Accountability

There is a difference between the mechanisms a bank can adopt to ensure institutional accountability and to ensure deal accountability.

Institutional accountability

Institutional accountability refers to all mechanisms and procedures the bank has adopted to ensure that its sustainability commitments are implemented throughout the organisation and applied to all relevant financial services. A first mechanism would be internal audits of the bank's Environmental and Social Risk Management System, including its sector and issue financing policies. Based upon these audits, steps should be taken by the bank's management to improve procedures and tools.

A second mechanism could be performing external audits of the bank's Environmental and Social Risk Management System. A well-known external environmental standard is ISO 14001, which is used by banks to audit the environmental consequences of its internal operations (e.g. paper use). However, ISO 14001 is not suited to audit sector and issue financing policies. For an external audit of the bank's issue and sector financing policies another standard should be used.

Institutional accountability is further increased when the results of these (internal and/or external) audits are made public, and the bank engages with stakeholders about these results.

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However, the most important accountability mechanism entails consulting civil society groups regularly on the bank's sector and issue financing policies. To make this consultation effective, policies must be translated into languages understood by local stakeholders and civil society. This consultation should be a serious two-way process: if the bank is not prepared to take the concerns, grievances and other inputs of civil society groups seriously, the process is useless. Serious concerns should lead to the adaptation or revision of policies and procedures.

AccountAbility has developed the AA1000 Series of Standards, a combination of accounting, auditing and reporting standards. The AA1000 Series consist of the AA1000 AccountAbility Principles Standard - providing a framework to better identify, understand, prioritise and respond to responsibility challenges; the AA1000 Assurance Standard - used to provide assurance on publicly available sustainability information; and the AA1000 Stakeholder Engagement Standard - providing a framework to help organisations ensure stakeholder engagement processes are robust and deliver results.

Deal accountability

Apart from accountability at the institutional level, the bank should also recognise its accountability to local communities and other stakeholders affected by specific deals and transactions. The sector and issue financing policies adopted by the bank are supposed to prevent or - in some unavoidable cases - mitigate or fairly compensate negative impacts on such stakeholders. Therefore, there should be a mechanism in place to ensure recourse for external stakeholders in case the bank's policies are not properly applied.

The bank's clients have the first responsibility in dealing with environmental or social problems arising from their activities. Accordingly, The client should establish and manage a community grievance mechanism. Such a mechanism is already required for large impact projects financed under the Equator Principles but can be expanded to other businesses.

This does not relieve a bank from its duty to ensure that its clients comply with the standards set in the bank's sector and issue financing policies.

Banks should therefore establish a Bank Policy Complaint Mechanism for local and other stakeholders who are affected by bank-financed activities, as well as for NGOs that legitimately defend broader social and environmental interests. The mechanism should enable these stakeholders to file a complaint based on non-compliance with relevant sector and issue financing policies by a bank's client. Most of the multilateral development banks and several export credit agencies (ECAs) have put such mechanisms in place.

A Bank Policy Complaint Mechanism is different from the general procedures for customer complaints. Rather, a Bank Policy Complaint Mechanism should deal with complaints and grievances in a serious and structured way and should therefore function independently - free from undue influence and pressure from companies, governments or NGOs. Further, the Bank Policy Complaint Mechanism should follow a codified procedure, ensure that the bank is obliged to respond to complainants and react to the final recommendations of the mechanism. This Bank Policy Complaint Mechanism could be set up and managed by an individual bank, or it may use mechanisms that are created within a group of committed banks - for example the signatories to the Equator Principles.

As this page focuses on accountability by banks themselves, the bank's policy primarily applies to the bank's own operations (institutional accountability). The elements for deal accountability can be applied to lending and investment banking and/or asset management and have been recorded as such in the scoring table.

The bank will, with respect to institutional accountability:

• Conduct and publish the results of an internal and/or external audit of its Environmental and Social Risk Management System and its sector and issue financing policies;
• Conduct stakeholder engagement processes on its sector and issue policies that comply with the AA1000 Stakeholder Engagement Standard or a similar standard.

The bank will, with respect to deal accountability:

• Set up an independent Bank Policy Complaint Mechanism for all deals in which the bank is involved and adequately responds and reacts to the complaints in order to rectify and avoid them in the future;
• Report publicly on the complaints for specific deals filed through the Bank Policy Complaint Mechanism and on actions taken to address these complaints and to avoid them in the future;
• Require its clients to establish and manage a community grievance system through which communities can report environmental or social problems arising from their activities, and appropriate actions are taken by the client to remediate the problems and to avoid them in the future.