Originally published in UN PRI written by Will Martindale
If investors are to be successful in their sustainability objectives, banks will need to be sustainable too. In many countries, banking assets exceed GDP.
So, it will be welcome news to many investors, that thirteen years after the PRI’s launch, UNEP FI has launched the Principles for Responsible Banking.
There are three ways that investors can support these principles.
- Investors own banks: most major investors will invest in most major banks. Investors will already engage on banks’ governance. Investors should engage on the sustainability of their service lines too. As a first step, banks should be endorsing the principles.
- Investors are also clients of banks. In primary markets, banks will originate investable products. In secondary markets, they will facilitate investment activity. In primary and secondary markets, banks charge fees to investors for doing so. As clients of banks, investors should set their sustainability expectations of banking activity. That should include endorsing the principles.
- And some investors are banks. If the asset manager has signed the PRI, it would seem natural for a consistent group-level commitment to sustainability. And so, the bank should endorse the principles.
Of course, many banks have already made sustainability commitments. Banks adhere to the Equator Principles, and on human rights, many banks subscribe to Ruggie. As part of due diligence, most banks will assess the viability of fossil fuel lending or the implications of inequality on regulatory stability.
But the principles are additive. They will reward first movers and create efficiencies in terminology and approach. They will also help address the clear social need for banks to be more sustainable. Few banking operations are consistent with 1.5 degrees of warming. The principles will help any bank – whatever its starting point – to align its business strategy with society’s goals.
At time of writing, just one US bank has endorsed the principles. This is disappointing. But odds are, they will be successful. In five years, the PRI has more than tripled in size. In three years, policy makers have introduced over 200 regulations that require or encourage responsible investment. Take a look at NGFS, the EU action plan, or the newly appointed mandate of Japan FSA’s chief sustainable finance officer. Sustainability is inevitable – quite simply, because capital markets must operate within planetary boundaries, and at the moment, they don’t. US banks can shape initiatives like these principles, or endorse when it’s too late to do so. The principles would be stronger for more US banks’ participation.
Sustainability is inevitable – quite simply, because capital markets must operate within planetary boundaries, and at the moment, they don’t
Investors could also share some learnings for the founding members of the principles. The PRI’s success is in part due to market mechanisms. Sign one asset owner with five mandates, and the five asset managers will probably sign too. What is the equivalent for banks? And the principles could also learn from the PRI’s approach to reporting. How should banks disclose their commitments to sustainability? How should they be held accountable?
But most of all, investors should work with banks to be sustainable – and in doing so, investors would probably learn from banks too. As with an investor, if a bank isn’t serving the societies in which its customers live and work, then it is not sustainable in both senses of the word.
As with an investor, if a bank isn’t serving the societies in which its customers live and work, then it is not sustainable in both senses of the word
Investors will be banking on the success of the principles – and banks should be too.
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