Global, September, 24 2019 -
A group of 130 banks is on board to reorient the industry away from a purely profit focus to a new paradigm where social and environmental impacts matter, too.
The banks, hailing from nearly 50 countries, have signed the new Principles for Responsible Banking, an initiative between the financial institutions and the United Nations.
Skeptics question whether this effort will really impact an industry that needs to transform in order to finance global development and climate work. But the announcement has some in the financial sector excited about getting banks on board with the Sustainable Development Goals.
"If the financial industry is going to be fit for financing sustainable development, the banks need to be on board," said Eric Usher, head of the United Nations Environment Programme Finance Initiative, at an event about the new principles.
The banks that have signed on — which represent about one-third of the banking industry and collectively manage about $47 trillion — include Barclays and Citi, Africa’s largest bank Standard Bank, and smaller banks from Mongolia and Bangladesh.
The six principles that govern the new initiative include alignment, impact and target setting, clients and customers, stakeholders, governance and culture, transparency and accountability. They were created in an 18-month process by banks, the UNEP Finance Initiative, and a variety of stakeholders, including civil society.
The initial group of 30 banks that launched the effort share a "common belief that the banking industry must change … and do business in a way that benefits shareholders and societies," said Simone Dettling, banking lead at UNEP FI, at an event about the principles on Monday.
Banks need to embed strategic objectives of the PRB into their governance structures and allocate resources to deliver on them, she said. While it is a voluntary mechanism, banks that don’t meet their commitments will be forced out.
Some civil society organizations have expressed concern about the initiative, calling it an effort at greenwashing and saying it doesn’t tackle the issue of fossil fuel investment, doesn’t require compliance at the start, and allows banks to set their own targets.
Usher responded to some of those critiques in his speech. PRB is designed as a ladder for banks to set goals and achieve them; requiring compliance at the start would have excluded banks and denied them access to support to improve, he said. UNEP wants to work with members on progress, and to that end on Monday announced that it is working with a group of banks to set a collective target on climate action that will include time-bound actions that align with the Paris climate agreement.
Hiro Mizuho, executive managing director and CIO of Japan’s $1.4 trillion Government Pension Investment Fund, also responded to remarks about greenwashing. He commented that he’s seen a lot of sushi-washing in New York, but that this inclusiveness has made sushi a global phenomenon. He likened it to the new principles, saying that they want to invite as many banks as possible so that the effort gains momentum.
A number of bank CEOs spoke Monday about why they decided to get involved. Several said that the principles align with their missions or sustainability strategies. Keith Mestrich, CEO of Amalgamated Bank, said that it’s time for the banking industry to step up and exercise its influence. Guy Cormier, CEO of the Desjardins Group, said that after 30 years of capitalism the world has seen a fair amount of collateral damage and now is the time to focus on shared prosperity.
It’s a moment of reckoning, said Karsten Dybvad, CEO of Danske Bank. The banking industry has been too focused on doing business and has not taken social responsibility, he said. Focusing on profits is not enough, and banks need to deliver on the solutions needed in society, he added.
Embedding the SDGs
Some banks have already faced questions about whether the initiative is more greenwashing than actual change, but CEOs at the launch event said they were committing to new initiatives and new ways of doing business.
Natixis Corporate & Investment Bank, for example, announced that as part of its commitment it is launching a green weighting factor that will factor in climate impact into risk assessments of potential investments — giving green deals a boost and brown deals a downgrade.
Standard Bank, meanwhile, has identified several impact areas where it will focus its work in alignment with the principles: financial inclusion, African trade and investment, infrastructure, health, education, enterprise development, jobs and skills development, and climate and environmental sustainability.
The principles and the SDGs have made Africa’s largest bank more conscious of the businesses it finances, Standard Bank Group CEO Sola David-Borha told Devex in an interview. It is up to individual banks to use the principles to define their own internal governance frameworks, she said.
"It’s important to put the governance framework in place because what governance does is it institutionalizes things," she said, adding that without efforts to define internal priorities, the effort may dissipate after a few months or years.
Standard Bank made a commitment to clean energy and since 2012, 86% of its energy investments have been in green energy or renewables, according to David-Botha. It also has set commitments around increasing the number of women in executive leadership and on its board.
"Once you embed these SDGs into your policies, into your practices, then it becomes a way of doing business," she said.
David-Borha said she hears the skeptics and would like them to join the effort to work constructively with banks and play a role in holding them accountable.
"It’s a big start to get corporations, institutions, to actually sign up to Principles of Responsible Banking, to get this approved through their own governance structures, their boards, is, I believe, a big step," she said.
"The flexibility around the Principles is what is going to make it easier for more banks to come on board. The worst thing you need is to have very high unachievable targets which nobody can meet. It’s a journey, let’s start; let’s define within the SDGs your impact areas set the targets and work towards it."