The Implications of the UN Guiding Principles on Business and Human Rights in a Banking Context

The Implications of the UN Guiding Principles on Business and Human Rights in a Banking Context

The Thun Group of Banks published an important discussion paper on the scope of due dili-gence in the field of human rights that is required of banks that extend services to corporate clients.

The Thun Group of Banks is an informal gathering of representatives of a number of (corporate and investment) banks that meets in Thun, Switserland. The purpose of the Thun Group is to advance understanding for banking activities of the United Nations Guiding Principles on Business and Human Rights. These Guiding Principles were drawn up by the Special Representative of the Secretary-General of the United Nations on human rights and transnational corporations and other business enterprises (J.G. Ruggie), and were adopted by the United Nations Human Rights Council in 2011. In 2013 the Thun Group of Banks published its first discussion paper. At the beginning of 2017 the Thun Group published its second discussion paper. This second discussion paper deals with Guiding Principles 13 and 17. In accordance with Principle 13 business enterprises shall (a) avoid causing adverse human rights impacts through their own activities, and shall (b) seek to prevent (or mitigate) adverse human rights impacts that are directly linked to the operations by their business relationships, even if they have not contributed to those impacts. Under Principle 17 a business enterprise shall, in order to live up to Principle 13, carry out human rights due diligence. Banking services to corporate clients may include a wide range of subjects, and may be short term (like giving advice, capital markets underwriting, short-term trade finance), or medium to long term (like asset finance and extending medium to long-term loans).

The activities of corporate clients may have consequences in the field of human rights. In order to avoid that a bank contravenes Principle 13(b), a bank shall identify the human rights consequences that the activities of a corporate client may have, and shall – if the activities of a corporate client may have human rights consequences – carry out human rights due diligence under Principle 17. Factors that a bank will have to take into account in this respect include the type of financial services offered to the client, the sector, context and geography in which the clients operates, and the track record of the client. Measures that a bank may take ‘include recommendations and/or requirements that the client: hires a qualified independent consultant, implements a human rights policy, develops action plans, improves engagement with local communities and establishes an effective grievance mechanism, provides progress reports or enhances public disclosure’.

The discussion paper addresses the important question of what the extent of Principles 13(b) and 17 is in case the bank’s client is a corporate group that consists of a (large) number of corporate entities. Should a bank under any and all circumstances consider the corporate client’s group as a whole for the purposes of due diligence, or may a bank restrict its due diligence analysis under Principles 13(b) and 17 to a relevant part of the corporate client’s group? On this issue, the discussion paper takes the explicit position that ‘the client to whom the financial product or service is being provided will be the unit of analysis for due diligence purposes’. This means that when banking services are extended to the parent company of a corporate group, the group as a whole is the unit of analysis. However, when banking services are extended to a subsidiary company in a corporate group, only that company would be the unit of analysis (consequently, without taking into account what happens elsewhere in the group). In June 2017, the Thun Group convened to consider the discussion paper and agreed – also in response to criticism raised by inter alia J.G. Ruggie – that some aspects of the discussion paper are in need of clarification.

The discussion paper can be found at: www.menschenrechte.uzh.ch, publicationen, Thun group of banks.


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