A banking for a greener future

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On November 26, 38 financial entities from around the world joined the Responsible Banking Principles program promoted by the United Nations Environment Programme Finance Initiative (UNEP FI). The signatory entities thus committed to aligning with the UN's sustainable development goals and the so-called Paris Agreement on climate change. These objectives include eradicating poverty, protecting the planet, and ensuring prosperity for all. In addition, the signatory banks commit to publicly reporting on the social, environmental, and economic impact of their activity. In other words, customers and investors will be able to access and compare this environmental footprint in the banks' activity and, therefore, choose accordingly.

For the United Nations, attracting the financial system is a key element. Banks play a decisive role in the effective achievement of the sustainability goals set, because they are the primary providers of financing in the world. In fact, according to United Nations' own data, banks represent two-thirds of the financing for all economic activity generated in the world. They are, therefore, the necessary piece for the circle to be completed. In this regard, for UN Assistant Secretary-General Satya Tripathi, this is a very important step forward that puts the global banking industry in line with seeing that "green and socially responsible businesses are the best."

According to Caixabank's CEO, Gonzalo Gortázar, the principles of responsible banking "should encourage banks to adopt a leading role in building a more sustainable future" and adds that "the future of banking necessarily involves responsible action, combining profitability with the best service to customers 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 evaluating whether they want to work with a bank or buy shares. A recent example we have seen in the British HSBC, which has had to face pressure from its shareholders these days to completely stop financing coal-fired power plants. The entity had already committed last April not to provide financial support to this type of project, although it established a moratorium until 2023 in the case of operations taking place in Vietnam, Indonesia or Bangladesh. Now, some groups of bank shareholders have signed a joint letter to request that HSBC not apply this moratorium, and therefore stop financing this type of power plants.

The UN highlights that ten years after the outbreak of the financial crisis, "the banking industry is still looking for ways to rebuild its commitment to clients and employees and is at a time when it needs to define and affirm its role and responsibility as a financier of a sustainable future."

In this same vein, the deputy governor of the Bank of Spain, Margarita Delgado, stated 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 adequate way, they would not only be contributing to the stability of the financial system, but would also act as a catalyst for change." This is the summary and the spirit reflected in the United Nations agreement: banking is necessary, and it can also be the definitive engine to generate a change in the economic pattern.

In this first stage, the promoters of the initiative will participate in a consultation period that will culminate next September, when the first conclusions will be published within the framework of the United Nations General Assembly. All banks and organizations participating in the program will be able to submit their comments and observations for the future development of the principles of responsible banking. Essentially, it is about launching a global banking benchmark operation, in which entities not only set objectives and actions, but also submit to the evaluation of the impact of their policies.

However, much remains to be done. The group of banks that have already adhered to the principles of responsible banking totals more than 17 trillion dollars in combined assets, but it is still a small percentage of the total number of entities operating in the world (estimated at around 25,000). It is a long road, but experts believe that social pressure is increasingly high and that all those banks that do not want to disappear from the market will have to end up accepting this step. For now, there is already a first group of entities paving the way and establishing the guidelines for responsible banking with the environment.

SIX PRINCIPLES TO CHANGE THE WORLD

The principles of responsible banking included in the United Nations initiative and assumed by all signatory entities of the agreement are the following:

• Alignment: "We will align our business strategy to be consistent with and contribute to the needs of people and the goals of society, as expressed in the Sustainable Development Goals (SDG), the Paris Agreement on Climate, and relevant national and regional frameworks. We will focus our efforts where we can have the most significant impact."
• Impact: "We will constantly increase our positive impacts while reducing negative impacts, and manage risks to people and the environment resulting from our activities, products, and services."
• Clients: "We will work responsibly with our product and service clients to foster sustainable practices and generate economic activities that create shared prosperity for current and future generations."
• Stakeholders: "We will proactively consult, engage, and partner with relevant stakeholders to achieve social objectives."
• Governance and target setting: "We will implement our commitment to these principles through effective governance and a culture of responsible banking, demonstrating ambition and accountability by setting targets related to our most significant impacts."
• Transparency and accountability: "We will regularly review the individual and collective implementation of these principles and be transparent and accountable for our positive and negative impacts, and our contribution to society's goals."