In the Know: Global Principles For Responsible Banking

Concerning the implementation of the UN SDGs and Paris Climate Accord within the banking sector, the United Nations Environment Programme Financial Initiative (UNEP FI) introduced six Principles of Responsible Banking (PRB) in 2019, inviting financial institutions to become signatories.

The Principles’ full, formal definitions are available here. In essence, the Principles hold banks accountable for: 

• aligning with the UN SDGs, Paris Climate Agreement, and other relevant local and international ESG frameworks, 
• assessing their current impact and setting targets with transparency and accountability for future improvement, 
• ensuring alignment on ESG matters with all stakeholders, particularly clients and customers, and
• establishing governance and a culture that adheres to these Principles.    

Adhering to the PRB in practice

Commitment to the Principles of Responsible Banking involves undertaking a comprehensive initiative involving self-assessment, disclosure, establishing and executing sustainability-related priorities, and potentially receiving endorsement from the UNEP FI Secretariat.

Here is an overview of the key points of this commitment as described by the UNEP FI:

• A signatory bank’s key deliverables include so-called Templates, following the UNEP FI’s predefined checklist, to be published in Reports.  
• Within four years, a third-party assessor known as a “limited assurance provider” should verify that the bank is accurately reporting on its efforts in the areas of Impact Analysis, Target Setting, Target Implementation and Monitoring, and Governance Structure for Implementation of the Principles. The UNEP FI recommends publishing at least one Report without assurance and one Report with assurance well before the initial four-year window closes. 
• A UNEP FI Expert Reviewer from the organisation’s Secretariat is the final arbiter on whether the outcomes of the bank’s effort ultimately align with the Principles.    

Principles of Responsible Banking Signatory Statistics

According to official UNEP FI statistics, as of November 2023 there are 338 PRB signatories representing more than half of the global banking industry.

Judging from the geographical breakdown of signatory banks contributing feedback for the UNEP FI’s 2021 PRB progress report, European banks have been the quickest to mobilise internal resources around PRB-related initiatives. 56% of the banks completing the questionnaire associated with the report were from Europe. A report-low of 5% of the banks completing the questionnaire were from North America.

Priorities for PRB Signatories

As per the same 2021 progress report, signatory banks have a top focus on climate when it comes to implementing the Principles. The Net-Zero Banking Alliance, a group of PRB signatory banks committed to minimising carbon emissions, is the UNEP FI’s flagship initiative in this area.

The second most popular area of focus is financial inclusion, i.e. ensuring that all people have access to financial products and services such as banking and credit regardless of socioeconomic status. Financial inclusion appears to be particularly significant for banks in North America, Central America, and the Caribbean.

Pain Points for PRB Signatories

The UN Civil Society Advisory Board (CSAB), which supports signatory banks and reviewed this 2021 progress report, identified a wide range of pain points regarding adherence to the Principles of Responsible Banking.

Many of these challenges involve what signatory banks should be doing more of, such as advancing a wider variety of forms of sustainability with respect to biodiversity or human rights for example. 

Perhaps the most pragmatic recommendation from the CSAB, however, is for signatory banks to improve how they use their data to analyse, track, and measure progress towards achieving their sustainability-related initiatives. It is often the case that relevant data or technological know-how is not yet available.