Understanding the UN Principles for Responsible Banking

Banks sit at the heart of the global capitalist system, oiling the wheels of economic growth through their recycling of savings into lending, investment and underwriting. This means the stance they adopt in areas such as protecting the climate and human rights can ripple through the wider economy, and become an important driver for change.

Recognising the influence of the banking sector, a group of 30 institutions from five countries joined together with the United Nations in 2019 to develop the Principles for Responsible Banking. This became a framework for a sustainable banking system in which signatory banks could demonstrate the moral framework that underpins their business practices.

The aim was that signatory banks should take an international leadership role. Through their products, services and relationships, they could demonstrate their commitment to shared prosperity and wellbeing for current and future generations, incorporating both environmental and social impact goals. The banks would work together to share best practice and develop practical guidance to benefit the wider financial industry.

A total of 345 banks have now signed up to the Principles for Responsible Banking, representing more than half of the global banking industry weighed by assets.

Responsibility toolkit

A total of 345 banks have now signed up to the Principles for Responsible Banking, representing more than half of the global banking industry weighed by assets. The principles help institutions set their strategy, guide decision-making, and shape lending and product decisions.

The principles offer reporting consistency for the industry in disclosing its contributions to the United Nations Sustainable Development Goals, the targets of the Paris Agreement on curbing climate change and other international frameworks. They offer a responsibility toolkit for banks with the ambition to align their business strategy with environmental and social goals.

Banque Internationale à Luxembourg for example signed up to the principles in November 2021. At the time, CEO Marcel Leyers said: “Banks can play a unique role to support and accelerate the fundamental changes needed in our economies.” The scheme continues to inform BIL’s strategy, including its commitment to support the domestic economy and the development of the communities in which it operates, as well as its product strategy.

The principles intersect with other legislation and regulatory measures as well as voluntary conduct frameworks. They fall under the umbrella of the United Nations Environment Programme Finance Initiative, a partnership between UNEP and the international financial sector to promote sustainable investment and development.

Benchmarks for improvement

Once banks become signatories, they are required to report against the framework’s six principles and demonstrate their plans for improvement, which must be independently verified. They have four years to implement the principles.

Once banks become signatories, they are required to report against the framework’s six principles and demonstrate their plans for improvement, which must be independently verified.

• • Alignment. This means shaping the bank’s business strategy in line with the UN Sustainable Development Goals, the Paris Agreement and national sustainability frameworks.
  • Impact and Target-Setting. Managing risks to people and the environment arising from the bank’s activities, including the setting and publishing of targets in areas where banks can have the greatest impact.
  • Clients and Customers. This entails working with clients and customers to encourage sustainable practices and economic activity that creates shared prosperity for the long term.
  • Stakeholders. Banks should proactively consult with all their stakeholders to encourage responsible practices.
  • Governance and culture. Institutions must demonstrate that their commitment to sustainable practice runs through their culture, and the way the bank is managed.
  • Transparency and accountability. Banks’ commitment to these principles must be reviewed regularly, and they should be transparent about their positive and negative impacts.

Financial health and inclusion

In December 2021, the Principles for Responsible Banking were extended to include a commitment to financial health and inclusion. This is designed to address the problem of financial exclusion, which leaves 1.7 billion adults across the world without access to a bank account.

This means they can’t access credit or insurance products, or even save securely, leaving them without a meaningful safety net. The inclusion issue was identified in the Principles for Responsible Banking’s 2020 Collective Progress Report as one in which banks could have the greatest impact.

A working group of signatory banks have taken the lead in this area, with the aim of speeding up action to ensure universal financial inclusion and better financial health. For the time being, signatories are committed to setting targets for their contribution to societies’ financial health and inclusion within 18 months, and report on progress toward those targets every year.

Net zero alliance

According to Science Based Targets, around 90% of the world’s GDP is now covered by a net zero commitment. In recent years, more and more banks have pledged to cut emissions not only in their own activities, but in the businesses they support through lending and bond underwriting. The UN-convened the Net Zero Banking Alliance is another initiative aligned with the principles within which banks commit to aligning their lending, investment and capital markets activities with net zero greenhouse gas emissions by 2050.

Around 90% of the world’s GDP is now covered by a net zero commitment. In recent years, more and more banks have pledged to cut emissions not only in their own activities, but in the businesses they support through lending and bond underwriting.

The alliance currently has more than 140 members, and a further 23 are expected to set targets and publish their individual transition plans by the end of 2025. There has been attrition from US banks in the wake of Donald Trump’s 2024 presidential election victory, including the country’s six largest institutions, although banks quitting the organisation insist they are not stepping away from decarbonisation commitments as such. The alliance says its framework provides “learning opportunities [that] support members to design, set, and achieve credible science-based net-zero targets for 2030 or sooner that deliver value for their investors and clients”.

This is a pivotal moment for signatories to the principles. The first set of signatories were required to make their first reports in late 2023, while later signatories will have done so last year, signalling how the banking sector is starting to effect genuine change throughout the global economy.