The world to leave behind is one of unsustainable, high-emissions practices.

The world to seek is one of global-minded, sustainable development. And the UN, through its Sustainable Development Goals (SDGs) and the Paris Agreement, has put this very large goal into words, actions, and a tangible framework.

Certainly, it is the goal of a generation—but it is also expensive. The SDGs alone require an annual investment of seven trillion US dollars.1

So how can the banking industry help finance this? Indeed, the world's banks have a huge role to play in funding the sustainability agenda—and bankers are already on board. Since spring 2018, the world's major banks have been working with the United National Environment Finance Initiative (UNEP FI) on the alignment of business practices with global sustainability objectives.

The time is now

Since the global financial crisis ten years ago, the banking industry has been working to rebuild public trust. At the same time, global environmental issues, particularly climate change, have risen to the top of the global agenda, resulting in major global commitments that have regulators eager for action and for real shifts in business culture. Equal, if not exceeding, pressure comes from consumers themselves who are screening their economic choices far more rigorously. Young consumers especially want to know where the cacao comes from in the chocolate they buy, and how sustainable their investments are.

A closer look at the new principles for banks

Whereas asset managers have the Principles for Responsible Investment, bankers will soon have the Principles for Responsible Banking, which are being developed out of the two frameworks mentioned above.

In the making under the UNEP FI by 28 major banks representing USD $17 trillion in assets, these principles will shape the future of this industry by aligning banking efforts with societal goals, establishing a global benchmark for sustainable banking while increasing transparency and accountability.

So far, six principles have emerged:

  1. to align business strategies with the needs of individuals and society
  2. to increase the positive (and reduce the negative) impacts of activities, products, and services on people and the environment
  3. to work with clients and customers to encourage sustainable practices
  4. to proactively collaborate with stakeholders towards meeting these goals
  5. to implement governance and culture that shows commitment to these principles
  6. to periodically review the implementation of these principles, and communicate the findings transparently

Looking ahead

The final version of these principles will be available in September 2019.

In the meantime, banks and other institutions can show their support by publicly endorsing them: besides the obvious reputational benefits, such a statement followed by concrete shifts in business practice will ensure that banks are keeping up with the regulatory changes that are most definitely coming. In this way, they can get ahead of compliance and financial risks. As with other areas of regulation, the "wait and see" attitude will not be optimal!

Footnotes

1 Financing for SDGs – Breaking the Bottlenecks of Investment from Policy to Impact, June 11, 2018 – Concept note

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