The financial sector, a key player, adopts “principles for sustainable banking”
“The climate emergency is a race we are losing, but we can win it,” said Antonio Guterres, UN Secretary-General, at the Climate Summit held on 23 and 24 September in New York. His message was clearly heard. Sixty-six governments pledged to take action to achieve the 17 sustainable development goals (“SDGs”) set forth by the United Nations. Non-government organisations joined the momentum, more than ten major geographical regions, as well as over one hundred cities and as many companies signed the SDGs.
The occasion saw some go even further. On the eve of the Summit, 45 CEOs of major international banks celebrated the launch of the “Principles for Responsible Banking” (“PRB”). Developed in 2018 at the initiative of a core group of thirty major pioneering banks, in partnership with the heads of the United Nations Environment Programme Finance Initiative (UNEP FI), the PRBs were the subject of a global public consultation process that lasted several months and which involved approximatively one hundred stakeholders.
At the New York summit, 130 banks from 49 countries adopted the final version. The signatories collectively hold $47 trillion in assets, or about one-third of the entire global banking sector. Commenting on the initiative, Jean-Laurent Bonnafé, Chief Executive Officer and Director of BNP Paribas, one of three major French banks in the grouping, said: “this is a milestone for the sector. The Banking industry has agreed on a single framework for integrating sustainable development at the strategic level in all its business areas.”
“This new standard will defuse the major criticism made of banks regarding sustainable development: namely that they act in their own interests and not in the interests of society”
Director and Chief Executive Officer of BNP Paribas
Despite being non-binding, and not delineating quantitative targets, the PRBs are considered by experts to be a “powerful engine for developing social and environmental responsibility.” According to the French Banking Federation (FBF), this six-point road map “redefines the role and responsibility of the banking world”.
- the signatories pledge to align their business strategy with the Paris Agreement, which aims to limit the increase in global warming to no more than 2°C by 2050.
- signatories will work to increase positive contributions whilst reducing negative impact and will endeavour to publish targets.
- they will work with their customers to focus on products that create “shared prosperity for current and future generations”.
- they will partner with “all civil society stakeholders” to integrate and achieve shared goals.
- they will adapt their companies’ governance and culture to the practices and goals of sustainable development.
- they will introduce more transparency and self-auditing.
By permeating every level of banking operations, the spirit of the PRBs should radically reshape banking practices. The commitment to transparency should, for example, help employees better navigate Internal pratices they are subject to, by realigning them to official policies. Moreover, this application of “soft law” helps mitigate against the major criticism levied at the banking sector regarding sustainable development: namely that they act in their own interests rather than those of society.
BY PERMEATING EVERY LEVEL OF BANKING OPERATIONS, THE SPIRIT OF THE PRBS SHOULD RADICALLY RESHAPE BANKING PRACTICES.
It is a paradoxical process for a pioneering sector, which in 2003 adopted the “Equator Principles”, that voluntarily committed banks and financial institutions to taking social and environmental risk into account when financing major projects (for transactions exceeding $50-100 million). Since this affected only 5% of business activity, in 2006 the industry also signed up to the UN Principles for Responsible Investment (“PRI”). These new principles cover half of all assets. Despite all this, before long banks were once again criticised for acting solely in terms of banking risk, with no concern for positive or negative impact their business might have on society. “The PRBs take care of this,” say many banks’ CEOs. “This inclusive and universal process can be adopted by any bank, regardless of location and size.”
Crédit photos : header ©Miki Studio