Principles for Responsible Banking

The Principles for Responsible Banking are a framework developed through a partnership between banks and the United Nations Environment Programme Finance Initiative (UNEP FI) 1. They provide a comprehensive guide for banks to align their business strategies with society's goals for a sustainable future, as expressed in the Sustainable Development Goals and the Paris Climate Agreement 1.

Core Principles

The framework is built on six core principles:

1. Alignment: Banks should align their business strategy with society's goals for sustainable development 2.

2. Impact & Target Setting: Banks should continuously increase their positive impacts while reducing their negative impacts on people and the environment 1.

3. Clients & Customers: Banks should work with their clients to encourage sustainable practices and enable economic activities that create shared prosperity 1.

4. Stakeholders: Banks should engage with stakeholders to achieve society's goals 1.

5. Governance & Culture: Banks should implement their commitment to these Principles through effective governance and a culture of responsible banking 1.

6. Transparency & Accountability: Banks should be transparent about their impacts and report on their progress in implementing the Principles 

Impact & Target Setting

Of all the Principles, Principle 2, Impact and Target Setting, is the most important and requires elaborate work. This is achieved through a three-step process:

Step 1: Impact Analysis

This involves analyzing the most significant impacts of the bank's products and services on society, the environment, and the economy. Banks should:

• Determine their scope for impact analysis.

• Review their portfolio composition, considering the proportional composition globally and per geographical scope (% sectors and % type of customers).

• Understand the context, i.e., the most relevant challenges and priorities related to sustainable development in the countries/regions where the bank operates.

• Run an analysis to identify the bank's products and services' most significant positive and negative impacts (not internal operational impacts).

• Prioritize the two most significant impact areas by engaging with internal and external stakeholders.

• Measure performance by identifying which sectors & industries and types of customers financed or invested in are causing the strongest actual positive or negative impacts. Assess the performance of these using appropriate indicators related to significant impact areas that apply to your bank's context.

Step 2: Target Setting and Implementation

After conducting the impact analysis, signatory banks must set at least two targets to address the significant impact areas they have identified. The targets need to be Specific, Measurable (quantitative or qualitative), Achievable, Relevant, and Time-bound (SMART). This helps banks directly address their business activities' positive and negative impacts and ensures clear alignment between their sustainability strategies and the UN Sustainable Development Goals and the Paris Climate Agreement.

Step 3: Reporting

Transparency and accountability are essential elements of the Principles for Responsible Banking. Signatory banks must publicly report on the progress made in implementing the Principles for Responsible Banking, the targets set, and the progress made. They should use the PRB Progress Statement for Signatories template, show their progress on implementing the Principles, be transparent about their impacts and contributions, and assess if they are meeting the requirements. Obtaining assurance is highly recommended but not required.

Sustina Eco advisors specialists can help you guide and implement the Principles of responsible banking in Your Organisation.The Standard is also applicable to NBFC and MFI players.