Launch of the United Nations Principles for Responsible Banking
On September 22, 2019, 130 banks signed onto the United Nations’ newly launched Principles for Responsible Banking (the “Principles”). These banks — whose founding members include Citi, BBVA, Barclays, Standard Bank, and Santander, among others — collectively hold US$47 trillion in assets, amounting to approximately one-third of the global banking sector. The Principles focus on bringing signatory banks’ business strategies into alignment with the aims expressed in various frameworks, such as the UN Sustainable Development Goals (“SDGs”) and the 2015 Paris Climate Agreement (the “Paris Agreement”). The Principles acknowledge that the most impactful actions may vary between entities and therefore require a signatory to conduct an impact analysis as a first step. After this, signatories must set and work towards targets, reporting on their progress. The Principles give substantial leeway in what particular targets a signatory sets, so long as they (1) address items among the most significant identified in their impact analysis, and (2) bring the signatory into better alignment with the common, societal goals articulated in a national, regional, or international framework. Overall, the Principles establish a system for iterative and evolving action from signatories to address the areas where they can have the most impact based on both current and future goals.
Review of the Principles for Responsible Banking
The Principles were developed by the UN Environment Programme – Finance Initiative (“UNEP FI”) in concert with members of the banking sector. Comprised of six, sentence-long resolutions, the Principles Signature Document to be executed by a participating bank’s CEO, is a short commitment letter describing the overarching aims of the signatory banks. The Principles identify the following ambitions:
- Alignment of business strategy with societal goals, as expressed in the SDGs, the Paris Agreement, and other relevant national and regional frameworks;
- Continuous increase to positive impacts while reducing negative impacts on, and managing risks to, people and environment resulting from the signatory’s activities, products, and services (including target setting in areas where the signatory can achieve the most significant impacts);
- Engagement with clients and customers to encourage sustainable practices and enable economic activities that create shared prosperity for current and future generations;
- Engagement and partnering with relevant stakeholders from various backgrounds;
- Implementation of the Principles through effective governance and a culture of responsible banking; and
- Periodic review of implementation of the Principles, including transparency and accountability for the signatory’s impacts.
Although the signed letter itself is brief, the UNEP FI has also produced other framework documents to elaborate on these Principles, including: (1) a guidance document (the “Guidance Document”) and (2) key steps to be implemented by signatories (“Key Steps”).
To help achieve compliance with the Principles, the Guidance Document provides greater information regarding the scope of each principle. For example, on Principle 1: Alignment, the Guidance Document clarified that a signatory bank’s business strategy should contribute to society’s goals in areas “where a bank is best positioned to do so through its business.” The Principles do not require a signatory bank to upend its business model, but instead require it to evaluate its business model, portfolio, and products and services to identify opportunities to bring those into greater alignment with societal goals and sustainable practices. The Guidance Document also describes certain practices and tools a signatory may, but does not have to, use to meet the Principles.
In contrast, the Key Steps detail three primary actions a signatory bank must take to comply with the Principles. First, the signatory bank must conduct an impact analysis to identify its “most significant (potential) positive and negative impacts” where it operates. This must be viewed from multiple angles: main customer segments served, types of products and services provided, main sectors and industries, and main regions of operation. Additionally, the Key Steps require the analysis be informed by relevant stakeholders, to include civil society.
Second, a signatory bank must set and publish at least two targets to address at least two of the bank’s “most significant (potential) positive and negative impacts.” These targets must follow the “SMART” system and be: (1) specific; (2) measurable (qualitatively or quantitatively); (3) achievable; (4) relevant; and (5) time-bound. Additionally, they must be aligned with relevant frameworks, such as the SDGs or the Paris Agreement. A signatory bank may revise its targets and establish new targets at its own pace; however, a minimum of two should be in progress at any given time. To help achieve this, the signatory bank must implement a governance structure with the means to monitor target implementation and, if required, implement remedial action.
Third, a signatory bank must report on the targets it has set and the progress made towards meeting those targets. Within eighteen months of becoming a signatory to the Principles, and in annual reporting thereafter, a bank must publish a preliminary report and self-assessment on compliance with the Principles. The annual report should be included in the signatory’s existing public reporting, if applicable. Additionally, a third-party assurer must provide limited assurance of the contents of the signatory bank’s ongoing self-assessment of its progress in implementing its targets and actions (prepared using the Reporting and Self-Assessment Template).
These three steps must be fully implemented by a signatory bank within a maximum of four years from signing onto the Principles, and signatories are expected to develop new targets as they complete old ones, continuing to choose based on extent of impact in alignment with various societal goals.
The Principles establish a framework for signatory banks to identify the most impactful means for each individual bank to achieve shared societal goals, as articulated in such regimes as the SDG and the Paris Agreement, and to effectuate such impact. However, they do not specify particular targets and areas of action, instead tasking individual signatories with assessing how they can best effectuate societal goals given their unique circumstances.
Nevertheless, the Principles do require significant acts from the signatories; they require constant, evolving interaction from the banks as goals are met and replaced. This approach also keeps the Principles flexible to incorporate new goals as other agreements and frameworks are developed.
Moreover, although designed to avoid duplicative reporting, the Principles demand substantial transparency in signatories’ existing publications regarding actions under the Principles. Ultimately, the Principles require signatories to exert at least some degree of influence over their major sectors to promote alignment with these goals.
Altogether, the Principles establish an ambitious framework that is designed to not only effectuate achievement of current goals in environmental, social, and governance topics by both banks and, indirectly, their customers, but also to evolve to address additional goals as they are identified and articulated.