Home Banking Why Responsible Banking Is Pivotal for a Sustainable Future

Why Responsible Banking Is Pivotal for a Sustainable Future

by internationalbanker

By Monica Johnson, International Banker


As the main source of financing for the overwhelming bulk of industrial activity around the world, does the global banking sector genuinely consider the environmental and social implications of its business and operational decisions? And in a world that is staring an imminent climate catastrophe in the face, not to mention a brutal cost-of-living crisis that is devastating the world’s poorest and most vulnerable, is the banking industry doing anywhere near enough to address and resolve these existential issues? If your answer to both questions is a resounding “no”, then it’s the rise of responsible banking that is aiming to turn that into a “yes” before too long.

Responsible banking seeks to profoundly influence banks’ behaviours in the direction of more sustainable and ethical practices that put people and the planet ahead of short-term profits. With the crucial involvement of the United Nations (UN), it has become a comprehensive worldwide movement designed to ensure banks across the world align their financial goals with key global sustainability targets, such as the UN’s Sustainable Development Goals (SDGs) and the Paris (Climate) Agreement.

In practice, this alignment can involve a broad range of activities and commitments, including the financing of environmentally friendly projects, the support of local communities through corporate social responsibility (CSR) and the divestment away from harmful industries, such as fossil fuels. It also typically encourages greater investments in those organisations and enterprises that can demonstrate their consistently positive influences on the environment and broader society. As such, responsible banking aims to promote a more sustainable financial system that benefits the entire world rather than just the wealthy few.

More formally, this framework is being built via the six Principles for Responsible Banking (PRBs). “Ten years after the start of the financial crisis, the banking industry is still trying to rebuild trust and increase engagement with clients, customers and employees. The banking industry needs to define and affirm its role and responsibilities in shaping and financing a sustainable future,” the United Nations Environment Programme Finance Initiative’s (UNEP FI’s) official PRB documentation stated in 2019. “Change is happening. Our economies are becoming greener, while the millennial generation is changing consumption patterns and business culture. To continue to play a central role in the 21st century, the banking industry has to show how it is meeting society’s changing needs and demands.”

Created in 2019 via a partnership between 130 founding banks, the PRBs represent a dedicated framework to ensure that the strategies and practices of participating banks align with society’s vision for the future, as set out in the SDGs and the Paris Agreement. “We will take a leadership role and use our products, services and relationships to support and accelerate the fundamental changes in our economies and lifestyles necessary to achieve shared prosperity for both current and future generations,” the PRBs’ official mission statement reads.

And it’s a mission that has gathered much steam in the five years since the PRBs’ founding. Today, the movement has more than 345 signatory banks, representing $98.7 trillion worth of total assets, or around 54 percent of global banking assets. The PRB framework comprises six principles that signatory banks pledge to embed across all of their business areas at strategic, portfolio and transactional levels. UNEP FI has stated that they are designed to bring purpose, vision and ambition to sustainable finance.

  1. ALIGNMENT: Banks will align their business strategies to be consistent with and contribute to individuals’ needs and society’s goals, as expressed in the SDGs, the Paris Agreement and relevant national and regional frameworks.
  1. IMPACT AND TARGET SETTING: Banks will continuously increase their positive impacts while reducing the negative impacts on and managing the risks to people and the environment resulting from their activities, products and services. As such, banks will set and publish targets through which they can have the most significant impacts.
  1. CLIENTS AND CUSTOMERS: Banks will work responsibly with clients and customers to encourage sustainable practices and enable economic activities that create shared prosperity for current and future generations.
  1. STAKEHOLDERS: Banks will proactively and responsibly consult, engage and partner with relevant stakeholders to achieve society’s goals.
  1. GOVERNANCE AND CULTURE: Banks will implement their commitments to these principles through effective governance and a responsible-banking culture.
  1. TRANSPARENCY AND ACCOUNTABILITY: Banks will periodically review their individual and collective implementations of these principles and be transparent about and accountable for their positive and negative impacts and contributions to society’s goals.

Perhaps most importantly, embedded within the principles is the Net-Zero Banking Alliance (NZBA), which is the climate-focused initiative of this global framework. To join the NZBA, a mandatory Commitment Statement must be signed by the bank’s chief executive. All banks that have signed the commitment will:

  • Transition the operational and attributable greenhouse gas (GHG) emissions from their lending and investment portfolios to align with pathways to net-zero by 2050 or sooner.
  • Within 18 months of joining, set targets for 2030 or sooner as well as 2050 targets, with intermediate targets to be set every five years from 2030 onwards.
  • Banks’ first 2030 targets should focus on the priority sectors on which they can have the most significant impacts—i.e., the most GHG-intensive sectors within their portfolios—with further sector targets to be set within 36 months.
  • Annually publish absolute emissions and emissions intensity in line with best practices, and within a year of setting targets, disclose progress against board-level-reviewed transition strategies, setting out proposed actions and climate-related sectoral policies.
  • Take robust approaches to the role of offsets in transition plans.

This commitment is also underpinned by the bank-led UNEP FI Guidelines for Climate Target Setting for Banks, which outline four target-setting principles for banks, such as publicly disclosing long-term and intermediate targets to meet the temperature goals of the Paris Agreement; establishing an emissions baseline, whilst also taking annual measurements and reporting the emissions profiles of their lending portfolios and investment activities; and using widely accepted, science-based decarbonisation scenarios to set both long-term and intermediate targets that are aligned with the Paris Agreement’s temperature goals. The guidelines also suggest that banks regularly review targets to ensure consistency with current climate science.

In response—and with the transparency and accountability principle very much in mind—it is becoming increasingly commonplace for banks to publish sustainability reports and even dedicated PRB reports to demonstrate their progress regarding responsible banking. Newly participating banks are given 18 months to publish their first PRB reports.

In its PRB report for 2023, for instance, Japanese lender Nomura detailed the ways in which it is accelerating its efforts to achieve key sustainability targets, in line with its management vision. This included highlighting the “Responsible Investment Report” that was published by its asset-management unit and contained its ESG (environmental, social and governance) Statement and Basic Policy for Responsible Investment, both of which demonstrate its commitment to sustainability.

“We recognize that regular engagement with our stakeholders is necessary to achieve the goals established in these statements,” Nomura’s PRB report also acknowledged. “To this effect, we organize events and participate in working groups on the theme of sustainability, in addition to regular Investor Relations activities and shareholders’ meetings.” The bank also pointed to its April 2023 appointment of a chief sustainability officer to further accelerate its sustainability initiatives. “The Chief Sustainability Officer is responsible for implementing sustainability-related strategies, including gathering information on sustainability locally and globally, managing the progress of sustainability-related measures, and developing sustainability-related policies and frameworks,” the report explained.

According to its second biennial progress report published in September 2023, which reviewed the real-world implementations of the PRBs, moreover, the UNEP FI confirmed that member banks have been demonstrating their commitments to the cause by integrating sustainability considerations such as climate-change mitigation into their strategies, transforming governance structures, understanding their impacts better, setting targets and developing innovative products and risk-management approaches.

To continue ably supporting participating banks in reaching their sustainability goals, the well of educational resources is only deepening further with every passing month. For instance, the Principles for Responsible Banking Academy (PRB Academy) was founded through a partnership between UNEP FI, the Chartered Banker Institute (CBI) and the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH (a German government agency responsible for sustainable development policy). The PRB Academy offers education and training programmes to support banks on their journeys towards achieving their practical, strategic, operational and decision-making goals in line with responsible-banking requirements.

Aligned with the Taskforce on Nature-related Financial Disclosures (TNFD) framework, for example, the PRB Academy launched a new course titled “Introduction to Nature and Responsible Banking” on March 19. “This new course will help banking professionals increase their knowledge of nature and biodiversity, as well as the connections between nature, climate and pollution, and just how much their clients’ businesses depend upon the natural world,” Eric Usher, head of the UNEP FI, said at the launch of the course. “They will learn how to better identify risks and opportunities related to nature in their day-to-day work, benefiting both banking operations and our society as a whole.”

The PRB Academy also plans to roll out a more advanced course, “Applying Nature-Responsible Banking,” in 2024. “This course will delve deeper into practical strategies for banks to reduce negative impacts on nature while fostering positive outcomes, thus facilitating a smooth transition towards nature-positive banking practices,” according to the UNEP FI.


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