2019 was a year of stellar achievement for UNEP FI and its members. In October, shortly after successful launches at the UN General Assembly in New York, our membership reached a tally of 300 banks, insurers and investors from around the globe. This review of the year provides highlights and we would like to use this opportunity to thank our members, supporting institutions and sponsors for their dedication to promoting sustainable finance and ensuring a more resilient, low-carbon future for all. Banking members make solid commitments to finance the Sustainable Development Goals and address climate change
Many of our new members are banks who have been attracted by the recently-launched sustainable banking framework, the Principles for Responsible Banking. 130 banks collectively holding USD 47 trillion in assets, or one third of the global banking sector, signed up to the Principles in the presence of the UN Secretary General at the UN General Assembly in New York City on 22 September. Also present were 45 of their CEOs. The Principles and related guidance will enable banks to strategically align their business with transitioning to a sustainable future for their customers and people around the world. On the following day, 33 of the banks which are signatories to the Principles announced a Collective Commitment to Climate Action which sets out concrete and time-bound actions that banks will take to scale up their contribution to and align their lending with the objectives of the Paris Agreement on Climate Change. Since launch, more banks have signed the Principles including 9 banks from Ecuador who signed up en bloc in December and as of end 2019, 155 banks around the world are now signatories. These major initiatives represent significant action on the part of the global banking industry to tackle climate change and advance sustainable finance. The Principles have been cited in the European Banking Authority sustainable finance action plan and are generating interest in the global banking industry and beyond. Work is now underway to support implementation of these commitments. More information is available on the Principles for Responsible Banking pages of the UNEP FI website.
Asset Owners working together to amplify their voice to governments and business as they commit to net-zero portfolios by 2050
At the Climate Action Summit, on 23 September, Oliver Baete, CEO of Allianz spoke on behalf of 12 asset owners as they committed to ensure that their portfolios produce net-zero greenhouse gas emissions by 2050 consistent with a maximum temperature rise of 1.5°C above pre-industrial temperatures. The UN-convened Net-zero Asset Owner Alliance members will seek to reach their net-zero commitment by advocating for, and engaging on, corporate and industry action, as well as public policies, for a low-carbon transition of economic sectors in line with science and under consideration of associated social impacts. The Alliance will serve as a one-stop-shop for state-of-the-art tools and advice for asset owners. Influence will be increased by fostering one voice and ensuring the Alliance aligns with other initiatives for investors who demonstrate leadership on decarbonisation. In November, four more large investors joined the Alliance bringing the total number of members to 16 and the total assets under management represented to nearly US$4 trillion. The Alliance encourages all asset owners to join and add their voice to the call to make a measurable impact on reducing greenhouse gas emissions. Read more about this group and its members, which include some of the world’s largest insurance companies and pension funds, here.
Highlighting finance sector ambition to governments and beyond
The 25th Conference of the Parties, ‘COP25’, to the United Nations Framework Convention on Climate Change (UNFCCC) took place in Madrid, Spain, during the first half of December. Over the last decade the COPs have come to serve two distinct – yet complementary and intertwined – key purposes. First, naturally, to host and advance the intergovernmental negotiations on the architecture of the international climate change regime, including the implementation of the 2015 Paris Agreement. And, second, to mobilise and display new and meaningful commitment to climate action from both ‘state’ and ‘non-state’ actors.
And it is along those two lines that an assessment of the Madrid COP outcomes can be made: while progress in the formal, intergovernmental negotiations remained, disappointingly, under expectations, COP25 saw a remarkable display of new non-state, private sector, determination to reduce greenhouse gas (GHG) emissions and transition corporate behaviour and business models into alignment and compatibility with well-below 2 degrees – and even with 1.5 degrees. COP25 witnessed this level of commitment coming from an increasing number of both companies in the real economy as well as – principally through UNEP FI and partners – from an increasing number of financial institutions. 177 companies now are, via the Global Compact, committed to emissions reductions in line with 1.5 degrees pathways. And, through UNEP FI, there are now 16 asset owners worth USD 4 trillion committed to net-zero emissions portfolios by 2050, as well as 34 commercial banks committed to shifting their portfolios into alignment with 2 degrees. UNEP FI showcased this new financial leadership on climate change, through a number of events and sessions, and you can watch recordings of some of them here.
Clarifying the fiduciary duties of investors and assessing the role of legal frameworks
Other achievements throughout the year included the wrap-up of the four-year project, Fiduciary Duty in the 21st Century, and the initiation of its follow-on programme, the Legal Impact Framework. The joint UNEP FI and Principles for Responsible Investment (PRI) four-year project clarified investor obligations and duties (known in common law markets as fiduciary duties) in relation to the integration of environmental, social and governance (ESG) issues in investment practice and decision-making. Investors that fail to incorporate ESG issues are failing in their fiduciary duties and are increasingly likely to be subject to legal challenge. Recently, the EU Official Journal published the fiduciary duties regulation on sustainability-related disclosures which will enter into force on 29 December and shall apply from 10 March 2021.
Looking forward, investors and policy makers will explore how investors might explicitly incorporate sustainability impacts in investment decision making processes. Fiduciary duties require ESG incorporation, however capital markets remain unsustainable. As currently defined, the legal and regulatory frameworks within which investors operate require consideration of how ESG issues affect the investment decision, but not how the investment decision affects ESG issues.
Changing this will be our next phase of work through our pioneering project, “A Legal Framework for Impact”, in collaboration with the PRI and The Generation Foundation with legal expertise from Freshfields Bruckhaus Deringer. The research will analyse whether and how legal frameworks allow for – and incentivise – investors to consider sustainability impact across major markets. Learn more here.
Continuing to lead on helping financial institutions disclose climate-related risks and opportunities
UNEP FI continued its work with groups of UNEP FI members including banks, insurers and investors piloting the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. During 2019, two reports based on the work of UNEP FI-run pilot projects for investors implementing the recommendations were launched. Changing Course: A comprehensive investor guide to scenario-based methods for climate risk assessment provides a state-of-the-art overview of the approaches, tools, and providers available to investors today. Published in May, it also details the methodologies piloted by the 20 investors on listed equities and corporate debt, and summarises their experiences. Key findings from the analysis are available in summary here. A report from the UNEP FI property working group published in November captured the conclusions of a pilot with twelve institutional real estate investors who analysed their direct property investment portfolios in line with the TCFD recommendations. The results of the testing of state of the art methodologies are available here. UNEP FI is working on a second phase of testing of the implementation of the recommendations for banks as well as piloting the recommendations with insurers. UNEP FI will issue results in 2020.
Taking stock of G20 efforts to scale up energy efficient investment
Building on the outcomes of the G20 Global Summit on Financing Energy Efficiency, Innovation and Clean Technology held in Tokyo on 12 June 2019, the G20 Energy Efficiency Finance Task Group (G20 EEFTG) collated leading practices by financial institutions and participating member countries scaling up the energy efficiency investment market in a stock take report.
UNEP FI members reported on the role of energy efficiency in driving the climate performance of assets held by investors and banks, particularly in real estate and industry. The report also places these insights in the context of wider clean technology and innovation trends and, for the first time, includes examples from technology companies that are working alongside financial institutions as a source of innovation in business models and financing practices. Read the report here.
Helping financial institutions adapt to a changing climate, build resilience and scale up investments to meet adaptation funding gap
Responding to the increasingly material impacts of climate change, UNEP FI is working closely with the Global Center and the Global Commission on Adaptation (GCA), to identify how financial institutions can best adapt to a changing climate, build resilience in the financial sector and scale up resilient investments to meet the adaptation funding gap. In early 2019, UNEP FI was engaged by the Global Commission to develop a paper on adaptation finance, “Driving Finance Today for the Climate Resilient Society of Tomorrow”, to contribute to the GCA’s flagship report launched in September 2019.
Building on the recommendations of UNEP FI’s paper for the GCA, UNEP FI has convened a leadership group of five Financial Institutions under the Climate Resilience Risks & Opportunities Coalition (Climate-RROC) to commit to disclose on climate-related physical risks by 2021.
Applying the European Commission’s taxonomy on sustainable activities in the banking sector
The European Banking Federation (EBF) and UNEP FI are launching a project to assess the extent to which the EU Taxonomy on Sustainable Activities could be applied to core banking products. A Working Group composed of 23 banks, five banking associations and four observers is working on developing guidelines. The project is sponsored by BBVA, BNP Paribas, Credit Suisse, Deutsche Bank, FMO, ING, SEB, Société Générale, Standard Chartered, UBS and UniCredit. The Working Group is expecting to issue recommendations around Q3 2020. It may adjust its timeline in line with EC-related Taxonomy developments and processes in 2020. Find out more here.
Bringing positive impact finance into the mainstream
UNEP FI’s work with finance sector representatives and other stakeholder groups to mainstream impact analysis and management in business and finance as a cornerstone to financing the Sustainable Development Goals continued in 2019.
Throughout the year, UNEP FI and a working group of banks, investors and financial services providers tested positive impact financing and published a manual introducing this approach for financial institutions to identify, assess and monitor corporate impact with a view to determining companies’ impact status and possibilities, Impact Analysis for Corporate Finance and Investments. Also in 2019, a group of banks and other organisations who are signatories to or endorsers of the Principles for Responsible Banking published Impact Identification and Assesssment for Bank Portfolios, an introduction manual to a tool which will be available at the beginning of 2020 for banks to identify their significant impacts. For more information about positive impact finance and the upcoming tools, visit the positive impact finance pages of the UNEP FI website.
Developing guidance to help the insurance industry support sustainable development and build resilience
The first guidance designed for the global insurance industry to integrate sustainability into industrial and commercial business was launched for public consultation in 2019. The guide “Underwriting environmental, social and governance risks in non-life insurance business” will help non-life insurers manage environmental, social and governance risks in insurance underwriting—the core process of evaluating, defining and pricing insurance risks. The first edition of the guide will be published in early 2020 and is the result of a multi-year initiative co-led by UNEP FI’s Principles for Sustainable Insurance and leading insurer, Allianz. The initial draft was launched in in Munich in February 2019 at a joint UNEP FI-Allianz event, Insuring for Sustainable Development: Raising the industry’s ambition.
Other reports published for the insurance industry during 2019 include Risk Assessement and Control of Illegal, Unreported and Unregulated Fishing for the Marine Insurance Industry to help insurers assess risks to pirate fishing, guidance on how insurers can protect precious world heritage sites, and a report that identifies how risks related to plastic pollution play out across insurance lines and asset classes in which insurers invest, Unwrapping the risks of plastic pollution to the insurance industry.
Ecosystems and finance: how banks, insurers and investors can assess natural capital risk
A guide which helps banks to better understand how environmental change such as pollution or deforestation may affect their portfolios was published in January 2019. The report, ‘Integrating Natural Capital in Risk Assessments’ is a step-by-step guide to help financial institutions conduct a rapid natural capital risk assessment. The guide has already been piloted by five banks and complements the recently-launched ENCORE tool (Exploring Natural Capital Opportunities, Risks and Exposure), which enables financial institutions to understand and assess their exposure to natural capital risks. Find out more about the ENCORE tool here.
An additional report, ‘Natural Capital Credit Risk Assessment in Agricultural’, provides insight into how financial institutions can conduct natural capital credit risk assessment across different agricultural sectors and geographies, taking into account factors such as water availability, use and quality; soil health; biodiversity; energy use and greenhouse gas emissions. The new sector-specific guide, published in April 2019, is consistent with the leading international standard for including natural capital in business decision-making, the Natural Capital Protocol and complements the Natural Capital Finance Alliance’s ENCORE tool and step-by-step guide to incorporating natural capital into bank’s risk management processes.
The Good Growth Partnership convenes a wide range of stakeholders and initiatives throughout soy, beef and palm oil supply chains to reduce deforestation and enable sustainable development. Since its inception in 2017, the Good Growth Partnership has brought together a growing coalition of committed changemakers to achieve greater results throughout its focal commodity supply chains and landscapes. Alongside the International Finance Corporation, UNEP FI is contributing to the transactions project, working closely with banks and helping to make sustainable financing more accessible for businesses and farmers who require additional capital to invest in more environmentally sound practices. The Year Two Highlights report details the progress made to date.
Building momentum on sustainable finance at events in your region
UNEP FI hosted 5 Regional Roundtables for Africa and Middle East, Asia Pacific, North America, Latin America and Caribbean and Europe in 2019. We welcomed 2,000+ delegates and 500+ speakers across the series of events to help advance the sustainable finance agenda across the banking, insurance and investment industries. You can find summaries of the events here. At the Europe regional roundtable, the date and venue for the next Global Roundtable was announced: 13 – 14 October, 2020 in Mexico City.
Capacity building in financial institutions
In 2019, UNEP FI ran 30 training sessions providing a total of 1,298 financial professionals with a better understanding of how to embed sustainability in the business operations of their firm. We have widened our training offering from the Environmental & Social Risk Analysis (ESRA) Training Programme, Corporate Ecoefficiency in Financial Institutions (CEFI) Online Course and Climate Change: Risks and Opportunities for the Finance Sector Online Course, to now cover Green/Social Bonds, Responsible Investment, Sustainable Finance, Sustainable Finance for Saving and Credit Cooperatives, and the University Diploma on Sustainable Finance with the Finis Terrae University which will launch in March 2020. More information on UNEP FI’s training opportunities are available here.
For an in-depth review of UNEP FI’s work with the global financial industry and amplifying its voice to policymakers, read our latest Annual Overview here. This covers the period of our work programme which runs from July 2018 to June 2019 .
All these initiatives marked the growing ambition of our members to step up and respond to the climate emergency, and ensure a sustainable future for their stakeholders. We thank our members for their hard work and support, without which none of this important work would have been possible. The finance industry will play a key role in reaching the UN’s Sustainable Development Goals, meeting the Paris Climate Agreement targets and ensuring a more resilient, low-carbon future for people around the globe.