What is Responsible Banking?
Explore the world of responsible banking practices, the UN Principles for Responsible Banking, and learn about ethical and sustainable solutions to the global, social and environmental challenges we face today.
What is Responsible Banking?
Responsible banking refers to the practice of considering the social and environmental impact of banking decisions, in addition to financial outcomes. Responsible banking promotes ethical and sustainable banking solutions to global challenges such as climate change and financial inequality. It is a way of banking that prioritises the long-term well-being of individuals, communities, and the planet over short-term profits. More specifically, responsible banking practices encourage banks to align their own goals with those set out by the UN Sustainable Development Goals and the Paris Climate Agreement. In this way, as a sector, banks can work together, and with others towards a more sustainable, financially conscious future.
Responsible banking can include practices such as financing environmentally friendly projects, supporting local communities, and avoiding investments in harmful industries. Instead, responsible banking encourages investments in companies whose activities demonstrate environmental and social consciousness. Impact investing is a related concept, where financial investments are made with the intention of creating positive social or environmental impact. The overarching goal of responsible banking is to create a sustainable financial system that benefits the world and everyone in it, not just a select few.
What is a Responsible Banker?
A responsible banker is one that is clear on what is the ‘right thing to do’ in the interests of society and for their customers. In all our professional qualification programmes and post qualification learning, we not only focus on technical aspects, but on the development of deeper skills to support future learning, behaviours and decision making in line with the UN Sustainable Development Goals and Paris Climate Agreement. This is underpinned by continuous learning to keep skills and knowledge relevant, and apply professional ethics, which supports responsible bankers. Our mechanisms of assessment, accreditation and verification, support and reinforce an individual’s understanding and achievement of our globally recognised professional educational standards.
What are the Principles for Responsible Banking?
The UN Principles for Responsible Banking (the Principles) were introduced in 2019, created in partnership between the United Nations and founding banks. The Principles are the world’s foremost sustainable banking framework, designed to ‘ensure signatory banks’ strategy and practice align with the vision society has set out for its future in the Sustainable Development Goals and the Paris Climate Agreement.’
The UN Principles for Responsible Banking framework also includes the Net-Zero Banking Alliance: a group of banks who have committed to align their lending and investment portfolios with net-zero emissions by 2050 using science-based guidelines. The Chartered Banker Institute was one of the first non-bank organisations to endorse the UN Principles for Responsible Banking.
There are 6 Principles within the responsible banking framework. Currently, there are over 300 signatory banks who have signed up. When a signatory bank signs up, it is committing to integrate these 6 Principles across their business strategy:
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Alignment: Signatory banks must align their business strategy to be consistent with and contribute to individuals’ needs and society’s goals, as expressed in the Sustainable Development Goals, the Paris Climate Agreement and relevant national and regional frameworks.
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Impact & Target Setting: We will continuously increase our positive impacts while reducing the negative impacts on, and managing the risks to, people and environment resulting from our activities, products and services. To this end, we will set and publish targets where we can have the most significant impacts.
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Clients & Customers: We will work responsibly with our clients and our customers to encourage sustainable practices and enable economic activities that create shared prosperity for current and future generations.
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Stakeholders: We will proactively and responsibly consult, engage and partner with relevant stakeholders to achieve society’s goals.
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Governance & Culture: We will implement our commitment to these Principles through effective governance and a culture of responsible banking.
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Transparency & Accountability: We will periodically review our individual and collective implementation of these Principles and be transparent about and accountable for our positive and negative impacts and our contribution to society’s goals.
Importance of Responsible Banking
Responsible banking is becoming increasingly important in today's society. It can help to address complex environmental and societal challenges, encourage socially responsible investments, promote sustainable economic growth, and rebuild trust in the financial system.
One of the main benefits of responsible banking is centred around sustainability. Through acting responsibly, banks can work together to create a more sustainable financial system that considers the impact of banking decisions on the environment. Carbon neutral banking, for example, prioritises reducing the carbon footprint of banking operations and investing in environmentally friendly initiatives.
Likewise, responsible banking is essential to addressing global challenges faced by communities and individuals, such as poverty and financial inequality. Through financing projects within local communities, banks can support their development and have a lasting financial impact on future generations.
Responsible banking also prioritises fair lending practices and works to address issues such as discrimination in lending and access to credit. Equally, banks can promote financial inclusion through microfinance initiatives which provide financial services to those who are excluded from traditional banking systems.
The benefits of responsible banking also stretch to the banks themselves. Responsible banks promote ‘transparent banking’, which encourages industry accountability and therefore builds public trust in the financial system. This, in turn, attracts customers who share the same socially- and environmentally conscious values: something which will certainly grow in decades to come.
Examples of responsible banking practices
Responsible banking can take many forms, each of which prioritises different aspects of social and environmental responsibility, from mitigating risks to financing sustainable projects:
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Environmental and social risk management: Evaluating and managing the environmental and social risks associated with lending and investment activities.
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Supporting local communities: Financing projects that promote economic and social development.
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Microfinance: Providing financial services to low-income individuals and small businesses that are excluded from traditional banking systems.
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Impact investing: Making investments with the intention of generating positive social or environmental impact, as well as financial returns.
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Sustainable finance: Considering the long-term sustainability of projects and financing initiatives that promote environmental and social well-being.
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Carbon-neutral banking: Reducing the carbon footprint of banking operations and investing in initiatives that promote sustainable energy. The aim of this practice is to minimise the impact of banking operations on the environment and promote the transition to a low-carbon economy as outlined in the Net Zero goal.
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Transparency and ethical banking: Promoting transparency and public accountability in the banking sector and ethical practices in banking operations, including fair lending practices and avoiding investments in harmful industries.
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Nature positive financing: Supporting the protection and restoration of nature and biodiversity, and actively taking responsibility within the banking sector for impacts on the natural world, while still safeguarding business operations.
The Principles for Responsible Banking Academy
The Principles for Responsible Banking (PRB) Academy was launched in October 2022, and provides training for anybody working in the banking sector across the globe.
The aim of the Academy is to teach millions of bankers worldwide how to implement responsible banking practices in their day-to-day roles. In doing so, the Academy will build a global community of responsible bankers and align the aims of the global banking sector with the goals set out in the Paris Climate Agreement and UN Sustainable Development Goals.
A huge benefit of the PRB Academy is that there are no entry requirements for any of the four courses on offer. This means that learners can sign up regardless of their career level or previous expertise. From frontline banking staff to board members and executives, there’s a course to suit every banking professional across the world.
The four learning courses currently available in the PRB Academy are:
To learn more about the PRB Academy, please click here.
How banks and banking professionals can embed the Principles for Responsible Banking into their daily roles
If they aren’t already signatories, banks can support responsible banking practices by signing up to the UN Principles for Responsible Banking. The UN website has a clear three-step approach outlined on their website to support new signatories starting their responsible banking journey: to 1. analyse impact, 2. set targets, and 3. start reporting. By committing to the 6 Principles and incorporating them into their business strategies, banks can make meaningful change at the very heart of their organisations and build upon this in future strategies.
For banks or banking professionals who want to support responsible banking practices in their day-to-day lives, the Principles for Responsible Banking Academy is a highly suitable option. Banks can sign up a cohort of learners, or professionals can enrol as individuals. As mentioned in the section above, there are no entry requirements for the learning courses in the Academy, and it’s accessible to bankers all over the world. This means that banks and individuals can sign up, even if the learners have no previous understanding of responsible banking.
Conclusion
Responsible bankers and banking practices are more important today than they ever have been before. The triple planetary crisis of climate change, pollution and biodiversity loss, together with issues of economic and social sustainability are the defining issues of our time. They present significant financial risks to business, finance and society, and offer opportunities to lead the transition to a sustainable, nature positive, low carbon world. Global challenges such as climate change, poverty, and inequality are the responsibility of all. Yet, globally as a sector banking is uniquely placed to make a real difference. By considering the social and environmental impact their activities can have and making conscious choices about where to invest their money, banks can play an essential role in building a more sustainable and equitable future for all: one which aligns with the goals set out in frameworks such as the Paris Climate Agreement and UN Sustainable Development Goals.