The UN Environment Programme Finance Initiative (UNEP FI) releases today two guidance reports for banks and connected stakeholders keen to understand effective practice around Client Engagement and Governance. Developed for the 300+ Principles for Responsible Banking (PRB) signatories and the wider sector – whilst guided by the UNEP FI secretariat, civil society representatives and expert contributors – the reports aim to inspire and inform banks on the actions they can take to implement Principle 3 – Clients & Customers and Principle 5 – Governance & Culture.

Written by banks for banks, the documents serve two purposes. The first is to respond to the technical, commercial and ethical complexities of the rapidly evolving sustainability landscape that banks experienced following the launch of the Principles in 2019. The second is to support banks’ ongoing needs to implement the PRB framework through effective governance and a culture of responsible banking (Principle 5), while also evidencing positive progress in working responsibly with clients and customers (Principle 3).

Banking is based on the trust banks’ clients, customers and wider society put in them to serve their best interests and to develop sustainable economies that empower people to build better futures In doing so, banks can pursue a clear business case via their governance and client engagement approaches – clients that are supported in their shift to sustainable business models and technologies are better prepared for emerging regulations and are better positioned to succeed in economies that need to transition towards a future-proof way of operating.

Through Principle 5, institution strength and soundness evidence good governance and act to bind businesses to the communities in which they operate and serve. Through Principle 3, banks commit to encouraging sustainable practices (inclusive of environmental and social impacts) and to supporting the transition to sustainable business models and lifestyles for clients and customers. Taken together, Principles 3 and 5 can be considered enabling principles to promote responsible banking progress.

With respect to client engagement, UNEP FI’s working group of 27 PRB signatory banks identified that effective practice is built upon a robust internal setup. For leading responsible banks, this mechanism consists of the following elements, namely, (a) the respective governance, policies and processes to oversee and implement the strategy (b) adequate data management infrastructure, (c) a portfolio impact analysis, (d) strategy development, and (e) capacity building for relevant staff. Concurrently, the group established that the client engagement cycle has five dynamic stages: (a) scene setting and opening dialogue, (b) need assessment and awareness raising, (c) defining support plans, (d) implementing support plans and (e) monitoring.

Banks benefit from the parallel operation of these two mechanisms. For example, understanding the impacts banks are associated with (e.g., decent employment, climate mitigation, nature loss, etc.) enables them to take action where they can deliver the most impact. Similarly, the results of impact analysis can help identify which clients and/or sectors should be engaged and on which impact topics. Additionally, as clients’ sustainability performance and risk management affect banks directly, advocating for credible transition and action plans aligned with the banks’ existing sustainability strategy ultimately benefits banks in the form of risk management.

With respect to the guidance on governance, UNEP FI’s working group established that for leading responsible banks robust governance and internal culture were indispensable to navigating the technical, commercial and ethical complexities of a rapidly evolving sustainability landscape.

From the foundational definition of a sustainability governance model – a system which promotes controlled progress, business integrity and is responsive to stakeholder voices – to discussion of the structures, systems and processes put in place to govern environmental and social strategies, the guidance report aims to help banks in three important ways. First, to inspire and inform banks on effective sustainability governance practices. Secondly, to help banks navigate the significant internal transformation required to translate their sustainability commitments into action. Lastly, to support banks in approaching compliance with relevant governance-related sustainability standards and guidelines.

Together the guidance on client engagement and governance are designed to help banks move beyond analysis and target-setting, towards actionable implementation, whilst not being prescriptive. Instead, the reports aim to inspire and inform, celebrating the diversity of good practice available. Banks’ responses will naturally differ according to their geographical location, size, scale, resources, corporate laws and regulations. That said, through their commitment to the Principles, PRB signatories agree to take a leadership role and use their products, services and relationships to support and accelerate the fundamental changes in their economies necessary to achieve shared prosperity for both current and future generations.

Access the reports on Client Engagement and Effective Governance below:

• Download the Guidance on Client Engagement here.
• Download the Guidance on Effective Governance here.