UN body works with global banks to develop ‘PRI for the sector’

Move comes as three European banks back project to assess 2°C alignment of loan portfolios

26 banks including Barclays, Nordea and Standard Bank are working on the creation of Global Banking Principles in a bid to create a sector equivalent to the Principles for Responsible Investment (PRI).
The efforts – which will focus on climate alignment – are being coordinated by UN Environment’s Finance Initiative (UNEP FI), of which all the banks are members.
“Similar to the role the PRI plays for asset managers and the Principles for Sustainable Insurance for insurance underwriters, these standards will address the longstanding need for an umbrella framework to cover all aspects of sustainable banking,” said UNEP FI.
More specifically, it said the Principles will:

  • Direct banks’ efforts to align with society’s goals as expressed in the SDGs, the Paris Agreement, as well as national and regional frameworks.
  • Set the global benchmark for sustainable banking
  • Drive ambition by requiring signatory banks to set goals for and report on their contribution to national and international, social, environmental and economic targets
  • Ensure accountability and transparency on banks’ impacts
  • Challenge the banking industry to play a leading role in creating a more sustainable future.

Members met for the first time last month, in London, and plan to launch a draft of the Principles on November 26, in Paris. The draft will be put to global consultation, and civil society organisations, banking associations, regulators and UN bodies will be involved throughout the process, said a statement.
The 26 banks are: Access Bank (Nigeria), Arab African International Bank (AAIB) (Egypt), Banco Pichincha (Ecuador), Banorte (Mexico), Barclays (United Kingdom), BBVA (Spain), BNP Paribas (France), Bradesco (Brazil), Commercial International Bank (CIB) (Egypt), First Rand (South Africa), Garanti Bank (Turkey), Golomt Bank (Mongolia), Hana Financial Group (South Korea), Industrial and Commercial Bank of China (ICBC) (China), ING (Netherlands), KCB Group (Kenya), Land Bank (South Africa), Nordea (Sweden), Piraeus Bank (Greece), Santander (Spain), Shinhan Financial Group (South Korea), Societe Generale (France), Standard Bank (South Africa), Triodos Bank (Netherlands), Westpac Group (Australia), YES Bank (India).Banks are under increasing scrutiny over the role they play in financing the transition to a low-carbon economy. Wells Fargo and Morgan Stanley are the latest big names to make commitments to green finance, while RBS announced yesterday that it would stop financing coal projects. UNEPFI recently coordinated a project with 16 banks on adopting the recommendations of the Taskforce on Climate-related Financial Disclosure.
Three European banks – including Handelsbanken and ING – are also founding members of a new pilot from 2° Investing Initiative, looking at the 2°C alignment of loan books. The climate think-tank is attempting to expand its existing analysis of bonds and equities portfolios – which it has applied to around 1,000 institutions so far – to loans.
“There are two main challenges at the moment,” explained Jakob Thoma. “Firstly, with loans you don’t have unique identifiers and listed counterparties, so we need to do a lot of data-matching. We’re developing that software, which will match counterparties in loan books to asset-level data. Secondly, loans can be bespoke and varied in their structure. Credit lines, for example, might be provided by a bank but never actually used – and therefore in reality money hasn’t been allocated. So we need to work out how to treat all these different instruments to make sure we assess the climate impact fairly.”
A number of methodologies will be applied to the three banks’ loan portfolios, and the conclusions will be published later this year, allowing the industry to see the challenges and potential solutions. The banks’ themselves will decide whether to publish the findings relating specifically to their loan books.
More banking partners, from Europe and beyond, are being sought to join the initiative.
“The ultimate objective is for banks to make a positive contribution to the goals of the Paris Agreement,” Thoma told RI. “The short-term objective is to enable them to assess whether they are 2°C-aligned.”