Consultative Process of the Principles for Responsible Banking — Now Concluded
The development of the Principles for Responsible Banking has been led by your UNEP FI peer banks on behalf and in consultation with all UNEP FI member banks. They serve as the framework for today’s new banking industry that supports society in achieving a more sustainable world.
A six-month open consultative process concluded on 31 May 2019, in which all banks, as well as other financial institutions and all other interested parties, were encouraged to take part.
The comments received through March 2019 — along with the responses and relevant changes made to the Principles based on these — have been summarized here by key topic, with all comments to be published in August.
- Becoming a Signatory to the Principles
- Relation to other frameworks and regulations
- Implementation support
- Targets setting
- Assessment process
Phase I Comments & Responses:“The Principles focus solely on big commercial banks.”
The Principles are for all types and categories of bank, regardless of their business model. They were produced by a development bank, retail banks, and universal banks, with investment departments.
Phase II Comments & Responses:“The September deadline for signing the Principles does not provide endorsers with enough time to take the decision through internal governance processes.”
The deadline for Endorser banks to become Signatories is not September 2019. The letter of endorsement for banks states: “…, it intends to become a Signatory within a period of 6 (six) months from the date of the Principles for Responsible Banking becoming available for signature, which is scheduled to be in September 2019.” Therefore, the deadline for Endorsers is effectively end of March 2020.
Nevertheless, we very much encourage banks to sign before/on 22nd September, when the Principles are officially launched at United Nations Headquarters by the CEOs of the banks involved. All banks that sign before/on that day will be the "Founding Signatories" of the Principles for Responsible Banking.
“Who becomes the signatory to the Principles when dealing with large cooperative groups, which may have hundreds/thousands of members?”
There are many different governance structures that are applicable to such groups, which will determine the approach taken. This issue will be assessed on a case by case basis.
“If a Banking Association endorses the Principles, does that mean that all of its member banks are expected to also become endorsers or signatories?”
In terms of the Endorsement letter for stakeholders, Banking Associations would commit to publicly support the Principles and promote them within their networks. There is no language implying that all or any of a Banking Association’s members have to become signatories.
Phase I Comments & Responses:The Rules of the Game: A brief introduction to International Labour Standards, 2014 will be included in the Implementation Guidance as a key resource.
“There are a lot of existing frameworks. What do the Principles have to offer?”
The Principles provide a single comprehensive framework to guide banks at the strategic, portfolio and transaction level. Such a framework has been lacking. The Implementation Guidance incorporates many of the existing sustainability frameworks and tools, and suggests how these could be used in implementing the Principles.
"Is there a risk of legal claims?"
A disclaimer accompanies the Principles for this purpose. See the footnote under Signatory Requirements at the bottom of page 14 of the consultation brochure.
Phase II Comments & Responses:“Concern that the requirements under the Principles and future EU regulation will not be aligned.”
In implementing the Principles, the integration of regional and national frameworks would be essential in order to ensure meaningful contribution to society’s goals. EU regulators and policymakers are in support of the Principles and view them as aligned with their policy goals. In this regard, Valdis Dombrovskis, European Commission Vice President, has encouraged all banks to sign up to the Principles for Responsible Banking.
“The Principles for Responsible Banking do not sufficiently include Human Rights, especially the UN Guiding Principles for Business and Human Rights.”
Human Rights are prominently mentioned in the Implementation Guidance. Reference is made to the UN Guiding Principles on Business and Human Rights in the Implementation Guidance under Principle 1. The Assessment Criteria will further address Human Rights best practice.
Phase I Comments & Responses:“Methodologies need to be developed and more practical examples for implementing the Principles are required.”
The banks involved are working on methodologies to enable them to align with the Paris Climate Agreement and the SDGs. All banks that sign up will have the opportunity to get involved in developing appropriate methodologies and metrics as this is an ongoing process that can be enhanced by exchanging peer expertise and by following global developments on these issues. The Implementation Guidance will be updated every two years (as required) to include progress in metrics, tools and methodologies. Good examples of implementation will be loaded on UNEP FI’s website.
Phase II Comments & Responses:“More support on how to implement the Principles is required.”
When a bank becomes a signatory of the Principles, it also becomes a member of UNEP FI, making it part of a community committed to jointly advancing sustainable banking. As a member of the community you can rely on substantial support to implement the Principles, such as structured peer learning, involvement in developing methodologies, and access to experts.
The annual feedback and support meeting with UNEP FI will be focused on building banks’ capacity, in order to enable them to improve and progress in their implementation of the Principles, and therefore their sustainability performance.
The Dashboard that UNEP FI is developing will also provide banks with tailored guidance on what next steps a bank can take in its implementation of the Principles. Case studies will be shared in time which provide examples of how some banks are implementing various aspects of the Principles. These tools should assist banks in their implementation of the Principles.
“The Principles should be translated into more languages to ensure that local communities understand what their banks have signed up to.”
The Principles are now available on the UNEP FI website in English, Chinese, German and Vietnamese, while work is currently underway to develop Spanish and Korean versions of the Principles. The final version of the Principles will be translated into all official UN languages.
“Banks vary significantly in terms of their business activities, size and global/regional presence. The Principles should differentiate between banks because clearly in terms of scope, impact and market reach, they differ.”
The Principles have been developed for all types of banks. They are intentionally flexible to enable banks of different sizes and contexts to be able to implement them. As the Principles begin to be implemented by various types of banks, it will become possible to share their practices, when it is useful/helpful to do so.
Phase II Comments & Responses:“The Implementation Guidance, as it is currently drafted does not adequately distinguish between (a) suggestions for how a bank can implement the Principles, and (b) the reporting and review requirements.”
The reporting, assessment and target setting requirements will be separated from the ‘guidance’ portion of the Implementation Guidance, to ensure better clarity.
“We need to see commitments from responsible banks.”
The Principles provide actionable guidance to banks on how to be a responsible bank, which includes making commitments and setting targets that support the needs and goals of society and protecting the environment. Each bank is held accountable to its stakeholders regarding implementation of the commitments it makes.
“Fossil fuels should be mentioned in the Principles.”
The Paris Climate Agreement is very prominent within the Principles, while the need to transition to a low-carbon economy is stipulated repeatedly. This includes a move from fossil fuels to renewable sources of energy worldwide.
“No mention is made to the ‘Katowice agreement’.”
Principle 1 requires alignment with the Paris Climate Agreement. Alignment requires banks to use methodologies to guide them. The Katowice Commitment banks, all of whom are involved in the Principles for Responsible Banking, have been working together on developing methodologies. These are already referred to in the Implementation Guidance.
“The Principles do not mention the importance of financial performance, which is important for shareholders and customers/clients who invest their money with banks.”
The Core Group acknowledges the importance of making profit for their individual banks’ sustainability. This will be made more explicit in the Implementation Guidance.
Phase I Comments & Responses:
Phase II Comments & Responses:“We are an international bank group with many subsidiaries. At what level do we set targets and report?”
Where a bank becomes a Signatory of the Principles at the group level, reporting would be on group activities at the group level. This can contain sub-reports for subsidiaries. Targets can be set both at the global and/or local levels. A group could, for example, identify a common target at the global level, to which all subsidiaries contribute. Additionally, each subsidiary could set a local target specific to their context. Banks within a group may also become Signatories at the subsidiary level and consequently submit their own reporting, independent from the group.
“Banks should give some more detail on how and where their impact is intended to be deployed, and where they find the potential to make an impact.”
Banks are required to publish an impact analysis, i.e. to identify, assess and be transparent on where they have the potential to realize the most significant positive and negative impact. As part of their public target setting, banks are required to outline the measures and actions they are planning, in order to achieve their targets – i.e. how and where their impact is intended to be deployed.
“Will we be delisted if we do not meet the targets we’ve set?”
No. Many factors can impact whether a target is achieved or not, including those not in a bank’s control. Banks will have to show that they have implemented the measures and actions they had set out in the published strategy to achieve their targets. Where a bank can reasonably explain why it is failing short of meeting its targets (despite its best efforts to work towards meeting them) it will remain a Signatory. Only banks that consistently fail to make progress, without explanation, on implementing the Principles may lose their Signatory status.
Phase I Comments & Responses:“Review Guidelines are needed to properly assess the Reporting Template, and standardization in reporting is required.”
The Core Group is currently developing the Review Guidelines, which will be available for consultation soon. The Review Guidelines will offer further objectivity in reporting criteria, provide clarity and guidance to reviewers about how to assess reporting, and guide banks on the criteria their reviewer will use to assess their reporting, which will standardize review outcomes.
“Is participation by the assurer or reviewer in the feedback meeting essential?”
Following deliberation on this issue, it was decided that participation by the assurer/reviewer in the feedback meeting between UNEP FI and the bank is not mandatory. Banks may choose to invite the assurer/reviewer if they wish to do so.
Phase II Comments & Responses:“Assurance for non-financial information is not common practice globally. We are worried this review process adds enormous additional burden.”
Where assurance (limited assurance is sufficient) is not a feasible option for a bank, it may opt for a third party to assess whether, based on the information provided publicly by the bank, it has fulfilled the assessment criteria.
“The Principles introduce an additional cost burden” The Principles' 28 Founding Banks acknowledge that the requirement for third party assurance/assessment may carry additional costs. In this case, very small banks (less than US$1B) will be exempt from this requirement and will only need to provide a self-assessment against the Assessment Criteria in their public reporting.
“The Principles should provide a clear signal/certification of excellence”
The assured self-assessment (or third-party assessment where assurance isn’t a feasible option for a bank) will provide an indication of whether a bank is in line with the Principles’ requirements or not. The purpose of the assessment is not to rank banks according to their performance, but rather, to ensure banks are implementing the Principles and continuously making progress.
“The Principles should provide a clear benchmark that can guide analysts in the non-financial analysis of a bank.”
The Principles provide objective and clear requirements that banks have to report against. This ensures that the requirements are well established and standardized. Thus, reporting under the Principles will provide analysts with useful information for non-financial analysis of banks. Beyond that, the Principles for Responsible Banking are not intended as a rating framework.
“Can we assess whether banks are making progress on a year to year basis?”
Progress over time should be clear as banks should report against the same metrics over time. When changes are necessary they should clearly explain and publish changes made to metrics/the methodology to measure them.
“More comparability across signatories on their implementation of the Principles.”
The benefit of harmonized metrics/methodologies is agreed, however, there are no established metrics/methodologies for banks to report against the Paris Agreement/SDGs. The Assessment Criteria for the Principles require a bank to, where possible, directly report against the metric used in the international/national framework to which they are linking their targets, use a proxy metric that is widely accepted/can be seen as current best practice.
Furthermore, the banks involved in the initiative are developing methodologies for impact identification and assessment, and for assessing alignment with the Paris Climate Agreement.
Phase I Comments & Responses:“The Principles contribute further to the reporting burden.”
The Core Group developing the Principles wanted to limit additional reporting as far as possible. Therefore, the requirements are:
- Banks incorporate reporting on their implementation of the Principles into their existing reports, and
- Banks complete the Reporting Template by referencing where in their public reports the relevant information can be found. Many banks, especially those that report under the GRI IV, will find that their reporting already addresses most of the requirements.
Banks are required to report annually on their implementation of the Principles, material risks and impacts, as well as their targets. This involves disclosing KPIs for addressing and reducing negative – while increasing positive – impacts. Reporting will be subject to review. Banks that consistently and without reasonable explanation fail to comply with these requirements can be removed from the list of signatories.
Phase II Comments & Responses:“Requirement to submit first reporting within 14 months of signing does not take all reporting cycles/periods into consideration.”
The period for submitting the first reporting has been extended to 18 months from the date of becoming a signatory. Annual reporting will be required subsequent to that.