The Head of the UN Environment Programme Finance Initiative explains how a new set of Principles aims to transform the banking industry.
Sustainability has become a competitive factor in the investment industry since UNEP FI, working with the Global Compact, fired the starting gun on a race to the top on integrating environmental, social and governance (ESG) issues into investment decisions with the launch of the Principles for Responsible Investment (PRI) in 2006. Now an independent entity, the PRI has nearly 2,000 signatories committed to implementing the six investment principles.
In 2012, UNEP FI worked with the insurance industry to step up its contribution – as risk managers, insurers and investors – to building resilient, inclusive and sustainable communities and economies with the launch of the Principles for Sustainable Insurance (PSI). Insurers and re-insurers representing more than 25% of global premium now use the PSI as a global framework for the industry to integrate ESG risks and opportunities.
Six years on, the banking industry’s time has come. UNEP FI is currently working with 28 banks from around the world, representing USD17 trillion in combined assets, to develop Principles for Responsible Banking. Currently in draft form, the Principles build on the experience of the PRI and PSI, and reflect changing societal expectations with the signing in 2015 of intergovernmental deals to achieve 17 UN Sustainable Development Goals (SDGs) and the Paris Agreement on Climate Change.
The Principles for Responsible Banking provide a framework to align the banking industry with society’s goals as expressed in the SDGs, the Paris Climate Agreement and relevant national frameworks. A distinguishing feature of the Principles is the comprehensive framework they provide to guide banks to improve their sustainability integration at the strategic, portfolio and transactional levels of their businesses.
With two-thirds of finance worldwide provided by banks, the Principles are designed to accelerate banks’ ability to finance sustainable development, and to provide a mechanism for global sharing of best practice to strengthen the industry as a whole.
Boosting the banking industry’s contribution to the transition to sustainable economies and building trust with society will entail changes in strategy, governance, compensation, products and services. While existing frameworks target specific areas of the business, the Principles will guide banks on how to embed sustainable practices and considerations across their lines of business.
In their current form, the Principles require banks to first holistically assess the most significant social, economic and environmental impacts, positive and negative, resulting from their activities, products and services. The signatories are then expected to set targets for managing these impacts, and subsequently to be transparent about their progress against their targets. Effective implementation will involve working with stakeholders to better understand the impacts of a bank’s operations, products and services, and committing to reducing negative impacts, and achieving more positive impacts.
Accountability and transparency are key to ensure banks are open about their implementation of the Principles, and to enable society to hold them accountable. This would be achieved through public reporting on progress to all stakeholders – including clients, customers, institutional investors, civil society – and subjecting that reporting to a review process. This is important to build trust with society in the aftermath of the 2008 Great Recession, the economic and political repercussions of which are still reverberating today. Banks will be able to
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