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
sign up to the Principles once launched at UN General Assembly in September 2019 in New York. The Principles are designed to enable any bank to commit to them, whatever its international or national context, size and level of sophistication in integrating sustainability. The Principles allow banks to start where they are. Those just starting out on sustainability integration can use the framework to create a clear path to building capacity towards improved performance on responsible banking. Those with mature processes can continue to develop strengths and broaden the scope of responsible banking practices.
The 28 founding banks themselves are diverse, united by their commitment to aligning the industry with a sustainable and equitable global economy. The draft Principles will be launched for global consultation with many of their CEOs at our UNEP FI Global Roundtable on November 26 in Paris.
The consultation will provide the opportunity for banks, investors, regulators and civil society to contribute to a framework that will represent the global benchmark for a sustainable banking system fit for the 21st century.All stakeholders can also show support for the Principles by becoming endorsers. For banks, this involves communicating publicly their intention to become signatories to the Principles. For investors and others, endorsement indicates support for the Principles as a vehicle for the sustainable banking system of the future. It recognises the need for a framework that both accelerates the banking industry’s contribution to a sustainable future and ensures banks are accountable to their commitments to society.
The purpose of the Principles is to transform the global banking industry to align with society’s needs and play a leading role in achieving a sustainable future. The Principles will provide investors with a benchmark to identify which banks are best positioned to succeed in the future and in line with their own responsible investment goals. Together, banks, insurers and investors have the potential to help shape an inclusive society and economy where clients, customers and businesses can thrive, without compromising the ability of future generations to meet their needs.
Eric Usher is Head of the UN Environment Programme Finance Initiative