We will periodically review our individual and collective implementation of these Principles and be transparent about and accountable for our positive and negative impacts and our contribution to society’s goals.

PLEASE NOTE: The Implementation Guidance is being updated following the completion of the Consultative Process, the below is the original draft version.

Implementation guidance for Principle 6: Transparency and Accountability

Key words and intent: transparency; accountability for positive and negative impacts; trust; periodic review; individual and collective implementation

Banks are accountable to their employees, investors and society as a whole. Signing the Principles for Responsible Banking demonstrates a clear commitment to being part of the solution to current and future sustainability challenges. In some parts of the world, trust in banks has been severely damaged and demonstrating transformative change requires target setting, transparency and accountability for positive and negative impacts.

Target setting and public disclosure are critical because they enable internal and external stakeholders to assess your banks’ contribution to society and progress made. This, in turn, helps build confidence in bank’s sustainability-related commitments and helps to distinguish your bank against competitors. Making targets public and reporting progress significantly increases the potential for success in achieving them. Qualitative and metric-based, i.e. quantitative, progress reports are key to ensuring the effectiveness of your approach, to motivating employees, competing with peers, driving innovation, and strengthening reputation and trust.

For the banking sector to play a key role in facilitating the economic transformation needed to achieve society’s goal of a sustainable, equitable future, banks will need to continuously ratchet up their ambition and action. The periodic review of individual and collective implementation of the Principles will support such continuous improvement and enable banks to benchmark against their peers, share lessons learned, and establish the credibility of the Principles, the bank and of the sector as a whole.

  • Banks are required to within the first 14 months of becoming a signatory and every year thereafter provide information on their implementation of the Principles for Responsible Banking in their public reporting. Banks that are already reporting on sustainability, especially under common frameworks such as the GRI, will find that much, if not most of the information required is already part of their existing public reporting.
  • In addition, signatory banks are required to publish in a template (see draft version) references to where in their public reporting the relevant information on their implementation of the Principles for Responsible Banking can be found.
  • The information provided in the bank’s public reporting should broadly include the following (the specific transparency requirements are from the reporting template):
    • a description of your bank’s business model, which includes the structure of the bank, sectoral focus areas, products and services, client base and geographic coverage.
    • information on how your bank has aligned and/or is planning to align its strategy to be consistent with and contribute to meeting individuals’ needs and society’s goals. This should include relevant KPIs and planned measures to achieve them.
    • a description of how and according to which criteria your bank has identified and assessed and/or is planning to identify and assess the significant risks to people and environment and the positive and negative social, economic and environmental impacts resulting from the banks activities, products and services. This should include a description of the identified most significant risks and positive and negative impacts alongside corresponding information on the bank’s portfolio exposure to relevant technologies, business practices, sectors and geographies.
    • information on how your bank has increased and/or is planning to increase the identified positive impacts and has reduced and/or is planning to reduce the identified significant negative impacts over the last 12 months/in the coming 12 months or since your last annual reporting period/during your next annual reporting period.
    • a description of what policies and practices your bank has in place and/or is planning to put in place to ensure the relationship with its clients and customers is conducted in a sustainable and responsible manner.
    • a description of how your bank has worked with and/or is planning to work with its clients and customers to encourage sustainable practices and enable sustainable economic activities. This should include information on the measures taken, their scale and the results and impacts achieved.
    • information on which stakeholders your bank has proactively consulted, engaged, collaborated or partnered with on which issues and with what results. This should include a description of how your bank has determined relevant issues for stakeholder consultation/engagement/collaboration/ partnership and how your bank has identified the relevant stakeholders for the identified issues. (Note: self-declared “advanced” banks are required to proactively consult relevant stakeholders on the bank’s target setting process and its business practices. The fulfillment of this requirement is part of the review process for self-declared “advanced” banks).
    • a description of how your bank manages social and environmental risks associated with its operations, activities, products, and services with a focus on governance structures, roles and responsibilities, and processes.
    • a description of how your bank has fostered and/or is planning to foster a culture of responsible banking among its employees, and of what governance processes, roles and responsibilities and what management systems your bank has put in place and/ or is planning to put in place to ensure effective implementation of the Principles for Responsible Banking.
    • a description of how your bank has set its targets. This should include a description of how your bank has prioritized and/or is planning to prioritize focus areas for target setting, reflecting your bank’s most significant positive and negative impacts, the most significant challenges and goals of the society(ies) your bank operates in and your bank’s business model and strengths/comparative advantages. Further, this should include a description of how your bank has arrived and/or is planning to arrive at its targets in the identified focus areas. The information provided should specify what framework(s) expressing society’s goals (such as SDGs, Paris Climate Agreement, national policies) have been identified as the most relevant one(s) and how the level of ambition and timeline of your bank’s target(s) correspond to the level of ambition and the timeline of the target(s) in the identified framework(s). For self-declared “starter banks” (see below under review), a description of how they are planning to set targets is sufficient.
    • information on your bank’s short and medium/long term targets related to the Principles for Responsible Banking. The information provided should include a description of the activities/measures your bank is planning to implement to achieve these targets, the key performance indicators your bank has set to enable and monitor progress, what resources and responsibilities your bank has assigned to ensure the targets are met, and the processes your bank has established to monitor and review progress against the targets and identify and address/mitigate any negative or unintended consequences. (Optional for self-declared “starter banks” (see below under review)).
    • discussion of your bank’s progress made against your previously set targets. This should include information on what actions/measures have been taken and what impact they resulted in. (Optional for self-declared “starter banks” (see below under review)).
    • a summary of your bank’s progress regarding the implementation of the Principles for Responsible Banking over the last 12 months. This should include information on the actions taken in key areas and their results.

Annual review process for the individual bank:

  • It is recognized that banks are at different stages of integrating sustainability and that, even for banks that are relatively advanced in integrating sustainability in their strategy and business practices, the Principles for Responsible Banking represent ambition, commitments and obligations beyond their current practices.
  • To allow all banks that are genuinely committed to sustainability, but are at different levels and operate in different contexts, to become signatories to these Principles and align with and continuously increase their contribution to society’s goals, signatory banks will self-declare their “level” and with that be subject to adapted target setting and accountability requirements. Banks that self-declare as “starter” or “intermediate” have to progress to the next level within max. 24 months.
    • “Starter” banks:
      • report on their implementation of the Principles for Responsible Banking as described above under transparency. UNEP FI will review the submitted reporting template and once a year meet with the bank to discuss any gaps and provide advice on possible improvement and next steps.
    • “Intermediate” banks:
      • report on their implementation of the Principles for Responsible Banking as described above under transparency. UNEP FI will review the submitted reporting template and once a year meet with the bank to discuss any gaps and provide advice on possible improvement and next steps.
      • UNEP FI will assess if transparency requirements have been met. If the bank’s public reporting does not meet the transparency requirements, UNEP FI will issue a clear request detailing what steps it has to take to comply with the transparency requirements. The bank should then either take the requested steps or provide a reasonable explanation why this is not possible. UNEP FI will publish the results of its assessment of the bank’s transparency and will highlight best practice examples.
      • UNEP FI will review the information the bank has provided on how it has set its targets and provide feedback and advice with regards to possible improvements of the bank’s process for setting targets.
    • “Advanced” banks:
      • are required to consult and engage with relevant stakeholders on their target setting and implementation of the Principles for Responsible Banking.
      • report on their implementation of the Principles for Responsible Banking as described above under transparency.
      • submit to an independent review of their:
        • meeting of transparency requirements
        • target setting process
        • progress made.

    This independent review will follow review guidelines available here.

    Banks have two options:

    1. Banks that already obtain third part assurance for their sustainability report can include the above three areas in the scope of their assurance. The assurance provider would issue a statement with regards to the bank having met the requirements on transparency, target setting and progress based on the criteria in the above-mentioned review guidelines. For the annual feedback and review meeting, UNEP FI would participate in the sections of the bank’s meeting with the assurance provider that pertain to the bank’s fulfillment of the accountability requirements under the Principles for Responsible Banking. If requirements have not been met, the assurance provider will issue a clear request detailing what steps the bank has to take to comply with the accountability requirements. If the bank continuously neither takes the requested steps nor provides a reasonable explanation why this is not possible, the assurance provider will recommend to the Governance Body of the Principles for Responsible Banking that the bank be removed from the list of signatories.
    2. A “defined scope review” by an accredited review partner. As opposed to an assurance, this is solely based on the information in the bank’s public reporting. The review partner will check the criteria on transparency, target setting and progress set out in the review guidelines against the information in the bank’s public reporting and assess if, based on this information, the criteria are met. The reviewer issues a statement with regards to the bank having met the criteria on transparency, target setting and progress according to information provided in its public reporting. The annual feedback and review meeting/call will be with both the reviewer and UNEP FI. If the criteria have not been met, the reviewer will issue a clear request to the bank detailing what steps it has to take to comply with the accountability requirements. If the bank continuously neither takes the requested steps nor provides a reasonable explanation why this is not possible, the reviewer will recommend to the Governance Body of the Principles for Responsible Banking that the bank be removed from the list of signatories.

    Collective Review Process

    • The signatories will meet every two years to review their collective performance against the Principles for Responsible Banking and their collective contribution to society’s goals. They will discuss any recommendations for revisions and updates to the guidance documents, signatory requirements or, if necessary, to the Principles themselves. Relevant stakeholders including civil society will be invited to contribute to the collective review process as appropriate.
    • The results will be published in the form of a short report which will include:
      • A list of new signatories and a list of banks that have left the initiative.
      • An assessment of the collective performance of all of the signatories against the Principles, and of their aggregate contribution to society’s goals.
      • Wider reflections, and potentially recommendations, on the need for revisions to or updates of the Principles, the Signatory Requirements and the Implementation Guidance.

Getting started…

  • Integrate disclosures relating to the implementation of the Principles into their existing reporting (e.g. primary annual report, sustainability report, your website, etc.). Where your bank cannot provide information yet, include a description on how your bank is planning to work towards obtaining and publishing that information. Expected disclosures should align with the requirements of the sustainability disclosure frameworks commonly used in the banking sector, such as the GRI. If the report does not meet the current best practice norms for reporting, the bank is expected to take steps to close the gap.
  • Submit references to the relevant information on the implementation of the Principles in your public reporting via the UNEP FI reporting template and benefit from the annual review and feedback meeting and advice and make use of case studies and peer learning from banks in similar contexts.
  • Allocate adequate resources to bring your public reporting in line with the transparency requirements.

Ensuring continuous improvement…

  • Intermediate and advanced signatory banks should:
    • Proactively consult and engage with stakeholders on their target setting and implementation of the Principles for Responsible Banking.
    • Demonstrate that they have through consistent processes, linked to their own governance mechanisms, determined their most material issues, where they can have the most significant impact in terms of contribution to the SDGs and business outcomes.
    • Publish an annual transparent, balanced account of the progress they have made and focus on outcomes and impacts rather than process.
    • Disclose at aggregated level engagements with clients and other stakeholders to deliver this industry and market-shifting initiative.
    • Disclose at aggregated level strategic risks and opportunities and how these are integrated into the bank’s own governance processes and strategy.
    • Disclose alignment of the bank’s portfolio with climate targets and SDGs via appropriate metrics, targets and where possible using scientific scenarios.
    • Consider the Integrated Reporting <IR> Framework to enhance transparency on your bank’s material issues regarding the SDGs and the Paris Climate Agreement.
    • Obtain third-party assurance for your sustainability reporting.

Some key resources

  • International reporting frameworks (or local frameworks with equivalent level) such as:
  • Benchmarking conducted for the Dow Jones Sustainability Index (DJSI) and the FTSE Russell index series, as well as ratings and assessments produced by organizations such as MSCI, CDP, RobecoSAM and Vigéo. These benchmarks and ratings enable stakeholders to compare the performance of different companies on a range of sustainability-related issues. They also provide a useful reference framework for companies on the data and information that are of interest to investors and other stakeholders.
  • The recommendations of the Financial Stability Board’s (FSB’s) Task Force on Climate-related Financial Disclosures (TCFD) provide a reference framework for companies, including those in the financial sector, to report on their climate-related risk management strategies. In 2018, UNEP FI released two guidance documents for banks wishing to report on the climate transition risks and on the climate physical risks associated with their loan books, in line with the TCFD’s recommendations. The UNEP FI TCFD Investor Pilot with 20 investors will in turn publish methodological guidance on such scenario-based forward-looking assessments of climate-related risks and opportunities for listed equities, corporate bonds and property, in March of 2019.
  • The Materiality Map of the Sustainability Accounting Standards Board (SASB) provides suggestions for accounting metrics for sustainability issues that affect a number of specific industries, including the banking industry.

Examples

a. France’s binding framework for asset owners and institutional investors to disclose ESG performance
Article 173-VI of France’s Law on Energy Transition for Green Growth (LTECV) requires asset management companies and institutional investors to report on how they incorporate environmental, social and quality of governance (ESG) objectives into their investment and risk management policies. There is a particular focus on their exposure to climate risk and on the steps they have taken to play a part in achieving the objectives of the energy and ecological transition (including limiting the rise in global temperatures to well-below 2 degrees Celsius). The French Association of Asset Management (AFG) has published a guidebook to support financial institutions with their reporting.

b. EU Directive on Non-Financial Reporting
This Directive requires large companies to disclose certain information on the way they operate and manage social and environmental challenges. This helps investors, consumers, policy makers and other stakeholders to evaluate the non-financial performance of large companies and encourages these companies to develop a responsible approach to business. Companies are required to include non-financial statements in their annual reports from 2018 onwards and to publish reports on the policies they implement in relation to:

  • environmental protection,
  • social responsibility and treatment of employees,
  • respect for human rights,
  • anti-corruption and bribery,
  • diversity on company boards (in terms of age, gender, educational and professional background).

c. South Africa’s private-led initiative to foster transparency on non-financial aspects in reporting
The King Code of Corporate Governance in South Africa, now in its fourth iteration, was developed under the auspices of the membership-based Institute of Directors in South Africa. It has been incorporated into the rules of the Johannesburg Stock Exchange, and some aspects have been incorporated into company law. The King IV Code of Corporate Governance is a set of voluntary principles and leading practices, drafted to apply to all organizations. It asks organizations to be transparent in the application of their corporate governance practices and to fully integrate material non-financial considerations into their decision making. Sector supplements explain how the Code should be applied by certain sectors.