2018-08-15 Ryan Brightwell – BankTrack
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In the process of researching our recent briefing paper, “Developing Effective Grievance Mechanisms in the Banking Sector” (published last month by BankTrack and Oxfam Australia), we held a series of discussions with banks about how they understood their responsibilities under the UN Guiding Principles on Business and Human Rights regarding access to remedy.
In these and in the informal conversations we had held with bank representatives before writing the paper, a number of questions and concerns kept coming up. In this blog we review some of the more common questions and our responses.
1. Isn’t it enough to have grievance mechanisms for our employees and customers?
Banks have several groups of stakeholders who may potentially bring human rights grievances, including employees, customers, suppliers and communities impacted by their finance. Banks typically already have processes for handling complaints from customers and employees, and mapping this “internal ecosystem” — alongside the external landscape for remediation — is an important starting point in designing the bank’s grievance mechanism.
An operational-level grievance mechanism should be directly accessible to individuals and communities that may be adversely affected by a company. Since a bank may reasonably expect that most of its potential involvement with adverse human rights impacts may relate primarily to its client relationships (as UN advice has said), it is important for banks to ensure they have a grievance mechanism that specifically enables complaints to be raised by people and communities impacted through the bank’s client relationships.
2. Do we need grievance mechanisms if we didn’t contribute to a human rights impact?
“[Unless we contributed], grievance mechanisms are not an issue.”
One of the most common misunderstandings of the UN Guiding Principles is that the responsibility to establish or participate in an operational-level grievance mechanism depends on a bank’s link to the impact — for example, whether the bank caused or contributed to the impact, or is directly linked to it through a business relationship but did not contribute.
However, Principle 29 - which establishes the responsibility of businesses to establish or participate in effective operational-level grievance mechanisms - does not mention ‘contribution’. Grievance mechanisms are expected to be established proactively, before an impact occurs. This is necessary to ensure grievance mechanisms can fulfil one of their two main purposes — supporting the identification of human rights impacts at an early stage.
In other words, banks need to allow complaints to be raised before they can assess whether there has been an impact, consider the nature of their relationship to it, and decide on the appropriate action to resolve the grievance.
3. Isn’t the client best placed to remediate its own impacts?
“It’s inefficient to complain to the bank”
Any grievance is best dealt with as close to the impact as possible, and so grievance mechanisms at the level of the client or project financed by the bank may often be the most appropriate route for rights-holders seeking remedy. However, this assumes that such grievance mechanisms exist and are effective, which is often not the case.
Communities may wish to raise a complaint regarding a project or company to the bank financing it for several reasons: the client may be simply unwilling to remediate the impact or may not be trusted by the community; rights-holders may feel they have a greater chance of securing remedy with the banks’ involvement; or they may perceive that the bank has breached its own policies.
Additionally, a bank cannot fulfil its own responsibility to provide for — or cooperate in — remediation of adverse impacts it has contributed to by leaving remediation to its clients. A hands-off approach that leaves remediation entirely to the client has clear risks for the bank as well as for rights-holders.
4. What if we get a flood of spurious complaints?
“The concern is, you’re going to get a lot of noise.”
Rather than a flood of complaints, a more common problem facing new grievance mechanisms is a lack of complaints, due to problems of accessibility and awareness. The FMO/DEG Independent Complaints Mechanism received only eight complaints, of which three were admissible, in its first four years of operation. One of the most well-known non-judicial grievance mechanisms, the OECD National Contact Point system, resolved 35 “specific instances” (grievances) in the 2017 reporting period, of which 12 were not accepted. Given that there are national contact points in every country adhering to the OECD Guidelines (46 currently listed) and that the channel applies across all business sectors, this does not indicate a problem of excessive or particularly vexatious complaints.
To ensure complaints are legitimate, a light screening process can be put in place to ensure complaints are eligible for the grievance mechanism (e.g. that the complaint pertains to an impact linked to the bank, that the issues fall within the scope of the grievance mechanism and the complainant has standing to file the complaint).
5. Will a grievance mechanism open us up to legal liabilities?
“I find it extremely worrying for a bank to provide remedy over the heads of a client, also from a legal point of view.”
There is a concern that if banks intervene to remediate human rights impacts caused by their clients, the bank may become liable for the harm done. One answer to this question is that remedies can take a variety of forms, including an apology, provisions to ensure the harm cannot recur, compensation (financial or other) for the harm, cessation of a particular activity or relationship, or some other form of remedy agreed by the parties. Operational-level grievance mechanisms will typically focus on dialogue or compliance investigation, in the first instance, as the means to address and resolve grievances, which should not necessarily create legal liabilities.
Banks can additionally mitigate this risk by being clear in public information about the mechanism and what it exists to do — i.e. that the acceptance of a complaint, and efforts to bring about remediation, does not suggest any acceptance of legal liability. Banks can also include clauses in loan agreements that require clients to cooperate with the bank’s grievance mechanism.
We have found no evidence that the establishment of any type of internal or industry grievance mechanism has led to increased legal liability. Rather, done properly, human rights due diligence reduces legal risk, while dealing with complaints through a formal mechanism can prevent more adversarial action being taken against the banks.
6. What if we don't have the leverage to remediate the impact?
If a bank considers that it lacks leverage over its client, it may look for opportunities to increase leverage, or look at alternative means of resolving the grievance that may be less reliant on leverage over the client (see some of the forms of remedy described above).
One way of increasing leverage may be to collaborate with other actors. If more than one financial institution, be it a bank, investor or asset manager, is linked to a human rights impact, they may increase leverage through working collaboratively, for example through participation in industry-wide or multi-stakeholder collaborative efforts.
Where a bank is directly linked to an adverse impact caused by its client, but is unable to prevent or mitigate the impact (and has expended its efforts to increase its leverage), the bank should consider ending the relationship. However it will need to consider that this also ends its leverage with the client, and that terminating the relationship may itself have adverse human rights consequences.
7. Where do we go for help?
Several resources which provide information on designing effective grievance mechanisms are available - see the briefing paper (page 30) for full details. In addition, banks are welcome to engage with the UN Office of the High Commissioner for Human Rights and the UN Working Group on Business and Human Rights where they have questions or areas for further discussion on how the Guiding Principles should be interpreted.
This blog is an abridged version of the FAQ from the briefing paper, “Developing Effective Grievance Mechanisms in the Banking Sector”. See the paper for a fully referenced version of this article. Quotes in italics are from bank representatives who agreed to speak to us on the condition of anonymity.