Banks Must Look At The Un’s Responsible Banking Code For ‘Green Plans’

The 2020s will see dramatic changes for banks as climate change impacts their customers. Many are establishing climate change-specific risk metrics and KPIs, aiming at becoming partners and advisors in the race to a greener future.

A starting point for such a program is the United Nations Responsible Banking code, which looks to link banking practice to one or more of its own Sustainable Development Goals. There are 17 SDGs, including ending poverty, equality of education, gender equality globally, protection of ecosystems, and climate change itself. The range of ambition means, it is true that banks that concentrate on climate change may claim to be ‘responsibly banking’ but not all ‘responsible banks’ are concerned with climate change.

That said, the program for becoming a responsible bank is consistent. This involves adopting six principles.

• Alignment with at least one SDG. Seven SDGs are related to climate change, and one or more of these should be selected for alignment with the bank’s strategy. 
• Setting targets against those SDGs. When creating targets and KPIs, the SDGs’ aims should be understood, and encoded into the funding targets. These funding targets need to represent specific percentages of funding provided by the bank in the form of direct investment, loans, and credit facilities. In the case of climate change, carbon intensity is a popular target choice but is not the only one available. Methane production and climate adaptation projects can also be considered, although these would require a robust framework of defining green investment. 
• Customer partnership is crucial. In the context of ‘responsible banking’, banks are seen as more than simply liquidity providers. In practice, this means advising and incentivizing their corporate borrowers towards sustainable activity. As the main liquidity providers, banks are in a unique position to provide this guidance. 
• Stakeholders extend past the bank balance sheet. To be effective, banks will need to engage with experts and governments to create the right incentives and funding products.  
• Culture within the bank will dictate success. Simply creating targets and KPIs aligned with a particular UN-sanctioned goal will not make a ‘Responsible Bank’. The support for these ambitions must come from the top and be encouraged through the organization. Management support and interest in the success of the program is vital as it is established as a core value. 
• Accountability supports culture. Transparency in the reporting of the metrics is the best way to ensure cultural change and continued vigilance. Making sustainability KPIs a regular part of internal and external reporting ensures that management and external stakeholders are updated and part of a continual feedback loop. 

Changing a bank’s customer base is not an easy or quick task, and as banks create their programs, they must first understand the scale of this operation. This will entail a full analysis of the current loan book, a quantification by greenness, and a workable target for the short-, mid- and long-term. 

As long as the target is achievable, continually monitored, and reported on, the move to climate risk management and ‘Responsible Banking’ should be one and the same thing