Principles for Responsible Banking hits critical delivery milestone

Simone Dettling knows precisely what is on the line for the Principles for Responsible Banking (PRB), the UN’s sustainability banking programme that she heads.

When the PRB launched in 2019, it did not dominate headlines in the same way that the Net-Zero Banking Alliance and other industry net-zero sector initiatives under the GFANZ umbrella did when they were announced.

Granted, the UK’s COP presidency and its support for GFANZ, combined with the momentum behind decarbonisation, put a lot of focus on net-zero initiatives, but the PRB’s non-traditional approach to raising sustainability ambitions also made it harder to appraise and compare with other initiatives.

Under the Principles, signatory banks decide for themselves the areas where they have the most impacts, both positive and negative, and ways to improve their performance in those areas, based on at least two targets.

Signatories have four years to implement these steps, after which they risk being ejected from the group if a “sustained and unexplained failure to address shortcomings” is found. For the 100 plus banks that signed up in 2019, that cut-off point is the fourth anniversary of the launch of the PRB, which falls on Thursday this week.

“It is now all about shifting from target-setting to delivering and demonstrating impact,” Dettling tells Responsible Investor. “We also want to look beyond climate and find ways to leverage this enormous coalition to really help drive the systemic change we need across different sectors.”

One of the areas where she is confident the PRB can move the dial is data.

This week’s anniversary will also see the release of the initiative’s collective progress report, effectively a snapshot of the key focus areas and improvements to be undertaken by around half of the global banking industry, according to the PRB’s calculations.

“This report is unique in the sense that it has data at a level of detail that I do not see coming from anywhere else, informed by our one-on-one review process which we do annually with our banks,” says Dettling. “What really stands out is not only the huge leaps in integrating the PRB in sustainability and overall business strategy, but also huge changes in governance.”

It is hoped that the report will allow stakeholders, including regulators, to take stock of developments and to support the development of sector-wide best practices in areas such as nature and the Just Transition.

It is important that there are existing market practices for regulators to build on, Dettling adds. “They can’t just propose regulations out of the blue.”

Confronting the ESG backlash

While she takes pride in listing the PRB’s achievements, Dettling is also frank about the challenges of leading a sustainability initiative in the current political climate.

“One of the things keeping us busy is the ESG backlash, which is especially relevant in jurisdictions outside of Europe where sustainability topics are increasingly critical to bank operations,” she says. “But there is now the risk of being attacked by some governments if an organisation does too much and that is not an easy position to be in.

“Yes, there are a few places where we still want to grow in terms of influential members, such as North America and India, but it’s no longer just a numbers game in terms of growing our membership. We want to be very targeted to ensure we have a global impact and cover the key markets”

“It has already caught up with banks, along with insurers and investors. It is distracting and makes it hard to push forward with high collective ambition in such an environment.”

Fears over the growing influence of the ESG pushback and potential anti-trust infringements in the US have already decimated the insurance sector’s net-zero GFANZ group and piled pressure on other GFANZ bodies to loosen their requirements – with some success.

The PRB has now created “an internal task team” to make sure their activities are in line with regulations and to safeguard member interests, but was unable to detail specific legal advice it has received on the topic.

But it is not just the US, says Dettling. She notes that in recent years meetings of multilateral bodies, such as the G20, “have not exactly been marked by inspiring outcomes” on sustainability topics. “I guess there is a feeling that banks can only go so much further than their governments.”

There are seven US banks in the PRB from a total of 324, and only Citi and Goldman Sachs can be considered Wall Street heavyweights.

“Yes, there are a few places where we still want to grow in terms of influential members, such as North America and India, but it’s no longer just a numbers game in terms of growing our membership,” says Dettling. “We want to be very targeted to ensure we have a global impact and cover the key markets.”

Civil society involvement

A feature of the PRB’s governance structure is its 12-member Civil Society Advisory Body (CSAB), installed to provide an independent assessment of the initiative’s progress and advice on priority areas.

Members of the board – who include representatives from Ceres, ShareAction and WWF – met in person for the first time in May. Dettling says they expressed “frustration with the speed of progress and questioned whether there is enough urgency”.

 “I think that some banks are not used to dealing with civil society or have had very difficult experiences, so it is constructive for them to see that there can be critical but constructive dialogue between them”

A CSAB review of the PRB’s activities to date will be included in the upcoming progress report.

But the CSAB’s role in the initiative goes beyond providing oversight, according to Dettling. “I think that some banks are not used to dealing with civil society or have had very difficult experiences, so it is constructive for them to see that there can be critical but constructive dialogue between them.

“It’s also really good to see civil society organisations get an understanding of the challenges that banks face.”

More broadly, Dettling believes that bringing civil society into the fold provides a knowledge base and expertise for signatories to draw on, and help them anticipate emerging sustainability issues. “This is part of the value that banks see when they join the PRB.”

Capacity building

The PRB is not about naming and shaming laggard banks.

Signatories have four years to implement the PRB’s asks on identifying impact areas and target-setting before they need to show progress. Actions taken are documented in an annual report reviewed by the PRB and any feedback is sent direct to the bank’s CEO.

Those that have not made enough progress have the option to join fee-paying capacity-building programmes and initiatives, with cheaper rates available for smaller and emerging market banks.

The PRB is also happy to give concessions to banks which struggle to meet requirements such as securing third-party assurance for its reporting, or developing strategies for emerging impact areas where there is no widely accepted methodology.

In addition, signatories are able to leverage the PRB Academy, developed with the Chartered Banking Institute, which offers courses aimed at different banking segments and seniority levels. There have been 682 online and 237 face-to-face enrolments since its launch.

But Dettling stresses that the PRB’s engagements, rigorous as they may be, do not amount to a verdict on a bank’s sustainability performance.

“In no way do we do a complete assessment of the bank’s overall sustainability progress and status, which is also why we would never endorse any bank as being a sustainable bank overall or something like that. That’s also not the level of insight we have.”