In late September 2019, AIB became the only bank in Ireland to become a founding signatory to the UN Environment Programme – Finance Initiative (UNEP FI) Principles for Responsible Banking (the “Principles”). In the latest in our series of articles on Banking Culture, we take a look at the Principles, published and developed by the UNEP following a 6-month consultation involving 34 countries, 500 stakeholders and input from 250 banks.
The Principles recognise the role that the banking industry takes in shaping a sustainable future, in order to achieve the vision of “a responsible banking industry that is an integral part of the society of the 21st century because it serves and contributes to an inclusive society that uses its natural resources sustainably”.
What are the Principles – Intended to be applied across the banking industry from large commercial banks, retails banks and investment banks, the process involves the CEO becoming a signatory by signing the declaration of commitment to the Principles. Signatories to the Principles commit to taking a leadership role to accelerate changes to achieve shared prosperity for current and future generations.
- Alignment – a commitment to align business strategy to sustainable development goals (SDG’s) and the Paris Climate Agreement (AIB is sponsoring Climate Finance Week Ireland 2019 and recently launched its green bond framework for future green bond issuances).
- Impact and Target Setting – striving to have positive impact and minimise negative impact against clear and transparent targets. (In 2018 AIB committed to a low carbon pledge to reduce its Scope 1 and 2 greenhouse gas emissions by 50% by 2030).
- Clients and Customers – working with clients and customers to encourage sustainable practices (AIB is reported to have committed €5bn over 5 years to support Ireland’s transition to a lower carbon economy).
- Stakeholders – proactively and responsibly consult and partner with relevant stakeholders to reduce negative impacts and achieve or scale up positive impacts (AIB is a founding signatory to the Principles).
- Governance and Culture – implementing commitment to the Principles through effective governance and a culture of responsible banking across all functional areas, with clear roles and responsibilities at board level and functional areas (AIB will need to develop this strategy as part of the implementation of the Principles).
- Transparency and Accountability – committing to its individual and collective implementation of the Principles transparently and being accountable for its positive and negative impacts. (AIB have published a sustainability report on its sustainability progress for the last 3 years and is supporting the Task Force on Climate-related Financial Disclosures (TCFD) in its annual reporting framework).
Implementation of the Principles
Phased implementation of the requirements takes place over a period of up to 4 years. An initial report and self-assessment to be undertaken and published within 18 months of becoming a signatory and annually thereafter in line with its annual reporting cycle.
- Impact Analysis – the process involves the identification of the significant positive and negative impacts it has on society and where the Bank can realise the greatest impact. A review is undertaken of the main customer segments, types of products or services provided having regard to the scale of activities, context, and the scale of the social, economic and environmental impacts so as to identify strategic business opportunities.
- Target Setting and Implementation – set and publish KPI’s (minimum of two targets that address at least 2 of the banks most significant positive and negative impacts) to drive alignment and greater contribution to SDG’s and the goals of the Paris Agreement. SMART (specific, measurable, achievable, relevant and time bound) targets should be subject to governance and oversight structures for monitoring of implementation.
- Accountability – using the bank’s existing reporting framework, include a report on its progress on implementing the Principles, the targets set and demonstrating implementation of planned actions. Certain third party assurance of the bank’s self-assessment requires to be undertaken, but it is envisaged this would form part of a bank’s existing assured reporting framework. On a biannual basis, signatories will provide an overview report to be published by UNEPFI on a consolidated basis.
AIB is one of 130 international banks which are founding signatories to the Principles, which is an important step for the banking industry in Ireland which collectively is under sharp focus in terms of commitment to climate related/green projects, and the Central Bank of Ireland in terms of banking culture, the establishment by the industry of the Irish Banking Culture Board, and forthcoming senior executive accountability regime (SEAR) framework.
Aside from climate change and green financing, the tracker scandal is reported to have cost the industry up to €1 billion in redress, compensation and costs to date which is as stark a reminder as anyone might need of the value of adopting responsible banking principles.