Courtesy of Mete Feridun
As the COVID-19 pandemic continues to threaten the global economy and financial markets, the global banking sector is approaching a tipping point for changing its overall culture and behaviour towards a more responsible banking model. This is because it is increasingly clear that recovery from the COVID-19 crisis will take longer than expected and will pose serious threats to economic recovery.
Unless policy action is taken, a loss of access to banking and other private sector finance, as well as the weakening of productive capacities of micro-, small- and medium-sized enterprises across the world, will jeopardize these institutions’ survival. This in turn will make it less likely to achieve the goals of the 2030 Agenda for Sustainable Development and Paris Agreement on Climate Change, which were agreed upon governments around the world in 2015.
This reality has made adherence to the Principles for Responsible Banking of the United Nations Environment Programme Finance Initiative (UNEP FI) more important than ever. Since the onset of the COVID-19 pandemic, signatories to the Principles have been playing an active role in supporting their clients and broader communities through the crisis.
UNEP FI Principles for Responsible Banking
UNEP FI is a global initiative that has been spearheading efforts to align the financial industry with the United Nations’ Sustainable Development Goals (SDGs) and the Paris Climate Agreement (PCA). In September 2019, it launched six Principles that structure the framework for achieving a more responsible and sustainable banking system.
The Principles have been designed to allow the global banking sector to demonstrate how they can contribute to achieving the SDG and PCA objectives by:
- Aligning the banks’ business strategy with clients’ needs and the wider society’s goals, as per the SDGs and the PCA, as well as any national and regional frameworks.
- Continuously increase banks’ positive impacts, while reducing and managing the risks to people and environment resulting from their activities, products and services by setting and publishing targets.
- Working responsibly with clients to encourage sustainable practices and to create shared prosperity for current and future generations.
- Proactively and responsibly consulting, engaging and partnering with relevant stakeholders to achieve society’s goals.
- Adopting effective governance and a culture of responsible banking.
- Periodically reviewing implementation of the Principles and being transparent about and accountable for banks’ positive and negative contribution to society’s goals.
While the above Principles range from a commitment to transparency to serving all stakeholders responsibly, the key aim is to help society achieve a sustainable future in a structured and systemic way. This will be a dynamic process whereby the Principles and the relevant framework will be reviewed every two years.
Led by a number of prominent banking groups including BNP Paribas, Barclays and ING, the signatories to the Principles include 130 banks from 49 countries. By signing the Principles, these banks have made a firm commitment to strategically align their business with the SDGs and the PCA. Given that UNEP FI signatory banks represent over a third of the global banking industry, the impact of this initiative is expected to be quite significant.
On the face of it, these Principles may sound like other non-binding global initiatives which have little substance. However, this is far from the case. For instance, signatories are expected to publish their first reporting and self-assessment on the Principles within 18 months and annually thereafter. In addition, they are expected to have fully implemented the required steps no later than four years after signing.
Failure to honor these commitments could result in removal of non-compliant banks from the list of signatory banks, which could severely damage their image and reputation. Therefore, signatories are expected to take concrete steps to implement the Principles. These include undertaking impact analysis, setting targets and ensuring accountability.
The COVID-19 outbreak has presented an opportunity for signatories to demonstrate that the aspiration for responsible banking is much more than a slogan. For example, banks in countries including the United Kingdom, Germany, Switzerland and Australia have also partnered with governments to address the economic and social impacts of the pandemic.
The UNEP FI have been listing examples of the extraordinary measures taken by signatories since the onset of the pandemic, and also published a working paper in April 2020 to provide guidance on how to navigate COVID-19-related challenges from a sustainable finance standpoint.
UNEP FI Principles have proven important during the COVID-19 crisis, highlighting how the banking sector can ensure financial inclusion as economies recover from the crisis. Thanks to the commitment to the Principles, most signatories have already been supporting their clients, large and small, by ensuring access to the key financial services and sustaining their businesses through the crisis.
As governments, regulators, market participants and other stakeholders around the world continue to fight the pandemic, they should also consider this as an opportunity to achieve a “green” and “responsible” recovery, promoting financial inclusion and ensuring that societies are resilient to forthcoming environmental shocks.
A good starting point could be reading the related guidance document, with a view to applying UNEP FI principles throughout national financial sectors and revising long-term growth strategies and public investment programs to align with the SDGs.