Banking for a greener future

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n November 26^th, 38 financial entities around the world adhered to the Responsible Bank Principles program promoted by the Financial Initiative of the United Nations Environment Program (UNEP FI). The signatory entities assumed in this way the commitment to align themselves with the objectives of sustainable development of the UN and the so-called Paris Agreement on climate change. These objectives include eradicating poverty, protecting the planet and ensuring prosperity for all the individuals. In addition, the signing banks assume the commitment to make public accounts about the social, environmental and economic impact of their activity. In other words, customers and investors can access and compare this environmental footprint in the activity of banks, and therefore choose accordingly.

For the UN, attracting the financial system is key. Banks play a determining role in the effective achievement of the goals set in the field of sustainability, because they are the first providers of funding in the world. In fact, according to the United Nations’ own data, banks account for two thirds of the financing of all economic activity that is generated in the world. They are, therefore, the necessary piece for the circle to be completed. In this regard, for the UN Secretary General, Satya Tripathi, it represents a major breakthrough, that places the global banking industry in the line of realizing that “green and socially responsible companies are the best”.

According to the Managing Director of Caixabank, Gonzalo Gortázar, the principles of responsible banking “must encourage banks to take a leading role in building a more sustainable future” and adds that “the future of banking necessarily occurs through responsible actions, that combines the profitability with the best service to the clients and a positive social and environmental impact”.

In the group of signing entities there are some of the main banks in the world, such as Barclays, Société Générale, Citigroup, or ING, and among them some of the main Spanish entities. For the president of the Spanish Banking Association (AEB), José María Roldán, it is about “walking towards a new economic model that makes the creation of wealth sustainable and durable and that it can be distributed in a fairer and more balanced manner, so that all countries and layers of society are included”. CaixaBank is one of the Spanish banks that has adhered to the initiative. According to the Managing Director of Caixabank, Gonzalo Gortázar, the principles of responsible banking “must encourage banks to take a leading role in building a more sustainable future” and adds that “the future of banking necessarily occurs through responsible actions, that combines the profitability with the best service to the clients and a positive social and environmental impact”.

This is an important element, because more and more clients -both private and institutional- and investors take these elements into account when assessing whether they want to work with a bank or buy shares. A recent example may be the British HSBC, which has had to face these days by pressure from shareholders to stop financing entirely coal-fired power stations. The entity had already committed itself in April to not grant financial support to such projects, although it established a moratorium until 2023 in the case of operations that take place in Vietnam, Indonesia or Bangladesh. Now, some groups of shareholders of the bank have signed a joint letter to request that HSBC not apply this moratorium, and therefore stop financing this type of central.

The UN emphasizes that after ten years since the outbreak of the financial crisis, “the banking industry is still looking to rebuild its commitment to customers and employees and is at a time when it needs to define and affirm its role and responsibility as a funder of a sustainable future”.

It is not the only recent example. Also British, the Standard Chartered, very focused on the Asian continent and with important oil-related financing operations, announced a change of criteria in its future strategy after the pressures during its last general meeting of shareholders. It is a pattern that is repeated, not only because of the pressure of shareholders or their own clients, but also because the financial industry has long understood that sustainability is a rising and strategic value in their businesses. From the United Nations this strategic aspect is reinforced, when it is explained why this initiative has been launched. In the website on its responsible banking program, the UN emphasizes that ten years after the outbreak of the financial crisis, “the banking industry still looks for rebuilding its commitment with customers and employees, in a time when it needs to define itself and affirm its role and responsibility as a funder of a sustainable future”.

In this regard, the Deputy Governor of the Bank of Spain, Margarita Delgado, claimed a few weeks ago during a conference on banking and sustainability, that banks can play a key role: “If in the near future entities identify, quantify and mitigate risks in an appropriate way, that would not only contribute to the stability of the financial system, but would also act as a catalyst for change”. It is the spirit that is reflected in the United Nations agreement: Banking is necessary, and it can also be the definitive engine to generate change in the pattern of the economy.

In this first stage, the initiators of the initiative will participate in a consultation period that will culminate next September, when the first conclusions are published in the framework of the General Assembly of the United Nations. All the banks and organizations that participate in the program will be able to present their comments and observations for the future development of the principles of responsible banking. In the end, it is about opening a global banking benchmark operation, in which the entities not only set goals and actions but also submit them to the assessment of their policies’ impact.

However, much remains to be done. The group of banks that have already adhered to the principles of responsible banking sums up more than $ 17 billion in combined assets, but it is still a small percentage of the total number of entities operating in the world (it is estimated that around of the 25,000). There is a long way, but experts believe that social pressure is getting higher, and that the banks that do not want to disappear from the market will have to end up accepting this step. At the moment there is already a first group of entities that are on the way and that will set the guidelines to make a responsible bank with the environment.

SIX PRINCIPLES TO CHANGE THE WORLD

The principles of responsible banking included in the initiative of the United Nations, and that have assumed the signatory entities of the agreement, are the following:

• Alignment: “We will align our business strategy to be coherent and contribute to the needs of people and the objectives of society, as expressed in the Sustainable Development Goals (SDG), the Paris Agreement on the Climate and the relevant national and regional frameworks. We will focus our efforts wherever we have a more significant impact”.
• Impact: “We will constantly increase our positive impacts while reducing the negative, and we will take into account the risks for people and the environment that result from our activities, products and services”.
• Customers: “We will work responsibly with our customers on products and services to promote sustainable practices and generate economic activities that create shared prosperity for current and future generations”.
• Shareholders: “We will consult, participate and associate proactively with relevant shareholders in order to achieve the social objectives”.
• Governance and goal setting: “We will implement our commitment to these principles through effective government and a responsible banking culture, demonstrating ambition and responsibility in setting goals related to our most significant impacts”.
• Transparency and accountability: “We will periodically review our individual and collective implementation of these principles and we will be transparent and responsible for our positive and negative impacts, and our contribution to the objectives of society”.