BackA human rights code for banks
There are underlying queries with regard to potential human rights risks and due diligence
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In April, I wrote in this column about how the Thun Group of Banks, Barclays Plc, Credit Suisse Group AG, UBS AG and UniCredit SpA would publish human rights best-practice guidelines for banks in 2013.
They did, on 2 October. The initial group which met in Thun, Switzerland, in 2011 to form an informal team has since been joined by three more heavyweights: Banco Bilbao Vizcaya Argentaria SA, ING Bank NV and Royal Bank of Scotland Group Plc. Styled as a discussion paper but in reality a strong statement for addressing global human rights issues from the perspective of finance, it should kick up some rightful fuss. This could also impact Indian businesses with a local and global presence.
The areas covered are retail and private banking, corporate and investment banking, and asset management. The underlying queries with regard to potential human rights risks and due diligence: Are we funding human rights violations? How do we stop these? And, we could be liable, right?
Right. Because in the fast-expanding globalized courthouse of public and judicial opinion, the sins of the client could easily be visited on the lender. The Thun Group describes its document more gently: “(An) initial guidance to banks keen to address human rights issues in their core business activities—both to minimize potential adverse impacts to rights holders and related risks to banks, and to identify opportunities to promote good practice." For inspiration it looked to the United Nations Guiding Principles on Human Rights, specifically principles 16-21 that relate to corporate responsibility to respect human rights.
In a world of cynical realities, it is easy to place sales above saintliness, and palliatives over problem-solving. The discussion paper, available at www.business-humanrights.org, admits as much.
To begin with, take the group’s own motivation for acting “responsibly", or the commitment to respecting human rights as “the right thing to do"; and “acting instead of waiting for legal requirements" are at best conscionable guidelines. These can be overtaken by conscionable profit, as conscience is as variable in concept as risk.
Furthermore, with clients arrive the overlay of variable banking behaviour. That’s a bit of a bingo moment for human rights lip service. “There is a common public perception that banks have strong leverage over their clients’ behaviour and can, and should, seek to influence client actions to promote good practice," the document offers. “In practice, the degree of leverage is often a great deal less than popularly believed—and the degree to which it is feasible for banks to exert influence on their clients’ behaviour is a matter of complexity." That corporate copout is at least as old as the East India Company.
The document also pegs governments as “duty bearers of human rights" and holds that “commercial organizations, including banks, cannot be expected to become human rights ‘regulators’ as a surrogate for government".
And yet, it would be cynical to not weigh in the importance of such a document.
Governments undeniably have a massive human rights responsibility and their function as pacesetters in compliance directly affects the behaviour of businesses. And, to be fair, though I abhor the phrase, it’s a must-read for financiers, their clients, corporate governance and human rights specialists, and teachers and students of business schools.
Even if the mechanisms for human rights delivery are far from perfect, and far from forming the DNA of most governments and businesses, the weight of the names involved in Thun Group alone demands it. To have guidelines enunciated by such a group is priceless. Besides, even public relations exercises are sometimes known to evolve into public policy.
And so, those in retail and private banking may want to review money laundering risks. Asset managers, take heed. As the document states: “Investing in companies (shares, bonds) with a challenging human rights track record or investing in countries (bonds) with a challenging human rights situation, on behalf of individual clients or institutional investors." Or “establishing and managing" funds of such companies and countries. Or consider this: “Establishing and managing funds around a topic that could be viewed critically from a human rights perspective (e.g., defence industry fund, fund focusing on the topic of security)."
The section on human rights due diligence in project finance—the hot button area in India—lists critical to-dos related to stakeholder engagement; free, prior and informed consent of communities for projects; high risk situations; the practicality of using “external advisors" in such situations; action plans for “risk mitigation"; the need for public disclosure, establishing grievance mechanisms and continual monitoring and reporting.
All to the greater good.
Sudeep Chakravarti is the author of Red Sun: Travels in Naxalite Country and Highway 39: Journeys through a Fractured Land. This column, which focuses on conflict situations in South Asia that directly affect business, runs on Fridays.
Respond to this column at rootcause@livemint.com
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