Last week, Citi announced its support of the Principles for Responsible Banking (the Principles), joining a list of banks from around the world that have committed to becoming signatories. The Principles were developed by a group of 28 banks, jointly representing more than $17 trillion in assets, on behalf of the wider United Nations Environment Programme Initiative (UNEP FI). Citi has been a member of UNEP FI, a partnership between UNEP and the global financial sector, since 1997 and has undertaken several initiatives related to sustainability in the recent past.
So far, the majority of endorsers of the Principles are non-U.S. banks, but the recent show of support from Citi hints at the potential for wider acceptance by U.S. financial institutions.
The Principles were introduced at the UNEP FI Global Roundtable in Paris in November 2018, marking the start of a public consultation period, which ended on May 31, 2019. Over 100 key stakeholders, such as banking associations, regulators, investors and civil society organizations, have become official endorsers. The Principles will officially launch on September 22, 2019 during the annual UN General Assembly in New York City.
What are the Principles?
The Principles create a global benchmark for what it means to be a “responsible bank,” aiming to align the banking industry with the Sustainable Development Goals (SDGs) and the Paris Climate Agreement. There are 6 principles focused on:
- Clients & Customers;
- Governance & Target Setting; and
- Transparency & Accountability.
What are the signatory requirements?
To become a signatory, a bank’s CEO must sign the commitment statement and the bank must publicly announce its endorsement, with a quote from the CEO. Signatory banks must also submit an application for membership to UNEP FI. Members of UNEP FI are expected to pay an annual fee, ranging between $2,500 and $20,000, based on the total assets of the company.
Once a bank receives signatory status, it must identify, set and publish impact targets that clearly link to the SDGs, the Paris Climate Agreement and/or relevant national or regional frameworks. Signatories must then publicly report how they are implementing the Principles and progress made towards reaching their impact targets. No additional standalone report is required. Instead, the Principles require that signatories disclose the required information in their existing public reporting, summarize where relevant information can be found through completing a reporting template and go through an assurance or review process. The required additional information includes, but is not limited to, the following:
- Information on how the bank has already aligned or is planning to align its strategy to be consistent with and contribute to society’s goals.
- A description of how the bank has identified and addressed or is planning to identify and address the positive and negative social, economic and environmental impacts resulting from the banks activities, products and services.
- A description of how the bank manages social and environmental risks associated with its operations, activities, products and services.
- A description of how the bank has fostered or is planning to foster a culture of responsible banking among its employees.
- Information on how the bank has set its impact targets.
It is expected that banks produce the first reporting with this additional information within 18 months after signing up. Subsequent reporting must be completed on an annual basis.
The Principles intend to accommodate banks with different starting points when it comes to integrating sustainability into businesses practices. As such, the latest consultation paper states that “while all banks need to progress and achieve milestones each year, they may take up to four years to implement all of the requirements to their full extent and “evidence” this through an assured self-assessment in their reporting following year four.” Following this, failure to meet commitments may result in a bank being removed from the list of signatories.
Practical implications of signing the Principles?
Though several sustainability or ESG frameworks already exist, the Principles, as described in response to questions received during the consultation period, aim to provide something that was previously lacking – “a single, comprehensive framework to guide banks at the strategic, portfolio and transaction level.” Signing on to this framework does mean including more information in existing reports, however the implementation guidance explains that for banks that already report on sustainability, particularly under common frameworks like the Global Reporting Initiative, much of the required information of the Principles is already a part of their existing reporting. The implementation guidance also references the recommendations of the Task Force of Climate Related Financial Disclosures and the financial sector standards of the Sustainability Accounting Standards Board as frameworks that align with the Principles.
Legal Assistant Sarah Foster assisted with this post.