Out-Law News 2 min. read

Global banks back UN 'Principles for Responsible Banking'

Green finance piggy bank with calculator-LinkedIn

A group of 130 banks from 46 countries have signed up to a set of principles designed to promote a responsible, sustainable banking system, in line with global climate change and sustainable development goals.

The United Nations' Principles for Responsible Banking (PRBs) have been launched as part of the UN Environment Programme (UNEP). They are accompanied by a detailed guidance document (36-page / 654KB PDF), intended to support banks in their implementation of the principles and direct them to relevant resources, tools, frameworks and good practices.

Banking law expert Lisa Matthews of Pinsent Masons, the law firm behind Out-Law, said: "We expect that now the guidance has been published which contains a single comprehensive implementation framework for the PRBs, the signatory banks will further align their businesses with the goals of the Paris Agreement on Climate Change and the UN Sustainable Development Goals (SDGs)".

Many banks and financial institutions are already introducing sustainable or 'green' financial products, Matthews said. Ulster Bank as part of the RBS Group has been committed to Green Bond Principles since 2014, Allied Irish Banks, p.l.c. (AIB) published its 'green bond' framework, which is in line with the ICMA's Green Bond Principles, last month and Barclays already has a green product framework in place. Bank of Ireland, which is not one of the initial signatories to the PRBs, began offering discounted 'green' mortgage interest rates, home improvement loans and business loans this summer.

Matthews Lisa_Dec 2019

Lisa Matthews

Senior Associate

We expect the signatory banks will further align their businesses with the goals of the Paris Agreement on Climate Change and the UN Sustainable Development Goals.

The guidance explicitly refers to banks publishing lists of activities for which they will not provide finance, or criteria that clients must meet to be eligible for finance. Matthews said that it was likely that such lists would "become more prevalent" amongst signatory banks.

The PRBs recognise the "key role" which banks play in society. Signatories "want to take a leadership role and use our products, services and relationships to support and accelerate the fundamental changes in our economies and lifestyles necessary to achieve shared prosperity for both current and future generations".

Signatory banks commit to align their business strategy with the SDGs and the Paris Agreement, to increase their positive impacts and minimise their negative impacts on people and the environment, and to "work responsibly" with clients, customers and other stakeholders to encourage sustainable practices and economic activity. They commit to making changes to their governance practices and culture to implement their commitment to the PRBs, and to be transparent and accountable about their progress.

Although action to tackle climate change is growing, it is still far short of what is needed to meet the 1.5 degree global warming limit target set by the 2018 Paris Agreement on Climate Change. At the same time, addressing the SDGs could unlock $12 trillion in annual business savings and revenue and create 380 million more jobs by 2030. A "step change" in the way in which the banking and private sectors invest is needed for this transition to be achieved, according to the UNEP.

The implementation framework requires each participant to set, publish and work towards at least two targets that address at least two of that bank's most significant potential positive and negative environmental impacts. Signatories should regularly self-assess their progress and obtain third party assurance of that progress where possible. The UN intends to publish collective progress reports every two years.

Inger Andersen, executive director of the UNEP, said: "A banking industry that plans for the risks associated with climate change and other environmental challenges can not only drive the transition to low-carbon and climate resilient economies, it can benefit from it. When the financial system shifts its capital away from resource-hungry, 'brown' investments to those that back nature as a solution, everybody wins in the long-term".

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