entity, one part of which is responsible for the human rights impact, even when the bank is doing business with (and therefore seemingly proximate to) another part of that same client’s corporate family.
In between these two extremes there would appear to be gradations of linkage and responsibility (as represented by the case studies). Though how, given this formula, we are to understand the bold statement made at the outset of DP2 - that “even if banks have not caused or contributed to adverse human rights impacts… ‘directly linked’ banks should still seek to prevent and mitigate such impacts” (my emphasis), is truly perplexing. For this seems to imply that despite all, and even when ‘directly linked’, the responsibilities of banks are merely a discretionary “should”, rather than a commanding “must”.
In any case, as the due diligence requirements under Equator Principles III would appear already to cover the sort asset and project financing envisaged above, one might ask what the Thun Group is adding here. Doubling-up may not itself be serious problem, but missed opportunities and failure to progress banks’ contribution to the debate are more reprehensible.
It does seem odd, for example, for the banking sector to seek to restrict the reach of its power and responsibilities in respect of human rights outcomes, at the very time when other sectors - notably retail -are yielding to pressure to delve deeper into their supply chains to identify and address abusive practices. It is odd for two reasons. One is that the Thun Group’s strict transactional approach tends to ignore the critical issue of perception – namely, that no matter what the precise contractual relations, where a bank is conducting business with another corporation that is itself in some significant way implicated in human rights abuses, then the bank will be implicated by association.
Corporations in the retail sector and extractive industries have learnt this to their reputational cost. Outrage follows perception in the marketplace, and the fact that banks believe that by the nature of their services they are removed from the scene of human rights calamities (their corporate logos will not be found emblazoned on T shirts or sneakers among the rubble of a collapsed garment factory), does not mean that they share no responsibility for the outcome. It is hard to imagine, post-, (or even pre-), the Rana Plaza calamity, any major high street retailer being happy to say that it has “no link” with a situation where “severe allegations of human rights abuses” have been made in respect one of its client’s recently acquired operations, still less, one of its suppliers. Yet this is what the Thun Group concludes in its Case Study #7 in DP2, adding for good measure, that it is the responsibility of “the local government to protect human rights.”
The second reason why DP2’s approach is counter-trending is that banks as yet seem to have invested little effort in explaining how their products and services can yield good human rights outcomes; making the finance case for human rights, as it were. This is a missed opportunity. Not just to demonstrate the positive side of the sector’s relationship with human rights (the relationship is presented entirely in the negative in DP2), but to engage more fully in the whole debate about the impact of business, including finance, on human rights.
In part this omission can be traced to the Thun Group’s reliance on the narrow ledge of the UN Guiding Principles (and just Principles 13 and 17 at that) upon which to engage with the broad, complex topic of finance and human rights. As a consequence, not only are the banks locked into focusing only on due diligence practices to prevent human rights harm, but due to the GPs necessarily one-size-fits-all approach, the particular circumstances of finance’s relationship with human rights are unrecognized, for good or ill.
Yet, these particular circumstances matter. Over the past 25 years or so finance has carved out a special niche for itself in global trade and commerce; one that permits it to claim an ‘exceptionalist’ tag. Finance is not like any other sector, so the argument goes, its sheer size, ubiquity, and (most of all) political power, set it apart. So important is finance to the global economy, this view continues, that is must be treated as a special case; to be lightly regulated and permitted - even encouraged - to take big risks. The bottom line in this prevalent way of thinking is that what is good for finance is good for the economy and for society as a whole.
It is this exceptionalist perspective that informs much of what finance does today, including in its minimalist attitude towards human rights responsibilities. And its prevalence continues even after the chastening of the 2007/8 global financial crisis. So it is in this broad context that we should be assessing the Thun Group’s engagement in the burgeoning business and human rights debate. A context that begs questions (and answers) as to what is the proper role of finance in: (a) the economy, (it is an essential, but not pre-eminent, feature); and (b) in society, (it is the servant of society, not its master).
Whatever goodwill we might be willing to infer from this second foray into the field by the Thun Group is surely diluted by the insipid and somewhat contradictory nature of the document. Further, one is inclined to question the intent of the whole enterprise when, following the lead of its predecessor, DP2 concludes with a disclaimer that purports to absolve any financial institution that might “adopt or adhere to some or all parts of the paper” from any legal obligation; that declares that the document does not “extend or amend a banking institution’s obligations to their [sic] clients, shareholders, counterparties, other stakeholders or any other persons”, and that asserts that “under no circumstance should this paper … be construed as creating any rights whatsoever for third parties”.
Really? How a ‘discussion paper’ could deliver any such evidently dreaded outcomes is a mystery. What, alas, is not is the Thun Group’s palpable anxiety that banks might be required to walk as they talk.
David Kinley holds the Chair in Human Rights Law at Sydney Law School. His book, Necessary Evil: how to fix finance by saving human rights, will be published in the US by Oxford University Press in Fall 2017.