Principles must bring commitments
Banks endorsing the draft “Principles for Responsible Banking” (PRB) - launched today in Paris at the UNEP Finance Initiative Global Roundtable - should rapidly back this up by making concrete commitments that ensure the PRBs deliver on their ambition to bring real change in how banks conduct their business, according to BankTrack.
This requires at minimum that all PRB endorsing banks commit to immediately end all financial support for new fossil fuel projects and develop a phase-out plan for their existing fossil fuel portfolios. Banks must also be prepared to sever business relationships with all clients whose activities wreak havoc on the planet, people and communities, and drastically increase their current commitments on transparency and accountability.
The PRBs have already received the backing of 28 banks, ranging from ethical bank Triodos of the Netherlands to regional banks including Banco Pichincha of Ecuador and Golomt Bank of Mongolia, to global banking giants such as Société Générale, BNP Paribas, ING, Santander and even ICBC of China, the world's largest bank.
Given this wide initial uptake, the PRBs have the potential to become a new global standard for banks wanting to ‘do it right’. BankTrack therefore welcomes the PRBs as a long overdue commitment from banks to fully align their business with society's needs, but it calls on both UNEP-FI and the bank signatories to now rapidly move from formulating ‘Principles’ to making specific, timed ‘Commitments’ to bring their finance into line with the global goals they reference.
Johan Frijns, BankTrack director, commented: “We appreciate that UNEP-FI has taken the initiative to develop the PRBs, urging banks to take up their specific responsibilities for meeting the Paris Agreement goals and the SDGs. We understand the scale of the challenge to develop principles that are applicable to a wide range of banks, from ‘beginners’ to banks further advanced in dealing with the societal impact of their business.
“But the current draft principles appear to be developed somewhere in a windowless basement with broken clocks: even a casual glance outside, with climate breakdown and other ecological catastrophes rapidly unfolding, and with so little time left to fix things, shows that more than lofty Principles, we need concrete and rapid commitments from all banks to abandon business sectors that contribute to climate breakdown and other ecological disasters.”
To reflect the need for concrete commitments, BankTrack calls on UNEP-FI to rename its new initiative ‘Commitments for Responsible Banks’ and focus the PRBs on making the concrete commitments required.
- With regard to the first principle on alignment, for climate change, this requires a public acknowledgement from endorsing banks that their continued financing of the fossil fuel industry is incompatible with reaching the Paris Agreement goal of keeping average global temperature rise to no more than 1.5 degrees. This should be followed by a commitment from endorsing banks to immediately end financial support for all new fossil fuel projects, including exploration, extraction, transportation and power, and the development of robust plans for phasing out support for existing fossil fuel projects and companies. To align with the Sustainable Development Goals (SDG), it is important that a final version of the Principles explicitly references the obligation of all banks to respect human rights, starting with the full implementation of the UN Guiding Principles on Business and Human rights (UNGPs). Firm commitments are required to implement international standards through policy, due diligence and processes for effective remedy, and to recognise the rights of people to say ‘no’ to bank-financed projects that affect them, including the right of Indigenous Peoples to free, prior and informed consent (FPIC).
- Regarding the second principle, impact, banks must look beyond climate change and assess the impacts of their financial services on all other planetary boundaries – including land conversion, nitrogen and phosphate use, ocean acidification and biodiversity loss – and set strategies, timetables and performance indicators to ensure lending respects these boundaries.
- With regards to the third principle, to work responsibly with clients and customers, banks must not only focus on engagement with clients to encourage sustainable business practices but also squarely commit to be willing to sever ties with clients whose business activities are fundamentally incompatible with reaching the Paris goals and the SDGs. Banks must acknowledge that not every client can be persuaded to align its business activities with these goals, and that engagement without the threat of divestment is toothless.
- As to Principle Four on stakeholder engagement, the process of drafting the principles so far has certainly not met ‘best practice’. UNEP-FI must ensure that the consultation process to follow from the launch of the draft principles guarantees meaningful engagement of all stakeholders and show they are prepared to make changes to this draft. Endorsing banks must illustrate their commitment to meaningful stakeholder consultation by developing explicit policies that provide stakeholders affected by bank-financed activities access to all relevant information and to decision makers within the bank.
- As to governance and culture, the current principles seem to merely formulate management practices that should be standard operating practices for any bank. Endorsing banks should commit to deep introspection on how internal bank culture, and the drivers that shape it, may be at odds with society's needs, and take steps to address this.
- On the final Principle, transparency and accountability, banks should not limit themselves to being transparent on how they implement these principles. Instead they should drastically increase transparency across their operations, including opening up details of the companies and projects they finance, beginning with high-risk sectors. And to be accountable to society, banks must be willing to open channels to speak directly to those that may be negatively affected by bank-financed activities, by acting urgently to meet their UNGP responsibilities to establish or participate in effective grievance mechanisms.
1. See the “Fossil Banks, No Thanks!” campaign’s Global Call on banks at fossilbanks.org
2. First endorsers are: Access Bank (Nigeria), Arab African International Bank (AAIB) (Egypt), Banco Pichincha (Ecuador), Banorte (Mexico), Barclays (United Kingdom), BBVA (Spain), BNP Paribas (France), Bradesco (Brazil), Commercial International Bank (CIB) (Egypt), First Rand (South Africa), Garanti Bank (Turkey), Golomt Bank (Mongolia), Hana Financial Group (South Korea), Industrial and Commercial Bank of China (ICBC) (China), ING (Netherlands), KCB Group (Kenya), Land Bank (South Africa), Nordea (Sweden), Piraeus Bank (Greece), Santander (Spain), Shinhan Financial Group (South Korea), Société Générale (France), Standard Bank (South Africa), Triodos Bank (Netherlands), Westpac Group (Australia), YES Bank (India).